Himachal Pradesh High Court holds that proviso (i) to Section 147 MV Act mandates insurance coverage for drivers to the extent of Employees’ Compensation liability.
In a significant ruling, the Himachal Pradesh High Court has clarified that proviso (i) to Section 147(1)(b) of the Motor Vehicles Act, 1988 mandates insurance coverage for a driver to the extent of liability arising under the Employees’ Compensation Act, 1923.
The Court held that an insurer cannot avoid such statutory liability merely by arguing that no separate premium was paid for the driver, especially when the policy and statute require such coverage.
📄 Case Details at a Glance
- Case: United India Insurance Co. Ltd. v. Fulma Devi & Ors.
- Citation: [2025] 181 taxmann.com 451 (HP)
- Court: Himachal Pradesh High Court
- Date of Judgment: 26 November 2025
- Reported on: 19 January 2026
- Subject: Insurance liability for driver under MV Act & EC Act
1️⃣ Legislative Background of Section 147 MV Act
Purpose of Section 147
Section 147 of the Motor Vehicles Act, 1988 prescribes the minimum compulsory insurance coverage that every motor insurance policy must provide.
Special Treatment for Employees
While third-party risks are broadly covered, employees of the insured are treated differently.
Proviso (i) to Section 147(1)(b) specifically provides that insurance coverage for certain employees—such as drivers, conductors, or persons carried in goods vehicles—is mandatory only to the extent of liability under the Employees’ Compensation Act.
2️⃣ Facts of the Case
- The deceased was employed as a driver by the insured employer.
- He died in a road accident while driving the insured vehicle during the course of employment.
- His legal heirs filed a claim under the Employees’ Compensation Act, 1923.
- The insurer contested liability, claiming:
- no separate premium was paid for driver coverage, and
- the driver was not covered under the policy.
3️⃣ Issues Before the High Court
- Whether an insurer is liable to indemnify the employer for compensation payable to a driver under the Employees’ Compensation Act.
- Whether the absence of a specific premium for the driver absolves the insurer of liability.
- Whether employer–employee relationship was duly established.
4️⃣ Statutory Provisions Interpreted
Motor Vehicles Act, 1988
- Section 147(1)(b) proviso (i) – Mandatory coverage for driver limited to EC liability.
- Section 149 – Insurer’s statutory obligation to satisfy awards covered under Section 147.
Employees’ Compensation Act, 1923
- Liability for death or injury arising out of and in the course of employment.
- Computation based on age, wages, and statutory factor.
5️⃣ Detailed Analysis of the Judgment
✅ Mandatory Coverage for Driver under Section 147 Proviso (i)
The High Court held that insurance coverage for a driver is statutorily mandated to the extent of liability under the Employees’ Compensation Act.
This obligation flows directly from the statute, not merely from contractual policy terms.
✅ Insurer Cannot Escape Liability on “No Premium” Argument
The Court rejected the insurer’s contention that absence of a separate premium for driver coverage absolved it from liability.
Once the statute mandates coverage, policy silence or technical objections cannot override the law.
✅ Employer–Employee Relationship Established
The employer admitted employment and led evidence confirming that the deceased was working as a driver. The insurer failed to rebut this effectively.
✅ Policy Terms Also Supported Coverage
Even otherwise, the policy clause relating to liability towards persons driving the vehicle with the insured’s permission supported indemnification.
✅ Correction of Compensation Amount
The Court corrected the age of the deceased to 29 years and recalculated compensation accordingly, awarding ₹8,39,680 with 12% interest.
6️⃣ Comparative Analysis with Earlier Judgments
🔹 National Insurance Co. Ltd. v. Prembai Patel (2005) 6 SCC 172
The Supreme Court held that:
- For employees like drivers, compulsory insurance coverage under Section 147 is limited to Employees’ Compensation liability.
- Insurer is bound to satisfy such liability under Section 149.
🔹 Consistent High Court View
Multiple High Courts have followed this principle:
- Drivers are not third parties for unlimited compensation.
- However, EC-level coverage is compulsory and non-negotiable.
The present judgment aligns squarely with this settled position.
7️⃣ Interpretation of Section 147 Proviso (i)
The proviso creates a statutory floor of protection:
- It ensures that drivers are not left remediless.
- It balances insurer exposure by limiting liability to EC Act compensation.
This interpretation prevents both:
- unfair denial of compensation to employees, and
- unjustified expansion of insurer liability beyond statutory intent.
8️⃣ Core Legal Principles Emerging
- Insurance coverage for drivers is mandatory under law, not optional.
- Such coverage is limited to Employees’ Compensation liability.
- Insurers must raise clear and specific defences at the outset.
- Employer admissions and service evidence play a decisive role.
- Courts will correct compensation computation where statutory factors are wrongly applied.
9️⃣ Practical Implications for Directors and Companies
✔ For Employers / Vehicle Owners
- Ensure motor policies include Employees’ Compensation / paid driver coverage.
- Maintain proper employment and wage records.
- Verify driving licences periodically.
✔ For Directors & Compliance Teams
- Treat driver EC liability as a statutory risk, not an optional add-on.
- Audit insurance policies annually for compliance with Section 147.
✔ For Insurers
- Denial of liability must be supported by explicit policy exclusions, not generic objections.
🔮 The Way Forward
This judgment reinforces that statutory insurance obligations cannot be diluted by contractual technicalities.
For employers, insurers, and claimants alike, the ruling brings clarity and certainty to the scope of driver insurance coverage under Indian motor law.
❓ Frequently Asked Questions
Q1. Is insurance coverage mandatory for drivers under the Motor Vehicles Act?
Yes, under proviso (i) to Section 147(1)(b), coverage is mandatory to the extent of Employees’ Compensation liability.
Q2. Can an insurer deny liability if no separate premium is paid for the driver?
No, statutory liability cannot be avoided merely on this ground.
Q3. Is a driver considered a third party under the MV Act?
No. A driver is an employee, and coverage is governed by Employees’ Compensation law.
Q4. What compensation is payable for a driver’s death?
Compensation is calculated under the Employees’ Compensation Act based on age and wages.
Q5. Which courts have upheld this principle?
The Supreme Court and multiple High Courts, including the Himachal Pradesh High Court, have consistently upheld it.
Disclaimer
This article is for educational and informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for specific cases.