Public Liability Insurance Act, claims, Consumer Commissions and the Insurance Ombudsman

1. Why the Public Liability Insurance Act was passed

The Bhopal gas leak of December 1984 showed that victims of industrial accidents could wait years for compensation while liability was litigated, and that many enterprises handling dangerous substances had no means to pay. The Statement of Objects and Reasons of the Public Liability Insurance Act, 1991 (6 of 1991) records that the public living near hazardous installations had no assurance of relief except through long legal battles, and that mandatory insurance on the principle of no fault was needed to provide immediate relief, leaving larger claims to the courts. The Act came into force on 1 April 1991 and was amended in 1992 to add the Environment Relief Fund.

2. Salient features

• Definitions (s.2). “Accident” means an accident involving a fortuitous or sudden or unintended occurrence while handling any hazardous substance resulting in continuous, intermittent or repeated exposure to death of, or injury to, any person or damage to any property, but not an accident by reason only of war or radioactivity. “Hazardous substance” is any substance defined as such under the Environment (Protection) Act, 1986 and exceeding the quantity notified. “Handling” covers manufacture, processing, storage, transport by vehicle, use, collection, destruction and similar acts. “Owner” includes partners, members of an association, and directors or officers in charge of a company.
• No-fault relief (s.3). Where death or injury to any person (other than a workman) or damage to property results from an accident, the owner is liable to give relief as specified in the Schedule. The claimant need not plead or prove that the death, injury or damage was due to any wrongful act, neglect or default of any person (s.3(2)). Workmen are excluded because they have the Employee’s Compensation Act route.
• Compulsory insurance (s.4). Every owner must, before he starts handling any hazardous substance, take out one or more insurance policies covering liability to give relief under s.3(1), and keep them renewed. The policy must be for an amount not less than the paid-up capital of the undertaking and not more than the prescribed maximum (s.4(2A), with a ceiling of ₹50 crore). The owner must also pay, with the premium, a further sum not exceeding the premium, for credit to the Environment Relief Fund (s.4(2C)). The Central Government may exempt Government, Government corporations and local authorities that maintain a fund for the purpose (s.4(3)).
• Collector to verify and publicise (s.5) the accident and invite applications.
• Application (s.6). By the injured person, the owner of damaged property, the legal representatives of a deceased, or an authorised agent, to the Collector, within five years of the accident.
• Award (s.7). After notice and hearing, the Collector makes an award of relief that appears just. The insurer deposits its share within thirty days; the balance is paid from the Relief Fund and by the owner. The Collector has the powers of a civil court for evidence and should try to dispose of the claim within three months. Unpaid amounts are recoverable as arrears of land revenue.
• Environment Relief Fund (s.7A), established by the Central Government and used to pay relief under awards.
• Other remedies preserved (s.8). Relief under the Act is in addition to any other right to compensation, but compensation awarded under any other law is reduced by the relief already paid.
• Enforcement. Powers of information, entry, search and seizure (ss.9–11), directions including stopping electricity or water supply (s.12), restraint orders from a Magistrate (s.13), and penalties for not insuring or not complying with directions (s.14).
• Motor link. Under the proviso to s.146(1) of the Motor Vehicles Act, a vehicle carrying dangerous or hazardous goods must also carry a policy under this Act.

The Schedule fixes the relief: reimbursement of medical expenses up to ₹12,500 in each case; for fatal accidents ₹25,000 per person in addition to medical expenses up to ₹12,500; and fixed amounts for permanent and temporary disability and for property damage. The sums are small by design. They are interim, no-fault relief; full compensation is sought in tort, where the rule of absolute liability from M.C. Mehta v. Union of India (the Oleum gas case, 1986) applies to hazardous enterprises.

3. Claims: the policyholder’s routes

When a claim is delayed or rejected the policyholder has these remedies, in roughly this order:

• the insurer’s grievance redressal officer, and IRDAI’s grievance portal (Bima Bharosa);
• the Insurance Ombudsman (section 5 below);
• a Consumer Commission under the Consumer Protection Act, 2019 (section 4 below);
• arbitration where the policy provides for it on quantum;
• a civil suit, or a writ petition against a public sector insurer where it acts arbitrarily (insurers owned by the State are “State” under Article 12: Biman Krishna Bose v. United India Insurance Co. Ltd., 2001 INSC 337, (2001) 6 SCC 477), though for disputed facts the Court has pointed claimants to the ordinary remedies (LIC v. Asha Goel, 2000 INSC 598, (2001) 2 SCC 160).

