Motor Insurance: SC Asks For Direct Transfer Of Compensation To Claimants Account

When a claim is filed against motor accidents, the insured has to wait for the payouts as they get processed via the Tribunals (if the matter is taken to court). This often takes a long time resulting in hurdles and delays in receiving the rightful compensation for the policyholder.

However, the Supreme Court of India in a recent judgment asked the insurance companies to directly transfer the compensation payouts to the claimant’s bank account. This decision aims to reduce delays and ensure that victims receive their compensation without unnecessary hurdles.

What did the SC say?

The apex court bench, comprising Justices JK Maheshwari and Rajesh Bindal noted that insurance companies usually deposit compensation with the Tribunal. Once this happens, claimants have to file an application to withdraw the amount.

The trouble here is that this process in itself is time-consuming and often results in delays, depriving victims of immediate financial relief. The Court stated that instead of following this old method, a direct bank transfer should be the ideal norm.

“The general practice followed by insurance companies, where the compensation is not disputed, is to deposit the same before the Tribunal. Instead of following that process, a direction can always be issued to transfer the amount into the bank account(s) of the claimant(s) with intimation to the Tribunal,” the bench observed.

The Case that led to this ruling

This SC observation came during the hearing of an appeal related to a compensation claim by a motor accident victim. The claimant, a 21-year-old aspiring veterinary doctor, suffered 100 per cent disability after a road accident in 2006.

Initially, the victim was awarded a conservative compensation of Rs 5.16 lakh by the Tribunal, which was later increased to Rs 15.25 lakh by the High Court. However, after observing the future needs and loss of income of the victim due to severe injuries and resulting disability, the apex court increased the compensation to Rs 36.84 lakh.

Here’s What Claimants Should Know;

The Court has laid down some instructions for a smoother processing of compensation amounts. It has been noted that:

• Claimants must provide their bank details at the beginning of the claim process

• If the compensation is awarded, the Tribunal will direct the insurance company to transfer the amount directly to the claimant’s account

• In case the claimant does not have a bank account, they need to open one either individually or jointly with a family member

• In cases involving minors or fixed deposit requirements, banks have to ensure compliance and report to the Tribunal accordingly

It also noted that any changes in bank details during the claim process must be updated with the Tribunal. Moreover, SC has further highlighted that the transfer of compensation to the claimant’s bank account should be considered as the full and final settlement of the award wherein the Tribunal must be notified once the transfer is complete.

Was this change necessary?

The SC asked for this change after taking note of the higher number of pending motor accident compensation claims presented during the hearing.

As per an RTI response from the Insurance Regulatory and Development Authority of India (Irdai), there were over 10.46 lakh pending claims by the end of 2022-23. The number had increased from 9.09 lakh in 2019-20 which shows a growing backlog.

Many motor accident cases take years to resolve, and even after the decision is made, claimants often struggle to access their compensation due to procedural delays.

This is an era of technology, the Court noted, stating that “Our country has done wonders in digital payment transactions with indigenous developments like the coming of Unified Payment Interface (UPI) which is easy to operate on a mobile.

“A lot of matters come to the Court in which the amount is required to be paid to the litigants. Normal practice used to be, and still prevalent is to deposit the amount in court and thereafter to be withdrawn by the litigant. This process is not only followed in cases where as huge amount is involved but it is also seen as prevalent even in the cases of payment of a small amount of maintenance to the wife, when fixed by the court either under Section 125 Cr.P.C. or under Section 12 of the Domestic Violence Act, 2005 or any other statute. Withdrawal of the amount deposited in the court by any litigant certainly needs time and also expenses,” the Court observed.

By making direct bank transfers mandatory, the SC intends to reduce these delays and ensure quicker financial relief for the accident victim.

What's next?

The SC in its ruling, has directed all High Courts and Tribunals to adopt this practice. The copies of such rulings are sent to High Court Chief Justices and judicial academies for implementation.

This change could make a big difference in how quickly victims receive their rightful compensation.

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