(1) The appeal and the Memorandum of Cross objections raise a question of importance as to accident liability to third party under motor insurance and come before us on a reference by Ramakrishnan, J. The precise point for our decision is whether the insurer of a motor car is not liable to a third party on a comprehensive policy of insurance on account of an accident to him by the negligence of the assured's driver, because the accident took place after the assured, the owner of the car, had sold it to another and before the purchaser got an extension of the cover to him or obtained a fresh policy. The Court below allowed as it was bound to, Madras Motor Insurance Co. Ltd. v. Mohammed Mustafa Badsha, : AIR1961Mad208 and held against the insurer. Ananthanarayanan, J. was there of the view that a policy of insurance did not lapse the moment the insured parted with the ownership of the insured vehicle and that notwithstanding such transfer and ownership, the insurer, having regard to the terms of S. 96 of the Motor Vehicles Act, could not escape his liability on the policy in respect of third party risks.
The lower Court decreed the suit against defendants 1 and 3 for Rs. 1,000. The plaintiff has preferred an appeal dissatisfied with the quantum of damages awarded by the Court below and the 3rd defendant has preferred cross-objections canvassing the correctness of the view of Ananthanarayanan, J.
(2) The facts of this case are not now in dispute. A Vauxhall saloon with registration mark MYA 4446 owned by one Venkataswaminappa, 2nd defendant, was insured in his name with Hercules Insurance Company Ltd., at its branch office at Madras under a Comprehensive policy covering third party risks. During the currency of the policy, the 2nd defendant sold his car to his daughter, the 1st defendant on August 11, 1958 and the transfer of ownership to her was effected by the Regional Transport Officer at Bangalore on August 29, 1958. But the Insurance Company, the 3rd defendant, had no knowledge of this transfer until December 5, 1958. On that date the 1st defendant applied for and obtained on the same date a fresh policy of insurance from the 3rd defendant in her name. This policy clearly mentioned its effective date of commencement to the December 5, 1958.
In the meantime on December 4, 1958 the car knocked down the plaintiff from his cycle as he was riding from the Fort along the Munroe statute road at Madras, resulting in fracture of his right forearm. The man who was driving the car at the time was prosecuted for criminal negligence and was convicted. The plaintiff, in the circumstances brought the suit claiming Rs. 6,000 against the defendants as damages. He impleaded the 3rd defendant, the insurer, as liable to him under the third party cover. The court below found the negligence of the Driver, and fixing the damages at Rs. 1,000 decreed the suit against defendants 1 and 3, the 2nd defendant having died pendente lite. In doing so, the Court below relying on : AIR1961Mad208 rejected the 3rd defendant's contention that the policy had terminated with the sale of the car in August 1958, and that it was not in force on the date of the accident to make him liable to the suit claim. Before proceeding further, to conclude the facts we must mention that when the 1st defendant applied for and got a fresh policy on December 5, 1958, she did not apprise the Company of the accident that had occurred the previous day.
(3) The policy of insurance issued to the 2nd defendant is in the usual form and has been issued in the name of the 2nd defendant in respect of his car specified in it with details as to its name, cubic capacity, year of manufacture, value, type of body, seating capacity and as to whether it was new or second hand, and provides for comprehensive cover including third party risks. The proposer, among other queries, was asked whether he was the sole owner of the car and whether it was registered in his name and the 2nd defendant had provided the answers in the affirmative. The proposal and declaration under the stipulation in the policy, were to form the basis of the contract and deemed to be incorporated therein. The indemnity under the policy related to loss or damage of the insured car and in the event of accident caused by or arising out of the use of the car, to the liability for all sums including claimant's costs and expenses which the insured was obliged to pay in relation to the death of or bodily injury to any person. Certain general exceptions to the liability under the policy and conditions some of which were intended to comply with the provisions in the Motor Vehicles Act, were also incorporated as terms of the policy.
It may be seen that the policy issued to the 2nd defendant was thus in compliance with S. 95(1)(b) of the Motor Vehicles Act and it is not in dispute that as required by sub-section 4 of that section, a certificate of insurance had also been issued to the 2nd defendant in whose favour the insurance had been effected. If the policy was in force on the date of the accident, there could be no question of the 3rd defendant's liability on the third party risk. There is no term in the contract of insurance in this case providing for continuance of the policy on transfer of ownership of the car by the assured during the currency of the policy.
(4) Chapter VIII of the Motor Vehicles Act concerns insurance of Motor Vehicles against third party risk. One of its provisions makes motor insurance against third party risks compulsory for use of a motor vehicle in a public place and Section 95(1)(b) indicates the kind of risk such a policy should cover in respect of particular classes of vehicles and in the case of the 2nd defendant's car the policy should insure him to the extent specified in the section against any liability which may be incurred by him in respect of death or bodily injury to any person caused by or arising out of the use of the vehicle in a public place. The other provisions in Chapter VIII make it abundantly clear that the policy should be expressed in term that it insures the person specified in it and in respect of the vehicle to which it relates.
