Public Liability Insurance Act, 1991: Protecting Victims of Industrial Hazards

When an industrial accident strikes, the people most affected are often ordinary residents living near the factory gates. They breathe in the gas, lose their homes, or watch a family member fall sick, yet they rarely have the resources to fight a long legal battle for compensation. The Public Liability Insurance Act, 1991 was designed to fix exactly this problem. It guarantees that victims of accidents involving hazardous substances receive quick, assured relief without having to prove who was at fault. This blog explains why the law exists, how it makes insurance mandatory for risky industries, and how a special relief fund ensures that money reaches victims when they need it most.

Why the Act was needed
The core objective: immediate relief for victims
The principle of no-fault liability
Mandatory insurance for hazardous industries
How much coverage is required
Penalties for not complying
The Environmental Relief Fund
How the relief fund supports victims
How a victim actually claims relief
What the schedule actually pays
Where the Act stands today

Why the Act was needed

The law traces its roots directly to the Bhopal Gas Tragedy of 1984, when methyl isocyanate gas leaked from the Union Carbide plant. More than 3,000 people died almost immediately and over half a million were exposed to the toxic gas, suffering long-term health problems and disabilities that passed to later generations. What made the tragedy worse was the aftermath. Legal claims for compensation dragged on for decades, and many families received very little.

This exposed a serious gap. Existing laws were simply not built to handle the scale and urgency of an industrial disaster. Victims had to navigate slow courts while struggling with medical bills and lost income. The government responded with a series of reforms, including the Environment (Protection) Act, 1986, and then the Public Liability Insurance Act in 1991. The goal was straightforward: make sure that the next time an accident happened, money would reach affected people in days, not decades.

The core objective: immediate relief for victims

The central purpose of the Act is to provide immediate relief to people harmed by an accident that occurs while a hazardous substance is being handled. The administering ministry, the Ministry of Environment, Forest and Climate Change, describes the aim as providing damages to victims of such accidents. The law applies to all owners involved in producing or handling hazardous chemicals.

A key point to understand is who the Act protects. It covers death or injury to any person other than a workman, meaning the general public and third parties living or working near the facility. It also covers damage to property. Employees of the factory are dealt with under separate labour laws, so this Act focuses squarely on outsiders who had no role in the operation but still bore the consequences.

The principle of no-fault liability

The most important feature of the Act is that compensation is paid on a no-fault basis. Under Section 3 of the Act, a claimant does not have to prove that the death, injury, or damage resulted from any wrongful act, negligence, or default on the part of the owner. The mere fact that the accident involved a hazardous substance is enough to trigger the owner’s duty to provide relief.

This idea connects to a landmark Supreme Court principle. In the M.C. Mehta vs Union of India case of 1987, the court developed the doctrine of absolute liability, holding that an enterprise engaged in a hazardous activity is fully responsible for any harm it causes, with no exceptions. The 1991 Act translates this judicial principle into a practical, ready-to-use system. For a victim, this removes the single biggest hurdle in a compensation claim, which is the burden of proving fault in court.

Mandatory insurance for hazardous industries

The Act’s second pillar is compulsory insurance. Section 4 requires every owner handling a hazardous substance to take out one or more insurance policies before they begin handling it. For businesses already operating when the Act came into force, the policy had to be obtained within a set period. These policies have to be renewed regularly so that coverage never lapses.

The Act covers a defined list of dangerous materials. It applies to industries handling 179 chemicals and classes of flammable substances, along with other materials notified as hazardous. This makes the requirement very wide in practice, capturing chemical plants, refineries, fertiliser units, and similar facilities across the country.

How much coverage is required

The Act sets clear limits on the size of the insurance cover. The policy amount must be not less than the paid-up capital of the business and not more than ₹50 crore. Within this, two caps work together. The Any One Accident limit, which is the maximum payable for a single accident covering all victims, should not exceed ₹5 crore. The Any One Year limit, set at three times the accident limit, caps the total payable in a year at ₹15 crore.

If a claim crosses the insurance limit, the gap is met from the Environmental Relief Fund, discussed below. Any liability beyond both the insurance and the fund has to be borne by the owner directly. This layered structure is meant to ensure that victims are not left empty-handed even when a single accident produces a very large number of claims.

Penalties for not complying

The mandatory nature of the insurance is backed by real consequences. A person who contravenes Section 4 can face imprisonment along with a fine that is not less than ₹1,00,000, or both. The Act also empowers authorities to call for information, inspect premises, and even apply to a court to restrain an owner from handling hazardous substances. The message is that running a risky operation without insurance is treated as a serious offence, not a paperwork lapse.

