IRDA order on premium rates for third party liability upheld

Motor insurance premium rates for third party liability cover fixed by the Insurance Regulatory and Development Authority (IRDA) has been upheld by the Madras High Court.

In an elaborate order delivered on June 14, Mr Justice K. Chandru ruled that the order was “based upon rational classification and subject to sound reasoning and evolved after public consultation” with stakeholders.

Dismissing a batch of writ petitions challenging the order dated April 15 of IRDA, the Judge said that the petitioners were given eight weeks time to pay the balance of the premium to the respective insurers without fail. The order took effect from April 25.

Petitioners' stance

The petitioners, who were all either association of bus operators, lorry operators, trade union of auto-rickshaw drivers and associations of matriculation schools, self-finance colleges and deemed universities, contended that IRDA could not disregard the provisions of the Insurance Act, 1938 in fixing motor insurance premium.

The power was conferred upon the Tariff Advisory Committee, which alone had the authority to fix the premium.

On behalf of the school managements, it was submitted that they were not to be treated like other regular passenger vehicles. Auto-rickshaw drivers contended that no proper hearing was given to them, and hence, fixation of tariff was illegal and opposed to the principles of natural justice.

Some petitioners said that the policy could only be with respect to third party and there could be only one component of premium. There could not be third party as well as passenger premium.

Extensive consultations

The IRDA contended that they and the Tariff Advisory Committee had taken pains to collect scientific data on the liability to be incurred by insurers and also the quantum of expenditure that had gone up considerably for the insurer to meet third party liability both due to increased volume of accidents as well as elaborate interpretations of courts regarding the accident policy.

Extensive consultation had also been held with the associations of stakeholders. The present fixation of premium was based on scientific data.

Referring to the petitioners' contention that the tariff was fixed by the IRDA and not by the Tariff Advisory Committee, the Judge ruled that the said argument failed to take into account the change in law, and particularly, Schedule I read with Section 30 of IRDA Act, 1999. The composition of the Committee had now been changed, and the IRDA had been given power to fix the rate if there were no rates fixed by the Committee.

The Tariff Advisory Committee, at its meeting on August 24, 2006, decided the current tariff should be withdrawn in consultation with its Chairman. Accordingly, rates for motor and other insurance stood withdrawn from January 1, 2007, and was also communicated to all concerned.

Exposure Draft

The IRDA, thereafter exercising power under Section 14(2)(i) of the IRDA Act, started the process of consultation with stakeholders regarding fixation of new tariff. The IRDA then circulated ‘Exposure Draft' to all concerned.

Later, the impugned order was issued on April 15, 2011. Therefore, the Judge said, the procedure adopted by IRDA was not contrary to spirit of the Act. The argument that fancy figures were arrived at, including double levy of tax, could not be accepted.

Also, the contentions relating to lack of jurisdiction and wrongful procedure in not granting personal hearing had to be necessarily rejected, the Judge ruled. The other contention that educational institutions stood on different footing did not stand to reason.

The educational institutions were running motor vehicles on public road and carrying students subject to risk and also third party claims. The Act being the beneficiary piece of legislation and also intended to protect vehicle owners from claim of third parties, necessarily vehicles would have to be insured.

The argument that it would amount to double recovery of premium, that isone on passengers and other on third party claims, could not be accepted.

The Judge said if the parameters shown by the Supreme Court were applied, the petitioners had not made any case.

The impugned order was based upon rational classification and subject to sound reasoning and evolved after public consultation with stakeholders. Hence, all the writ petitions would stand dismissed.