Even apart from the statutory provisions a contract of insurance is between the insurer and the insured and its subject matter is the car specified in it and it is the risks arising out of its use that the insurer undertakes to compensate against. Where such a contract provides for indemnity to the assured against third party risks, the third party, who is a stranger to the contract, cannot enforce it himself against the insurer. Neither the general principles of law relating to contracts nor the common law give a third party a cause of action against the insurer. If a third party risk arises under the policy, it is entirely a matter between the insurer and the insured governed by the terms of the policy.
But S. 96(1) of the Motor Vehicles Act casts a duty on the insurers to satisfy judgments against persons insured in respect of third party risk. After a judgment is obtained by a third party against the insured, the insurer is charged with the obligation to satisfy it to the extent of the cover under the terms of policy as if the insurer were a judgment debtor in respect of the liability. This is a kind of subrogation, not of course in the strict legal sense of the term, brought about by operation of the statutory provision by which the third party who has obtained a judgment against the insured gets into his shoes, as it were, to work out his right of indemnity against the insurer, by placing on the insurer a corresponding liability to satisfy the judgment to the extent covered by his underwriting. For this purpose, the insurer though, in point of fact he is not so, should be deemed to be a judgment debtor. The conditions mentioned in sub-section (2) of S. 96 should be fulfilled as one of the objects of which is to enable the insurer to ask for being made a party so that he may defend the action by the third party against the insured. This sub-section also enumerates the grounds on which the insurer may defend himself. The section further provides that no insurer who has had notice under S. 96(2) is entitled to avoid his liability to the party otherwise than in the manner provided for in sub-section (2).
(5) Anantanarayanan, J. in : AIR1961Mad208 , held the view that whether or not there was a term in the policy touching the matter, the sale by the insured of his car during the currency of the policy did not or would not in law operate to put an end to the policy and enable the insurer to avoid his liability against third party risks. The head note which accurately summarises his view reads:
'In view of the specific provision in S. 96 of the Motor Vehicles Act it cannot be contended that a policy of insurance lapses the moment the insured parts with the ownership of the vehicle. Even if the insurer has any ground which would entitle him to avoid, the policy as against the insured, the insurer cannot escape the liability to pay the victim of an accident so long as the policy is current and valid. Sale of the vehicle is not a ground under the section to avoid a policy of insurance. Hence where the owner of a vehicle which is insured under the act against the third party risks sells the same to another but transfer of ownership or transfer of the policy has not yet taken place, and an accident occurs the insurance company cannot escape its liability under the policy.'
Actually the finding in that case appears to be that there was no transfer of the car during the currency of the policy and on the date the accident took place; and the observations of the learned Judge would therefore be obiter. In any event, with respect, we are unable to share the view of the learned Judge. In our opinion, there is nothing in S. 96 of the Motor Vehicles Act which warrants a view that a sale or transfer of an insured car by the insured during the currency of the policy does not terminate the policy. Outside the statutory provision, when the motor car specified in the policy is the very subject-matter of the insurance, with its disappearance on the insured parting with it by sale or transfer of ownership the policy must necessarily lapse.
After the insured has parted with his car, he has no longer any insurable interest to which the policy in his favour can relate and continue to have force. The basis of the contract of insurance is affected but also the specified car to which the indemnity relates, as will be clear from the details required of the car which are set out in the schedule to the policy. It is with reference to those details and the history of the vehicle and its owner including claims or no claims, the premium payable on the insurance is determined and the contract is formed. It follows, therefore, that in the absence of an express stipulation to the contrary in the policy, the moment the insured parts with his car, the policy relating to it lapses, because as we said, the car is the subject-matter or the very foundation of the contract of insurance. Anantanarayanan, J. was evidently influenced by the words of S. 96(1) namely :
'Notwithstanding that the insurer may be entitled to avoid or cancel or may have avoided or cancelled the policy, the insurer shall subject to the provisions of this section, pay to the person entitled to the benefit of the decree any sum not exceeding the sum assured payable thereunder, as if he were the judgment debtor.'
and by the conditions specified by S. 96(2). We are clearly of opinion that neither the words above quoted from S. 96(1) nor the conditions specified in sub-section (2) of S. 96 bring about the result that a policy of motor insurance will continue to operate and not lapse notwithstanding the fact that insured during the currency of the policy has parted with the ownership of the car to which the insurance relates. On the other hand, S. 96(1) itself presupposes and proceeds on the basis that there is a subsisting policy and the words in S. 96(1) 'being a liability covered by the terms of the policy' are particularly noteworthy. It is true that where an insurer has been given notice of an action, the grounds of his defence in the action are limited to those specified by sub-section (2) of S. 96 and it is not open to an insurer to avoid liability under a policy on any other ground. But the continued ownership of the car with the insured is basic to the subsistence of the policy and once the subject-matter of the policy is gone as when parted with by the insured, the policy automatically lapses and there is nothing for the insurer to avoid it.
