An accident takes place. The victim or the legal heir of the victim can claim compensation. The liability to pay compensation is on the owner of the vehicle not on the insurance company. If the vehicle is insured the liability gets transferred to the insurance company. All vehicles are to be compulsorily insured. In the case of a vehicle owned by the Government, the vehicle is not insured and the Government is liable to pay the compensation. The case goes to the tribunal and the tribunal orders the Government to pay compensation. Suppose a private vehicle is not insured the tribunal will order the owner to pay compensation. Besides, the owner will also be prosecuted for running an uninsured vehicle. The liability to pay compensation is always on the owner of the vehicle. It gets transferred to the insurer when the vehicle is insured.
In the case here a good narration of the case is not given. I presume that it was as follows. An accident takes place and victim dies in the accident. The legal heir is eligible to claim the compensation. The normal procedure is that the case goes before the tribunal. The opposite party in the case will be both the owner of the vehicle and his insurance company. The insurance company normally thinks it is their dharma to disown liabilty and the case prolongs. The owner of the vehicle in good faith thinks that he should save the ordeal of the victim and himself advances the compensation amount. When the final order of the tribunal comes either the victim should ask the insurance company to reimburse the amount to the owner of the vehicle or he himself should pay back the amount to the vehicle owner. If not, the vehicle owner can go to court to claim the amount