4. Consumer Commissions

Insurance is a “service” under s.2(42) of the Consumer Protection Act, 2019, and a wrongful repudiation, unreasonable delay, or failure to explain terms is a deficiency (s.2(11)). The policyholder or beneficiary is a consumer. Complaints lie to the District Commission (claims up to ₹50 lakh), the State Commission (above ₹50 lakh up to ₹2 crore) and the National Commission (above ₹2 crore), as fixed by the 2021 jurisdiction rules, within two years of the cause of action (s.69). The Commissions apply the law of the contract: they cannot rewrite the policy, and the insured is bound by its terms (United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, 2004 INSC 547, (2004) 8 SCC 644, where a burglary policy required forcible entry and a theft without it was held not covered), but they may examine whether the repudiation was justified, depart from the surveyor’s figures for reasons, and award interest and costs. An insurer who has paid and been subrogated may complain in the insured’s name (Economic Transport Organisation, Unit II note).

5. The Insurance Ombudsman

The Insurance Ombudsman Rules, 2017, made by the Central Government under the Insurance Act and amended in 2021, provide a cheap and quick forum for individual policyholders.

• Scope (rules 2–3). Complaints on personal lines of insurance, group policies, and policies issued to sole proprietorships and micro enterprises, against insurers, their agents and intermediaries, and insurance brokers.
• Administration. The Ombudsmen are appointed and administered through the Council for Insurance Ombudsmen (rule 5), with offices in different cities, including Bengaluru for Karnataka.
• Grounds (rule 13). Delay in settlement of claims beyond the time in IRDAI regulations; partial or total repudiation; disputes on premium; misrepresentation of policy terms; legal construction of policies so far as the dispute relates to a claim; policy servicing grievances; issue of a policy not in conformity with the proposal; non-issue of a policy after receipt of premium; and non-observance of IRDAI regulations and circulars on these matters.
• Complaint (rule 14). In writing, by email or online, to the Ombudsman having jurisdiction over the insurer’s branch or the complainant’s residence. It lies only if the complainant first made a written representation to the insurer and it was rejected, not answered within one month, or answered unsatisfactorily, and only if made within one year of the insurer’s reply (or of the expiry of that month). The Ombudsman may condone delay. No complaint lies on a subject matter already pending before, or disposed of by, a court, consumer forum or arbitrator (rule 14(5)).
• Mediation and recommendation (rule 16). If the parties agree, the Ombudsman mediates and makes a recommendation within one month; if the complainant accepts it within fifteen days, the insurer must comply within fifteen days.
• Award (rule 17). Otherwise the Ombudsman passes a reasoned award within three months of receiving all requirements from the complainant. The award may not exceed the loss suffered or ₹30 lakh including expenses. The insurer must comply within thirty days. The award is binding on the insurer, not on the complainant, who may still go to a Consumer Commission or court if dissatisfied. Interest is payable as IRDAI regulations specify.
• No fee is charged, and no lawyer is needed.

6. Problem

A pesticide factory with a paid-up capital of ₹10 crore stores a notified hazardous chemical above the threshold quantity. A leak injures twenty villagers and kills one. The factory says its staff were not negligent. What relief is available?

Issue. Whether the owner must give relief without proof of fault, and how the victims obtain it.

Law. Section 3 makes the owner liable to give relief under the Schedule without proof of fault; s.4 requires an insurance policy for at least the paid-up capital; claims go to the Collector within five years (s.6) and are paid by the insurer, the Relief Fund and the owner (s.7). Section 8 preserves other remedies.

Application. The leak is a sudden, unintended occurrence while handling a hazardous substance; the villagers are not workmen. Absence of negligence is irrelevant under s.3(2). The deceased’s legal representatives get ₹25,000 plus medical expenses up to ₹12,500; the injured get medical expenses up to ₹12,500 and disability relief as scheduled. If the factory had not insured, it has committed an offence under s.14 and still owes the relief.

Conclusion. The victims should apply to the Collector. Relief comes quickly and without proof of fault. They may also sue for full compensation on the principle of absolute liability, the PLI relief being deducted from any later award (s.8(2)).

How this is examined

“Explain the salient features of the Public Liability Insurance Act, 1991” (January 2026): sections 1 and 2. “Write a short note on Insurance Ombudsman” (February 2025): section 5. The syllabus also lists “Claims, Consumer courts”, which may be asked as “remedies of an aggrieved policyholder”: sections 3 to 5.