The complexity in settlement of motor vehicle accident claims is set to rise after the Supreme Court on Tuesday observed that in cases of motor accident claims, the physical disability caused due to an accident must be judged based on the nature of the work being done by the injured for assessing award of compensation.

However, more granularity in determining the claim amount will be fair for the claimant, according to insurance industry observers.

“Any physical disability resulting from an accident has to be judged concerning the nature of work being performed by the person who suffered a disability. The same injury suffered by two different persons may affect them in different ways. Loss of a leg by a farmer or a rickshaw puller may be the end of the road as far as his earning capacity is concerned. Whereas, in case of the persons engaged in some kind of desk work in an office, loss of leg may have a lesser effect,” a division bench of Justice Abhay S. Oka and Justice Rajesh Bindal observed in its judgment in the case of Sarnam Singh versus Shriram General Insurance.

In this case, the appellant had suffered an injury, and his right lower limb had to be amputated. The Motor Accident Claims Tribunal awarded him a compensation of Rs 34,29,800, of which Rs 30,84,800 was awarded, taking into account his functional disability at 100 per cent.

Upon appeal by the insurance company against the tribunal order, Delhi High Court reduced the compensation by Rs 4,92,205, taking his loss of earning capacity to 80 per cent. Setting aside the order of the High Court, the apex court held that the tribunal was right in assessing his functional disability at 100 per cent, given he was working as a gunman and that he lost the job on account of injuries sustained in the accident.

The compensation in case of third-party motor insurance claims is calculated based on certain parameters such as the victim’s age, earnings at the time of accident/death and dependency. A discounted cash flow method is used to compute the loss of financial benefits and compensation amount.

“The process of computing the compensation amount itself is very complex. Every year, people migrate from below the poverty line to above the poverty line. Normally, every year, the income of salaried individuals is expected to go up. So, by the time the claim matures, the income level of the victim has already increased than what was typically assumed by the insurer,” said a senior executive of a general insurance company.