Unit -IV

Motor Insurance
 Motor insurance
Nature and scope
• A policy of motor vehicle insurance is, in the ordinary course, a combined
insurance.
• It insures the damage to the motor vehicle and its accessories, liability for damage
to property, death of, or injury to, the assured himself or spouse and it also insures
the motor vehicle against the risk of liability for injury to, or the death of third
parties caused by driver’s negligence.
Definition of Motor Vehicle
• A ‘motor vehicle’ is defined as ‘a mechanically propelled vehicle intended or
adapted for use on roads’. It is not enough that a vehicle can be used on a road; it
must be ‘intended or adapted’ for such use.
• The basic test of whether a motor vehicle is intended for use on roads is objective,
and is whether a reasonable person looking at the vehicle would say that one of its
users would be a road user.
The following are excluded from the definition of ‘motor vehicle’:
a) A mechanically propelled vehicle being an implement for cutting grass which is controlled by a
pedestrian and is not capable of being used or adapted for any other purpose.
b) Any other mechanically propelled vehicle controlled by a pedestrian which may be specified by
regulations;
c) An electrically assisted pedal cycle of such a class may be prescribed by regulations.
Classification of Vehicle
For the purpose of insurance, motor vehicles are classified into three broad categories:
1. Private cars
2. Motor cycle and motor scooters
3. Commercial vehicles, which are further classified into:
Ø Goods carrying vehicle

Ø Passenger carrying vehicles e.g. motorized rickshaws, taxis, buses.

Ø Miscellaneous vehicles e.g. Hearses(vehicle for carrying coffins), ambulances, cinema film,
recording and publicity vans, mobile dispensaries( carrying medicines) etc.
 Types of Motor Insurance
Property Accident Aspect:
• In motor vehicle insurance, if the motor vehicle is insured, the owner will be indemnified
for any loss or damage caused to it by accident.
• Motor vehicle insurance being a contract of indemnity the insured is entitled to indemnify
only and that too, in the manner stated in the policy.
• Medical expenses up to a limit are also payable.
• If the insured car suffers damage, the insurer is entitled at his option to repair or replace
the car or any part there of or pay the amount of the loss or damage in cash not exceeding
the sum insured or the value at the time of loss whichever is less.
• It is not often easy to replace parts or accessories especially if it is a foreign vehicle or an
outdated and out modeled vehicle.
• If the part is not locally available or is exorbitantly costly to obtain from abroad, the
insurer often limits the liability to paying in cash the catalogue price issued by the
manufacturer or his agent in India together with the cost of fitting such part.
Personal Accident Aspect:
• Besides insuring his personal safety under an ordinary policy, the extension clause
indemnifies the assured for the injury caused to him whilst he is driving a motor car not
belonging to him or hired to him and also any person driving the insured car on the
insured’s order or with his permission.
• Further by paying extra premium he may get extra cover over and above the general cover
under the standard policy like; (a) accident to his wife and other specified relatives or
friends; (b) loss or damage due to earthquake, flood etc.
• The policy indemnifies the insured to the use of the uninsured car.
• However, it is extended in two ways, namely; it extends to the insured not only when
he is driving his own insured car but also when he is driving a private motor car
(but not motorcycle) not belonging to him.
• It extends also to any driver, driving the vehicle on the insured’s order or permission.
• By the extension clause the insurer purports to indemnify the authorized driver. The
indemnity is however, subject to the terms, exceptions and conditions of the policy in so
far as it they can be applied.
Some of the usual conditions in a motor vehicle policy to make the insurer liable are:
1. The insured will maintain the vehicle in good state of repair and efficient condition.
2. He takes all responsible steps and precautions to avoid accidents and to select
component and sober drivers etc.
3. He takes all reasonable steps to safeguard the car from loss or damage.
Two types of policy forms:
For all classes of vehicles, there are two types policy forms in Nepal:

Form ‘A’ To cover Third Party Liability.

Form ‘B’ To cover Own Damage losses and third party Liability. It is also
known as comprehensive policy.