(6) Shawcross on Motor Insurance (second edition) at page 287 adverting to the circumstances in which insurers are entitled to avoid the policy, says that the words 'is entitled to' in the English section corresponding to S. 96(1) of our Motor Vehicles Act are very vital and its rightly of the view that they show that the English section has no application to a policy which has been automatically avoided as when the assured dies, becomes bankrupt or parts with the insured vehicle. In all those cases, according to him, the policy comes to an end willy nilly and cannot be revived. Section 102 of the Motor Vehicles Act states the effect of death of the insured in relation to motor insurance. If death occurs after the happening of an event giving rise to a claim under Chapter VIII of the Act, the cause of action survives against the estate of the insurer. If death of the insured occurs before the happening of such an event, then of course the policy ipso facto lapses and will be of no effect in respect of liabilities arising from accidents thereafter.
The insolvency or winding up of an insured does not however appear to have a similar effect and terminate a contract of insurance on that account. But S. 97(1) provides that if such an insured incurs liabilities to third parties, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything to the contrary in any provision of law, be transferred to and vest in the third party to whom the liability was so incurred.
(7) Rogerson v. Scottish Automobile and General Insurance Co. Ltd., (1931) 48 TLR 17 is a clear and direct authority that if the insured parts with ownership of insured car, the policy of insurance relating to it at once lapses. Lord Buckmaster in the House of Lords expressed his view:
'To me this policy depends upon the hypothesis that there is, in fact, an insured car. When once the car which is the subject of this policy is sold, the owner's rights in respect of it cease and the policy so far as the 'Car is concerned is at an end' '.
The argument in that case partly turned on the language 'instead of' in the policy in the context of the claimant there using a new car instead of an old one. But the decision of the House of Lords was rested on the broader view we have just extracted. This decision, as we understand, seems to have ever since been applied and followed by the English courts. In Tattersall v. Drysdale, 1935 All ER Reprint 112 a clause in the policy extended the cover against third party risks to the temporary user by the insured of another car and during the continuance of the policy the insured sold the car covered by the policy, the subject-matter of the insurance. The accident having occurred while the insured used another car, he made a claim. Goddard, J. held:
'The policy insured the plaintiff in respect of the ownership and user of specified car, and when he divested himself of his interest in that car the extension clause ceased to have effect.'
(8) The learned Judge pointed out that the decisive factor in the decision of the House of Lords we have referred to was that subject-matter of the insurance was the specified car and that as the assured had parted with it, be no longer was interested in the policy. The learned judge went on to observe:
'The true view, in my judgment, is that the policy insures the assured in respect of the ownership and user of a particular car, the premium being calculated, as was found in Rogerson's case, (1931) 146 LT 26 partly on value and partly on horse-power........... To construe this policy otherwise would be to hold in effect that two distinct insurances were granted one in respect of the scheduled car, and another wholly irrespective of the ownership of any car.'
The same question again came before Goddard J. in Peters v. General Accident, Fire and Life Assurance Corporation Ltd., 1937 4 All ER 628, he after reviewing the earlier cases, reiterated:
'I am bound to hold that, when Mr. Coomber parted with his car, his insurance qua that car lapsed and that there was no insurance.'
The interesting facts in that case are that after the insured had sold his car and handed over the insurance policy with the vehicle to the purchaser, there was an accident with reference to which the plaintiff there obtained a judgment against the purchaser and later in an action sought to recover damages he had been awarded from the insurer of the vendor under the provisions of the Road Traffic Act, 1934. Lord Goddard dismissed the action holding that the insurance policy had automatically lapsed. In deciding these cases, the English Courts were not unaware of the provisions in the Road Traffic Acts which are in pari materia with and analogous to S. 96(1) of the Motor Vehicles Act here. We are, therefore again, with respect, unable to agree with Anantanarayanan, J. that the law in this country in respect of the effect of a sale of an insured car upon the policy relating to it is different.
(9) Falshaw, J. of the Punjab High Court has held in Des Raj v. Concord of India Insurance Co., AIR 1951 P&H; 114, that a Motor Insurance Policy does not remain in force if there is a change of ownership of the car insured unless there is an agreement to the contrary in the policy. A Division Bench of the Madhya Pradesh High Court in Gyarsilal v. Sitacharan, : AIR1963MP164 has dissented from the reasoning of : AIR1961Mad208 based on S. 96 of the Motor Vehicles Act. On facts in the Madhya Pradesh case of course it proceeded on a ground of novation as to liability of the insurer to a third party.
(10) On principle and authority, we hold that on the date of the accident in this case there was no policy in force so as to make the 3rd defendant the insurer liable to the plaintiff. The other findings of Ramakrishnan, J. have not been questioned before us. The appeal is dismissed but the cross objections are allowed. The suit against the 3rd defendant will stand dismissed. No costs in any of them either here or below. The 1st defendant as L.R. of the second defendant will pay the Court fee due on the plaint and the grounds of appeal from out of the estate of the second defendant.
(11) Appeal dismissed;
(12) Cross-objections allowed.