The Environmental Relief Fund

Mandatory insurance solves part of the problem, but what happens when an insurer cannot pay quickly, or when claims exceed the policy limit? This is where the Environmental Relief Fund (ERF) comes in. It was created under Section 7A of the Act, which empowers the central government to establish the fund by notification.

The fund is financed by industry itself. Every owner who buys a public liability policy also contributes an amount equal to the premium of that policy into the ERF. In effect, the polluting industries collectively build a pool of money that acts as a backstop for victims. The fund was formally established through the Environment Relief Fund Scheme of 2008, and a designated insurance company manages it on behalf of the government.

How the relief fund supports victims

The ERF exists to make sure compensation does not stall. When claims exceed the statutory insurance limit, the excess is met from the ERF rather than leaving the victim to chase the owner. The fund also covers situations where immediate relief is needed but the regular insurance payout is delayed. Importantly, the relief paid from the ERF follows the same schedule of amounts laid down in the Act, so the system stays consistent.

The fund has grown into a substantial pool. As reported around 2023, the ERF had accumulated more than ₹1,000 crore. Beyond accident relief, the fund also receives compensation ordered by the National Green Tribunal in environmental damage cases, broadening its role in funding ecological restoration.

How a victim actually claims relief

The Act lays out a clear, accessible procedure so that ordinary people can claim without expensive legal help. The District Collector is the key authority. After an accident, the Collector verifies and publicises the incident and invites claims from those affected. A victim, or the legal representative of someone who died, or the owner of damaged property, can file an application with the Collector within five years of the accident.

The Collector then holds an inquiry, gives the owner a chance to be heard, and passes an award deciding the amount of relief and who should receive it. Because the claimant does not need to prove fault, this inquiry is far quicker than a normal court case. The Act also makes clear, under Section 8, that this relief is in addition to any other compensation a victim may seek under other laws, so accepting relief here does not block a larger claim elsewhere.

What the schedule actually pays

The Act specifies fixed relief amounts in its Schedule. For a fatal accident or permanent total disability, the relief is ₹25,000 per person, in addition to reimbursement of medical expenses up to ₹12,500. For temporary partial disability that reduces earning capacity, there is a fixed monthly relief of up to ₹1,000 per month for a maximum of three months, provided the victim was hospitalised for more than three days and is above 16 years of age. Damage to private property can be compensated up to ₹6,000 depending on the actual loss.

These amounts highlight a genuine weakness in the law. They were fixed decades ago and have not been revised meaningfully since. When the styrene gas leak at LG Polymers in Visakhapatnam in 2020 killed around a dozen people and injured thousands, observers pointed out that the statutory relief of ₹25,000 was painfully inadequate against today’s cost of living and medical expenses. The Act is best understood as a tool for fast, guaranteed first relief, not as full and final compensation, which victims must still pursue through other forums.

Where the Act stands today

More than three decades on, the law remains highly relevant. India’s industrial base has expanded rapidly, with chemical hubs, refineries, and energy plants spread across many states, and each carries real risk to nearby communities. Recurring incidents like the Vizag leak show that the threat of industrial accidents has not gone away.

At the same time, the Act faces well-documented gaps. Critics note that the compensation amounts are too low, enforcement is uneven, and some industries fail to obtain or renew their policies or default on their ERF contributions. There have also been periods where little or no money flowed out of the accumulated fund to victims. Strengthening the schedule of relief, tightening enforcement, and ensuring the relief fund is actually used are the reforms most often demanded. Even so, the Act’s underlying design, combining mandatory insurance, no-fault liability, and a dedicated relief fund, remains a sound and important model for protecting people from the hazards of industrial growth.

What do you think? Given that the statutory relief amounts have stayed almost unchanged for decades, how should the compensation schedule be redesigned to reflect real medical and living costs today? And do you think a no-fault relief fund financed by industry is the fairest way to protect communities, or should the burden fall more heavily on the individual companies responsible?

References

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Public Liability Insurance Act, 1991: Protecting Victims of Industrial Hazards

Table of Contents

Why the Act was needed 🔗

The core objective: immediate relief for victims 🔗

The principle of no-fault liability 🔗

Mandatory insurance for hazardous industries 🔗

How much coverage is required 🔗

Penalties for not complying 🔗

The Environmental Relief Fund 🔗

How the relief fund supports victims 🔗

How a victim actually claims relief 🔗

What the schedule actually pays 🔗

Where the Act stands today 🔗