• Third Party Liability/ Liability only Policy: It provides third-party liability cover for bodily
injuries and property damage. It insures property and bodily injury of third party but does not
insure the vehicle of the insured. Since 2075, third party liability insurance covers the rider and
pillion in case of motorbike and also driver and passenger in case of car. Here, limit of medical
expense in case of injury is upto 3 lakhs and in case of death, the compensation of 5 lakh. In
case of death during treatment, compensation of medical expenses+5 lakhs given.
• Comprehensive Policy: It provides wider cover as indicated above, varies with the class of
vehicle covered. It also insures the vehicle of the insured in the case of the insured vehicle hits
the third party’s vehicle. This cover is an add on to the third party insurance plan and protects the
owner from financial losses caused by damage or theft of the insured vehicle. Besides ensuring
vehicles, it also provides third-party coverage.
q Optional in comprehensive policy: RSD(Riot, Strike Damage), MD (Malicious Damage)- if
someone deliberately scratches your car with keys or kicks a dent in your car door., SD (Sabotage
Damage)-The deliberate damage or destruction of property or equipment for a social objective,
such as in a protest or war. For example, an environmental activist pouring sand into a bulldozer's
fuel tank or an animal liberationist torching a laboratory are acts of sabotage.
Certificate of Motor insurance
• Motor tariff 2073 requires issue of a certificate of insurance by the insurers as proof of third party insurance to satisfy
the requirements of motor tariff.
• The certificate of insurance must be in the form of prescribed under motor tariff.
• Certificate is to be issued by ‘Authorized insurer’ who are authorized to do general insurance business in Nepal.
• Certificate of insurance includes cover note and policy of insurance includes “Certificate of Insurance”. Certificate of
insurance is to be produced when demanded by traffic police/road traffic authority.
Certain common features appear in all types of certificates of insurance. These are:
1. Policy number
2. Name of registration authority
3. Particulars of vehicles insured: registration mark and number or description of the vehicle insured.
4. Geographical area
5. Business and profession
6. Effective date of commencement of insurance
7. From….
8. Date of expiry of insurance
9. Persons or classes of persons entitled to drive
Transfer of Certificate of Insurance
The motor insurance policy is a personal contract and is underwritten in the basis of
purpose and manner of use of vehicles, the physical features, therefore, the policy
cannot be transferred without the consent of the insurer.
Motor tariff provides the provisions for the transfer of certificate of insurance as
hereunder:
1. The certificate of insurance automatically gets transferred to the transferee once the
ownership is changed.
Supreme Court of India has held in 1996 that the automatic transfer is only for third
party risks and not the fully policy where policy covers insurance of own damage i.e.
damage to the vehicle.
2. The transferee shall apply within 35 days to the insurer to insert his name in the
certificate of insurance.
• The transfer of insurance under own damage section takes place, transferee should
apply within 3 days from the date of transfer in the prescribed form to the insurer
for making the necessary changes in the ‘Certificate of Insurance’ and in the policy,
and the insurer is obliged to make such change in the said documents to give effect
to the transfer of insurance.
• When vehicle which met and accident was sold prior to the date of accident and
neither the transferor nor the transferee gave any intimation to the insurance
company about the transfer of the vehicle, the insurance company will not be liable.
• It is only after the insurance company is informed of the transfer of vehicle, if
anything is not done by the insurer in the matter of effecting transfer of policy, then
only the insurance company can be made liable.
• If on transfer vehicle accident occurs, before expiry of period of 14 days for making
application to insurer for making change in its record, the liability of insurer to
indemnify exists.
• Even for reasons beyond control of parties, intimation can be given after expiry of
prescribed period and insurer cannot refuse to take defense that there was no
transfer.
• However, it is open for insurer to take defense that there was not transfer and in
such event onus lies on parties to prove transfer.
Fire and theft cover(Please do some self-study on this)
Other coverage; (Please do some self-study on this)
Cover note
• A cover note is usually issued only when the policy and certificates of insurance
cannot be immediately issued for any reason.
• Cover note contents are prescribed in form 52 (rule142(1) of motor vehicle rules.
