Accidents Arising under Contract

In one line

A person who takes charge of somebody else's goods, or who carries a passenger for reward, owes duties the law puts into the contract, and it is those duties that a liability policy has to answer.

In the wording a student can write in an exam: liability for an accident may arise not only in tort but out of a contract, most importantly through the law of bailment in sections 148 to 171 of the Indian Contract Act, 1872, which imposes on a bailee the duty of a person of ordinary prudence towards the goods, and through the special liability of a common carrier, now governed for road transport by the Carriage by Road Act, 2007; and a liability policy answers the liability the law thereby imposes but not the additional liability the parties have assumed by agreement.

Bailment: where the liability comes from

Section 148 of the Indian Contract Act, 1872, defines a bailment as the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The deliverer is the bailor and the receiver the bailee.

Section 151 states the standard of care, and it is the sentence to memorise. In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value.

Section 152 states the consequence. The bailee, in the absence of a special contract, is not responsible for the loss, destruction or deterioration of the thing bailed if he has taken the amount of care described in section 151.

And the other duties follow from those two. Not to make unauthorised use of the goods, section 154; not to mix them with his own without consent, sections 155 to 157; to return them on the expiry of the purpose, section 160, and to be liable for any loss after that time, section 161; and to deliver any increase or profit, section 163.

Two rights complete the picture. The bailee's particular lien under section 170, where he has by his labour or skill improved the goods; and the general lien under section 171, which bankers, factors, wharfingers, attorneys of a High Court and policy brokers have over goods bailed to them.

Why bailment matters in an insurance paper

Because it decides who bears the loss and therefore who needs the cover. A warehouseman, a repairer, a dry cleaner, a jeweller who takes an ornament for setting, a carrier and a garage all have other people's goods in their custody, and each of them has a legal liability if he falls below the section 151 standard.