An unlicensed learner, a sold three-wheeler and an injured pedestrian

Start with the statute, not the policy. The compulsory third-party cover required by the Motor Traffic Act exists to protect injured members of the public, not the insured. Where judgment is obtained against a person insured under a policy issued for the purposes of the Act, the insurer must satisfy it; it cannot escape that statutory liability by relying on breach of a policy condition, a use restriction or the driver's lack of a licence. Its remedy is to pay the third party and then seek recovery from the insured or the driver. The policy reflects this, since the compulsory third-party cover is endorsed as effective.

Applying it to Mrs Fernando. She was injured by the use of an insured vehicle on a road, and her claim is for bodily injury. Whether Nuwan held a licence, whether the vehicle was being used for hire contrary to the private-use restriction, and whether Kamal was behind on an instalment are matters between the insurer and its insured; none defeats her statutory claim.

Check three things before admitting:

1. Was a policy in force on 14 June? If the instalment default had triggered valid cancellation with the required notice and the certificate had been dealt with as the Act requires, there may be no policy at all.
2. Who is 'the insured'? Sunil is still the registered owner and the named policyholder. Consent is the key question: Kamal had possession, but did he consent to Nuwan driving?
3. Quantum: verified medical expenses, proven loss of income, and general damages for pain and the fracture. She is entitled to be compensated, not enriched.

Pay, then recover. Settle the statutory claim and pursue contractual recovery against Kamal and Nuwan for breach of the use and licensing conditions.

The grace period is a contractual concession, not a statutory one. Work the dates precisely: instalment due 10 May, 30-day grace to 9 June, loss on 14 June. On the face of it the instalment was in default beyond the grace period. If the policy makes timely payment a condition precedent, the insurer may treat cover as having lapsed - but only if it followed the cancellation steps in the policy and, for a compulsory motor policy, the statutory procedure for cancellation and for dealing with the certificate of insurance.

Key distinction. A lapsed policy is not the same as a cancelled policy. If the insurer simply let the grace period expire without notice, it will struggle to argue cover had ended, especially if it accepted late instalments in earlier years and so created an expectation. If it issued a proper notice of cancellation and the insured ignored it, its position is much stronger, and the compulsory cover also ends.

If cover had lapsed. Do not pay under the policy. Say so in writing, with the dates and the clause, and let Mrs Fernando pursue the driver and owner directly. If cover had not lapsed, pay her claim and then recover from the insured.

If you pay. The unpaid premium is a debt and may be set off against sums due to the insured - but never against Mrs Fernando's claim, which is her money, not the insured's.

Practical rule. Motor insurers should diarise instalment defaults and issue formal cancellation notices the day the grace period ends. Silence creates these disputes and usually loses them.

Against Kamal (the buyer and keeper). Breach of the private-use restriction by carrying passengers for hire, and allowing an unlicensed learner to drive. Both are breaches of policy conditions, and if the policy gives a contractual right of recovery after a third-party payment, this is where it bites. He is also the person who failed to pay the instalment.

Against Nuwan (the driver). He is not a party to the contract, but he is liable in negligence to Mrs Fernando, and once the insurer pays it is subrogated to her rights against him. He may also be treated as a person driving with the insured's consent, in which case the licensing condition applies to him directly.

Against Sunil (the registered owner). Weak. He sold the vehicle, was not driving, and may not have consented to Nuwan. Being the registered owner makes him the policyholder, not automatically the person who breached the condition. Do not pursue him without evidence of consent or knowledge of the hire use.

Limits on recovery. The insurer recovers only what it has paid; it cannot profit from the claim. Consider whether Kamal can actually pay - a judgment against a three-wheeler driver may be worthless, so the decision to pursue is commercial as well as legal. Recovery should not delay or dilute Mrs Fernando's settlement.

Risk-management lesson. A restriction to 'social, domestic and pleasure' is meaningless for a three-wheeler operating in a hire market. Underwriters should rate and word the policy for the use actually intended, and a change of registered owner should trigger a fresh proposal rather than a silent continuation in the seller's name.