• A cover note which has to be issued in a prescribed form is valid for a period of 15
days.
• If for any reason the company is not able to issue the policy within the period, the
validity of the cover note shall be extended by 15 days at a time but in no case the
total period shall exceed 60 days.
In General Assurance Society v Chandamull, Hidayatulla J, observed:
A contract of insurance is a species of commercial transactions and there is a well
established commercial practice to send cover notes even prior to the completion of a
proper proposal or while the proposal is being considered or a policy is in preparation
for delivery. It is a temporary and limited agreement. It may be self contained or it may
incorporate by reference to the terms and conditions of the future policy.
Authority to issue cover notes
• Whereas the acceptance of an offer for a full contract of insurance can invariably
made only by the insurer, authority to conclude a binding cover note will often be
vested in an agent.
• Insurers of non life policies usually empower their agents to grant cover notes valid
at the most for a short period of 15 or 30 days, after satisfying themselves about the
acceptability of the proposal.
• if an agent is entrusted with blank cover notes or their equivalent appears sufficient
to confer upon him either implied actual authority or ostensible authority.
• An agent not entrusted with blank cover notes will not usually be regarded as
having authority to bind the insurer.
• However, it would appear that the position of brokers may be different.
• There is clear dictum that they have implied authority to issue interim contracts of
insurance in a case where the only acknowledgement by the broker was oral.
• This appears to be a clear recognition of a common practice whereby insurers do
confer such authority on brokers.
• It must be stressed, however, that this can apply only where there is a pre existing
arrangement between insurer and broker.
Termination of the cover note and its relationship with a subsequent policy
• It can be terminated by the insurer, and there can be no objection to an insurer’s
acting in reliance upon such and express light, although the insured must received
notice of cancellation.
• In the absence of such a right, a cover note would clearly not be terminable until it
duly expired.
• Where a formal policy is issued before the cover not’s expressed duration has run,
here it would appear that the policy takes cover from the date it is issued but not
before.
• Even if the policy is expressed to be retrospective, it must be arguable that a claim
arising before its issue falls under the cover note only.
No Claim Discount
• No Claim bonus is a discount on premium of the Own Damage (OD) portion of
vehicle when a policy is renewed, provided insured has not made any claim during
the last policy period of one year.
• The NCB can be accumulated up to a maximum limit of 50% on OD premium.
• Insured can transfer full benefits of NCB, even when he shifts his motor insurance
to any other insurance company.
• No claim bonus is incorporated in the policy as per the following table:
All types of Vehicles % of discount on OD premium
Nepal India
No claim made or pending during the preceding full year of insurance
20% 20%
No claim made or pending during the preceding 2 consecutive years of insurance 30% 25%
No claim made or pending during the preceding 3 consecutive years of insurance 40% 35%
No claim made or pending during the preceding 4consecutive years of insurance 45% 45%
No claim made or pending during the preceding 5 consecutive years of insurance 50% 50%

§ Discount on premium is uniform for all types of vehicles, ranges from minimum
20% to maximum 50%, corresponding 1 to 5 consecutive claim free years as per
table.
§ In Nepal percentage of No claim bonus is different in all three types of policy.
a) No claim bonus (NCB) Transferability:
• The percentage of applicable NCB is computed on the own damage premium.
• No Claim Bonus (NCB) follows the policyholder, not the vehicle or policy.
Transferability
• The NCB can be transferred to a new car if it's in the same vehicle class(private or
commercial vehicle). The policyholder can also transfer their NCB to a new insurer
by informing them of their NCB entitlement.
Non-transferability
• An NCB cannot be transferred to a new vehicle owner. However, the policy can be
transferred to the new owner, but the NCB will be zero for them.
• In case the customer has accrued some NCB from previous insurer, NCB will only
be allowed, provided the policy is renewed within 90 days of the expiry date of the
previous policy.
• The same applies in case insured is shifting from current insurer to other insurance
company.
• In the event of transfer, the new owner is not entitled to the NCB.
b) Evidence for NCB:
• The NCB will be transferred at the same rate that insured is entitled to get from the
previous insurance company on renewal of your policy.
