By Prashant Nimgade · Published · Updated
Nitesh bought a used Hyundai i20 from a private seller in Bangalore. He followed the proper procedure at the RTO for transferring the Registration Certificate (RC) to his name and for updating the CNG Endorsement on his RC Smart Card after having a CNG kit installed in his car.
Six months later, his car suffers major damage after an accident, while he escapes unharmed. The boot is crushed, rear axles are bent, and the tail-lamp assemblies are smashed, and the repairs from an authorized dealership are costing a total of ₹1.5 lakh.
He files an insurance claim, but it gets rejected, citing “Non-Transfer of the Insurance Policy” and “Non-Disclosure of Material Modification”. He is stumped and wondering where he made the mistake. Ultimately, he had to pay for the repairs out of pocket.
Understanding the small details in motor insurance policies can save vehicle owners money from avoidable claim rejections.
The reasons for rejection can largely be grouped into documentation mistakes, vehicle modification or usage violations, and procedural mistakes post-accident.
Many second-hand vehicle owners wrongly believe that transferring the vehicle ownership through the RTO automatically transfers the ownership of the attached insurance plan along with it. It may not. It depends on the component in question within a comprehensive motor insurance policy: the Third-party Protection or the Own Damage (OD) Cover.
The third-party protection is automatically transferred to the new vehicle owner without needing a visit to the insurer, according to Section 157 of the Motor Vehicles Act, 1988. This provision is legally called a “deemed transfer”. It is designed to cover and protect third-party victims of an accident that may have occurred even before the transfer of the insurance policy.
But the own-damage cover in the motor insurance needs to be explicitly transferred to the new owner, as mandated under General Regulation 17 (GR-17) of the India Motor Tariff. Based on a Supreme Court ruling (Complete Insulations Ltd. vs. New India Assurance, 1996), the OD cover is considered a personal financial contract between the original owner and the insurance company, and the new owner, not yet listed on the policy, will not be able to claim cover for an insurance contract that they do not own (Legal principle of Insurable Interest).
It is to be noted that the Supreme Court has since flagged an inconsistency between this and other past rulings on the same question, and referred it to a larger bench for a definitive ruling, so this position could still be refined. Also, a later Supreme Court bench (Surendra Kumar Bhilawe vs The New India Assurance Company Ltd., 2020) clarified that the ruling concerning Complete Insulations Ltd. was actually according to the old Motor Vehicles Act of 1939, Section 103-A, and not the 1988 Act.
A 14-day window exists, from the date of RC transfer, for the new owner to apply for the update in the insurance document.
Without this explicit transfer of insurance plan, the new vehicle owner will face a claim rejection and will also lose the Own-Damage Cover.
Driving without a valid Driving License (DL) and claiming cover for damages from an accident are valid grounds for OD claim rejection by the insurance provider, based on the standard insurance contract conditions. The actual driving licence mandate lives in the respective policy wordings.
This law further extends to drivers with an expired licence, or wrongly possessing a licence of a different Vehicle Class, or owning just a Learner’s Licence (LL) but not using a "L-Board" sticker and being attended by a licensed driver.
Separately, driving under the influence of alcohol or drugs is also grounds for claim rejection under the policy's standard exclusion clause, independent of licence validity. Courts have looked to Section 185 of the Motor Vehicles Act, 1988 threshold (30 mg alcohol per 100 ml of blood) as a reference point when assessing whether this exclusion applies, but the Supreme Court has held that crossing this threshold is not required for the insurer to invoke the clause; any credible evidence of impairment is sufficient (IFFCO-Tokio General Insurance Co. Ltd. v. Pearl Beverages Ltd., 2021).
Alternate Rules for OD Claim with Expired PUC Certificate:
According to the IRDAI Circular released on 26th August 2020, an insurance company cannot reject an accident claim simply because the vehicle had an expired PUC certificate. This is because driving without a PUC certificate cannot be considered a direct cause of a vehicle crash. In the same circular, it is stated that a valid PUC certificate is mandatory during renewal of the motor insurance policy, so it is generally a good practice to maintain a valid PUC certificate.
While renewing an insurance policy or switching insurance providers, many vehicle owners may incorrectly specify their previous No-Claim Bonus and the percentage claimed. These NCB claims are later cross-checked and verified when owners file for Own-Damage cover. In all such cases, insurers consider the insurance contract void and give zero coverage.
Motor insurance in India is built on utmost good faith and procedural compliance. Even if the accident is completely genuine, a small documentation error can end up as a heavy financial burden on the vehicle owner. But each of these is preventable.
Don’t treat your motor insurance policy as a set-and-forget document. Always review official policy documents of your motor insurance and get further help from professionals, so that you can make the best decisions.
Call SimpliInsure on +91 95133 55661 and have your policy's documentation requirements checked in 20 minutes before a technicality does what a Rs 1.5 lakh accident couldn't.
Disclaimer: This content is for informational purposes only and should not be treated as financial, medical, or insurance advice. Policy terms, exclusions, and benefits vary across insurers. Please review official policy documents and seek professional guidance before making decisions.
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