Supreme Court on Insurer’s Liability in Motor Accident Claims: Application of “Pay and Recover” Principle.

Headnote:

The Supreme Court held that even where there is a breach of insurance conditions—such as carrying excess passengers—the insurer cannot be completely absolved of liability. The insurer must first pay the compensation awarded by the Motor Accidents Tribunal to the claimant and then recover the amount from the vehicle owner, applying the established “pay and recover” principle.

Background:

1. The appellant-claimant challenged the Telangana High Court’s order which had exonerated the insurer from liability to pay compensation for a motor accident.
2. The Motor Accidents Tribunal had earlier held both the owner and insurer jointly and severally liable, noting that the insurer had collected additional premium for the driver, conductor, and cleaner.
3. The High Court set aside the insurer’s liability, holding that the deceased passenger was not covered under the policy and that the vehicle was overloaded (nine persons in a five-seater vehicle).

Appellant’s Arguments:

1. The insurer had collected additional premium for covering three persons; hence, it could not escape liability.
2. Even if there was a violation of policy conditions, the insurer should be directed to pay and recover the compensation from the owner.
3. Reliance was placed on Mata Ram v. National Insurance Co. Ltd. (2018) 18 SCC 289 and National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297.

Respondent’s Arguments:

1. The policy was a statutory policy and did not cover gratuitous passengers.
2. Since the vehicle carried passengers beyond its capacity, there was a clear breach of policy conditions, and thus, the insurer had no liability.

Court’s Observations

1. The Court noted that while the High Court was correct in finding a policy breach, complete absolution of the insurer was not warranted.
2. Referring to precedents such as Swaran Singh and Shamanna v. Oriental Insurance Co. Ltd. (2018) 9 SCC 650, the Court reaffirmed that the “pay and recover” principle remains valid.
3. The insurer must first satisfy the award in favor of the claimant and then recover the amount from the vehicle owner.
4. The Court also cited Rama Bai v. Amit Minerals (2025 SCC OnLine SC 2067), where this principle was recently reiterated.

Decision:

1. The appeal was allowed.
2. The Supreme Court directed the insurer to pay the compensation to the claimant and granted it liberty to recover the same from the vehicle owner.
3. Pending applications, if any, were disposed of.

Legal Principles Discussed:

1. Pay and Recover Doctrine: Recognized in Swaran Singh (2004) and reaffirmed in Rama Bai (2025).
2. Motor Vehicles Act, 1988: Liability of insurer and owner under Section 149.

Citation: 2025 INSC 1301

Case: Akula Narayana v. The Oriental Insurance Company Limited & Anr.

Court: Supreme Court of India

Coram: Justice Sanjay Karol & Justice Manoj Misra

Date of Decision: 10 November 2025

Civil Appeal No.: 13509 of 2025 (Arising out of SLP (C) No. 8434/2023)