• The NCB will be available; if provided he can produce evidence that he was entitled
to No Claim Bonus from his previous insurance company.
• Evidence can be in form of:
i. A renewal notice or
ii. A letter conforming the NCB entitlement from the previous insurer or
iii. A written declaration (kindly note that in case of a false declaration, the policy will
be subject to cancellation)
c)NCB on substituted vehicle on or death of the insured:
• NCB can be allowed on a substituted vehicle.
• However, the substituted vehicle must be on the same class(private vehicle or
commercial vehicle) as the vehicle on which the NCB has been earned.
• In case of an individual owner, in the event of death of the individual, where the
custody of the vehicle passes to the spouse and/ or children and/or parents or
others, the NCB entitled can be transferred to the legal heir.
d)NCB earned by an institution:
• The percentage of NCB earned on a vehicle owned by an institution during the
period when it was allotted to and exclusively operated by an employee can be
passed on to the employee, if the ownership of the vehicle is transferred on the
name of the employee.
• This will however require submission of a suitable letter from the employer
confirming that prior to transfer of ownership of vehicle to the employee it was
allotted to and exclusively operated by the employee during the period in which the
NCB was earned.
e) Allowing lesser NCB
• In practice a few insurers are allowing lesser NCB than entitled on transfer. E.g. 3
year old private car-Santro with 45% NCB entitlement is allowed only 25% NCB
by the transferee insurer.
• There is also a practice to allow lesser NCB on substitute vehicle belonging to
different sub clause.
f) NCB on vehicle sold but not replaced:
• If a vehicle is sold but not replaced immediately, the NCB earned could be claimed
within 3 years of cancellation of policy sold, for any fresh insurance.
• In practice insurer is now allowing lesser NCB than entitled, keeping in mind sub
classes involved.
• In the two wheeler and commercial category the discount and entitlement period
for such cases have also been curtailed in practice.
• Insurer have found that granting of no claim discount is a powerful strategy to
improve underwriting experience.
• Today it forms an integral part of rating systems.
• The no claim discount is usually opposed by insurance underwriters brought up in
the traditions of other departments where scientific tariffs have been developed.
• They find it difficult to reconcile their approach with a system of rating which allow
discount off the premium in the event of no claim having been made upon the
policy.
• It is not fair that though for over several years the insured has had the protection
for which he has paid the premium, is being rewarded because the peril against
which he has been covered, has not arisen. The other arguments advanced are:
I. It creates extra clerical work for insurers in calculation of premiums and
preparation of renewal notices-work which is out of all proportion to its value.
II. At any rate the policy contains a condition that the insured shall take all reasonable
steps to safeguard the vehicle from loss or damage and maintain it in efficient
condition. He has to act, under common law, as if he is uninsured; it is therefore,
inconsistent to offer a further incentive to care.
The arguments favoring no claim discount are:
1. As mentioned earlier, while physical hazard is of importance in motor insurance,
the personal hazard of the driver is just equally important. The no claim discount
goes a little, if not a long way, in recognizing this factor. There have been
innumerable instances of insured bearing the cost of a small incident in preference
of forfeiting his discount, either because the amount of the prospective discount or
because he was desirous of maintaining a good record. Thus the discount acts as an
effective incentive to the insured to exercise care.
2. Indirectly, the discount helps towards contribution to the object of road safety.
Green card system;
The Green Card System is designed to fulfill two principal objectives:
1. To facilitate the movement of vehicles across international borders by the use of an
internationally acceptable document proving the existence of insurance (the Green Card
or International Insurance Card).
2. To ensure that victims of accidents involving foreign registered vehicles are not
disadvantaged.
Green Card
Ø The green card is an international certificate of insurance providing visiting motorists the
minimum compulsory insurance cover required by the law of the country visited. A green
card is no longer compulsory for all countries in the Green Card System.
Ø Responsibility of issuing Green cards is given to national organizations (in the UK that is
MIB). Many national organizations, including the MIB, delegate this responsibility to
insurers by allowing them to print and issue their own cards in the interests of efficiency.
