Supreme Court Overturns "Pay and Recover" Order, Affirms Insurer's Full Liability for Utility Vehicles as Contract Carriages

Setting aside the High Court’s order directing the vehicle owner to “pay and recover” the Supreme Court clarified the liability of insurance companies in cases involving utility vehicles operating under a contract carriage permit. The Apex Court held that the insurer, and not the vehicle owner, was fully liable to compensate victims of the accident in question.

The dispute arose from an accident involving a Bolero Camper Utility DC, leading to five separate claim petitions. The High Court, siding with the insurer, had ruled that the vehicle was not authorised to carry passengers. Relying on the “Limitation as to Use” clause in the insurance policy, the High Court concluded that only employees covered under the Workmen’s Compensation Act, 1923, could be lawfully transported. On that basis, it directed the vehicle owner to first compensate the victims and then recover the amount from the insurer.

Challenging this ruling, the vehicle owner, Shyam Lal, moved the Supreme Court. He pointed out that the vehicle had a seating capacity of 4+1 (including the driver), was registered as an “Utility Van” and held a valid ‘contract carriage’ permit. The restriction relied on by the High Court, he argued, applied only to goods carriages, not to utility vehicles designed to carry both passengers and goods. The insurer, however, insisted that the passengers were not covered under the policy and further alleged overloading, citing the number of claim petitions as evidence.

The Supreme Court observed that a vehicle registered as an “Utility Van,” holding a contract carriage permit with a defined seating capacity, is not a goods carriage and is not subject to the restrictions applicable to goods vehicles. Importantly, the Apex Court noted that the insurance company had issued a package policy after reviewing the registration certificate and permit, both of which clearly established the vehicle’s classification and passenger capacity. Having done so, the insurer could not later deny liability on the ground of policy restrictions inconsistent with those documents.

On examining the registration certificate, the permit, and the insurance policy, the Court found the High Court’s reasoning untenable. The vehicle was lawfully registered as a utility van, permitted to carry passengers for hire or reward, and had a seating capacity of five. An eyewitness account—unchallenged by the insurer—confirmed that only four passengers were in the vehicle before the accident, and some claimants were pedestrians, undermining the overloading argument.

Emphasizing that allegations of overloading must be supported by clear evidence, especially where multiple claim petitions are involved, the Supreme Court allowed the appeal and held the insurer to be fully liable for compensation, rejecting the High Court’s direction to the vehicle owner to “pay and recover.”

Coram: Justice K. Vinod Chandran and Justice N. V. Anjaria.