Insurance Companies Cannot Escape From Liability To Pay Interest On Future Prospects: Karnataka HC

The Karnataka High Court has upheld  compensation of Rs. 51,57,000 awarded to the deceased in a motor vehicle accident while holding that insurance companies cannot escape from the liability to pay interest on future prospects.

In that context, the Bench of Justice K Somashekar and Justice Chillakur Sumalatha observed that, "award of amount as compensation is a one time procedure. Even if in the future course it is found that the deceased would have earned much more amount in the light of hike in his position and global opportunities, the Tribunals will not order payment of any further amount and insurance companies will not be made liable on that count. Such being the case, this Court is of the view that the insurance companies are liable to pay the awarded amount including the amount awarded under the head future prospects together with banking rate of interest which is prevalent during relevant time. Thus, we ultimately hold that, the insurance company cannot escape from the liability to pay interest on the future prospects."

The Motor Accidents Claims Tribunal in Bengaluru awarded compensation of Rs. 51,57,000 to the claimants in MVC No. 3751/2015. The insurance company, Reliance General Insurance, appealed against the order, disputing their 95% liability and the compensation amount.

The case involved a fatal accident on 18.11.2014, where the deceased, Supreeth, sustained severe injuries after the car he was traveling in collided with a lorry. Despite treatment, Supreeth succumbed to his injuries in 2018.

The Tribunal found the lorry driver primarily negligent, awarding compensation under various heads, including loss of dependency and medical expenses.

The insurance company argued the car driver was at fault, the compensation amount was excessive, and interest on future prospects should not be awarded. The claimants, supported by evidence, established the deceased's income and professional status, justifying the compensation. 

The High Court held that insurance companies are obligated to settle claims promptly and designate an officer to handle accident claims immediately upon receiving information about an accident, as per Section 149 of the Motor Vehicles Act, 1988. However, the Court observed that insurance companies rarely fulfill this requirement, often leading to prolonged legal battles.

The Court rejected the insurance company's plea that it should not be liable to pay interest on the amount awarded for loss of future prospects. It provided an illustrative scenario to demonstrate the financial and emotional strain claimants endure due to delayed settlements. The Court emphasized that claimants often incur significant debts and expenses while waiting for compensation, whereas insurance companies benefit financially from holding onto the principal amount.

The Court noted that "the insurance companies are reaping the profit in the form of interest on the amount that fell due to the claimants for all the said ten years period." It further stated that denying interest on future prospects would be unjustifiable, highlighting that stringent provisions for timely settlements are often not followed, causing claimants to suffer financially.

Additionally, the Court pointed out that compensation awarded is typically less than the deceased's potential future earnings, which Courts estimate based on notional income and probabilities rather than exact figures. Thus, the insurance companies must pay the awarded amount, including future prospects, with the prevailing banking rate of interest, as they cannot escape this liability. The Court concluded, "The insurance company cannot escape from the liability to pay interest on the future prospects."

In light of the same, the application by the insurance company was dismissed.

Cause Title: The Reliance General Insurance Company Ltd. vs Supreeth S @ Supreeth Through LRS

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