Ø No charge is made for the Green Card. However, if cover is increased at the same
time the Green Card is issued, an insurer is entitled to make a charge for the
extension of the cover. The provision of this additional cover is at the
discretion/caution of the individual insurer.
Where the Green Card System operates and where it is needed
Ø The Green Card system currently comprises 47 countries, including all 28 in the
European Union, the additional countries that make up the European Economic
Area (EEA), Switzerland, Russia and several countries in the Middle East and
others bordering the Mediterranean Sea.
Ø A Green Card is no longer required for travel to the EEA, Andorra, Serbia and
Switzerland. Full details of the scope of the Green Card system can be found on
the Council of Bureaux website, which includes an interactive map of the
countries in the system.
The function of national Green Card Bureaux
A National insurer’s Bureau (Green Card Bureau) guarantees that a victim of a road traffic
accident caused by a foreign vehicle, originating from a country participating in the Green
Card System, will be compensated in the country of accident. The National Insurer’s Bureau
of the country of accident can then recover all the compensation paid from the Bureau of the
country from where responsible vehicle originates under international agreements.
Each Green Card Bureau has two functions:
• As a ‘Bureau of the country of the accident’ or ‘Handling Bureau’, it has responsibility, in
line with national laws governing compulsory motor insurance, for the handling and
settlement of claims arising from accidents caused by visiting motorists.
• As a ‘Guaranteeing Bureau’ it guarantees the settlement of claims arising from UK
vehicles in the EEA, Andorra, Serbia, and Switzerland, in addition to certificates of motor
insurance – (‘Green Cards’) which are issued by its member insurance companies to their
policy holders.
Nepal’s context
Policy Conditions
The policy and schedule shall be read together. All words defined under the policy
shall carry the same meaning wherever they may appear in the policy or schedule:
1. Notification of claim
2. No admission ,offer, promise of payment
3. Maintenance of vehicle
4. Safeguarding the vehicle from loss or damage
5. Cancellation
6. Contribution
7. Due observance if terms and conditions as precedent to liability
8. Transfer of policy
Schedule
Schedule contains the following information:
1. The policy number
2. The insurer
3. The insured name, address, business or profession
4. The period of insurance: from: time and date to midnight date
5. The motor vehicle: registration mark, engine and chassis number, make, type of body, capacity,
year
6. Geographical area
7. Limits of liability
8. Limitation to use
9. Driver clause
10. Bonus clause: The policy provides for a “No claim discount” for each claim free year, on the
own damage section of the premium of the policy. The discount starts at 20% rising to 50% over
5 years. The discount is available within a period of 90 days from the expiry for the policy.
11. The schedule incorporates the proposal and declaration. Thereafter the signature of the
authorized insurer appears.
Motor tariff;
Own damage loss;
1. Risk covered:
The company will ‘indemnify’ the insured against loss
a) Fire, explosion, self ignition or lightning; (Note: As regards ‘explosion’ peril, both external
and internal explosions are deemed to be covered.)
b) Burglary, housebreaking or theft;
c) Riot and strike;
d) Earthquake (fire and shock damage);
e) Flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost;
f) Accidental external means
g) Malicious act
h) Terrorist activity
i) Landslide/rockslide;
j) Whilst in transit by road, rail, inland waterway, lift, elevator or air;
2. Contract to indemnity
The contract is not to ‘pay’ the loss to the insured, but to ‘indemnify’ him against his
loss. Thus if parts are damaged in an accident and are replaced with new parts, the new
price will not be paid, rather the new cost will be depreciated for age of the vehicle i.e.
new cost reduced by actual depreciation; and the balance will be payable.
3. Loss or damage of accessories and extra fitting: It is covered only if the
accessories are on the motor.
Towing Charges
• If the motor car is disabled as a result of damage covered by the policy, the insurers
bear a reasonable cost of protecting the car and removing it to the nearest repairs,
as also the reasonable cost of re-delivery to the insured. The amount so borne by
the insurers is limited to Rs. 2,500/- in respect of any one accident.
• In Nepal, towing charges are typically covered under motor insurance policies as
part of optional services or add-ons.