SUSHILABEN INDRAVADAN GANDHI v. THE NEW INDIA ASSURANCE COMPANY LIMITED INSC 323

Sushilaben Indravadan Gandhi vs The New India Assurance Company Limited Date: 15th April 2020

Facts: Dr. Alpesh Gandhi, a 28-year-old Honorary Ophthalmic Surgeon at the Rotary Eye Institute, Navsari, died in a road accident on June 9, 1997. He was traveling in a mini-bus owned by the Institute, which overturned due to the driver’s negligence. Dr. Gandhi sustained severe injuries and succumbed to them shortly after. At the time of the accident, the vehicle was insured under a comprehensive private car policy issued by The New India Assurance Company Limited, valid from April 24, 1997, to April 20, 1998. The policy included coverage for third-party liabilities, with an optional endorsement (IMT-5) for personal accident coverage for unnamed passengers. However, the insurer argued that Dr. Gandhi was an employee of the Institute and that his death occurred during the course of his employment. As per Section II of the policy, liability for employee-related injuries was excluded unless a specific additional premium (IMT-16) was paid, which was not the case here. Dr. Gandhi’s widow, Sushilaben Indravadan Gandhi, and his family filed a claim under Section 166 of the Motor Vehicles Act, 1988, seeking compensation of ₹1 crore from the driver, the Institute (employer), and the insurance company. The Motor Accident Claims Tribunal (MACT) held the driver, the Institute, and the insurer jointly and severally liable for a compensation amount of ₹37,63,100, inclusive of interest. The insurance company appealed to the Gujarat High Court, which overturned the MACT’s decision. The High Court held that Dr. Gandhi was an employee of the Institute, and thus, the insurance company’s liability was limited to ₹50,000 under the policy. The remaining liability was shifted to the driver and the Institute. Dissatisfied with the High Court’s judgment, Sushilaben appealed to the Supreme Court.

Issue: Whether Dr. Alpesh I. Gandhi had entered into a contract of services as an employee of Rotary Eye Institute or has entered into a contract for services as an independent professional, to determine the scope of the insurer’s liability.

Decision: The Supreme Court reversed the High Court's decision and held that the contract between Dr. Gandhi and the Institute was a contract for service as an independent professional and not a contract of service as an employee. Thus, the Insurance Company was liable under the terms of the private car policy.

Majority Decision Reasoning: The court concluded that Dr. Gandhi was an independent professional based on terms such as “Honorary Opthalmic Surgeon”, an honorarium was paid, and the contract is one for services, furthermore , Dr. Gandhi will not be entitled to to any financial benefits which would be applicable to regular employees making it clear that Dr Gandhi is not a regular employee of the Rotary Eye Institute. The arbitration clause and termination provisions indicated parity between the parties rather than a master-servant relationship. Dr. Gandhi was economically independent, receiving a share of the Institute’s profits, suggesting a contract for service. Exclusion clauses in insurance policies are interpreted contra proferentem (against the insurer in case of ambiguity). Since Dr. Gandhi was not an "employee," the insurer’s liability exclusion did not apply.

Impact of the case: The case clarified the distinction between contracts of service and for service, the application of the economic reality test to determine employment status, the principle of interpreting ambiguous insurance policy clauses in favour of the insured, and it emphasized employer liability in independent professional contracts.