What is Knock for Knock Agreement in Motor Insurance?

Motor insurance policies have two primary covers, Third-party Liability and Own Damage Cover. The former is mandatory and it compensates the third party if an insured vehicle causes any damage or injuries to a person or their property. Since this process of insurance claim is very lengthy, insurers sign a knock for knock agreement. 

In this article, we will discuss this agreement in much detail. So, continue reading to find more.

Knock for knock agreement in motor insurance is an agreement between motor insurance companies. This agreement was created by the General Insurance Council and constituted in 2001. It represents all the Indian general insurance companies. 

In this agreement, all non-life insurers choose to pay for any damages if both parties have their 'own damage cover.’ They apply this to avoid third-party claims that take a long time to settle. Once this agreement is signed, it helps reduce the cost and efforts required to settle a third-party claim.

To understand this agreement, let us go through some examples.

Example 1: A tempo driver loaded his vehicle with some fragile goods. While driving, he lost control, and the tempo toppled at a turn. On the other end, a car driver was making a turn without signalling, and it collided with a fully loaded tempo.

Since both parties are at fault here, they sign a knock-for-knock agreement. Thus, saving time and money for both these parties.

Example 2: There was an oil spill, and all cars were asked to stop. Nevertheless, two cars did not notice the sign and drove over the oil. Resulting in a collision between these two motor vehicles. 

They had a Comprehensive Car Insurance policy, which included a knock-for-knock agreement. Therefore, the compensation was made against the Own Damage component without blaming the driver.

The process of settling a third-party insurance claim is very tedious. This is because it deals with the police and law. On the other hand, knock for knock agreement is a result of an understanding between insurers. Hence, this agreement is required to stop any unnecessary dragging of a case.

Choosing this agreement over the other ways of settling motor damage may impact you in the following ways.

• Saves time, as there is no need to stretch the time for a court hearing. If a person goes with third-party claims, it may take even months to settle.
• It also saves concerned people from all the mental pressure, from filing an FIR and obtaining a charge sheet.
• The process of covering expenses is much quicker for any damage without any inconvenience to both parties.
• This agreement is voluntary.

Till now, we read about how the knock-for-knock agreement works, but there are three exceptions by which one must abide.

Knock for Knock Agreement Is Applicable for Accidents Within a Geographical Limit

Motor insurance companies set a boundary for claim settlement. These boundaries are just borders of India. Accidents that occur outside these borders would be rejected by the insurance company.

Claim Settlement Amount Must Not Exceed the IDV

IDV or the Insured Declared Value is the approximate value of a vehicle. So, in case of covering the claim, insurance companies will limit their settlement cost to the IDV of the car.

Applies to Own Damage Claims

Insurance companies will only compensate their customers if they claim under the Own Damage Component. Otherwise, they will not receive the no-claim bonus. Moreover, this process is time and cost-efficient.

Not Applicable to Accidents Involving Tramways and Railways

If any damage is caused in an accident with a tram or train, it will not fall under this category of claim settlement.

Does Not Apply Without Purchasing your Own Damage Cover

If an individual only purchases third-party liability instead of a comprehensive plan, this agreement may not apply to them.

Therefore, knock for knock agreement is an alternative for settling motor insurance claims. In simpler terms, customers upon signing this contract agree to bear the cost of their vehicle damage instead of blaming it on the driver. Without this agreement, you will need to prove the real cause of an accident in a civil court. Since this process is long-drawn as victims fight for compensation, signing a knock-for-knock contract seems more logical.