Industry Odisha Bureau, Jul 21: The Supreme Court of India on Monday slammed an insurance company for drafting “ambiguous” and “sloppy” insurance policies to escape liabilities they ought to bear had caused ordinary policyholders to suffer.
The court made this observation while hearing a case on victim of a bus accident in Nepal.
A Bench of Justices Sanjay Karol and N. Kotiswar Singh observed that insurance companies must use clear and precise language while drafting standard-form insurance contracts to avoid multiple interpretations.
The court said such “uncertainty” was also creating hurdles in the timely disposal of motor accident compensation claims.
Dismissing an appeal by Oriental Insurance Company Ltd, the bench upheld the Chhattisgarh High Court’s order directing the insurer to pay Rs 32.67 lakh with interest to the family of Harish Yadav, who was killed when the bus collided with a hill during a religious tour in 2010.
The ruling is expected to have wider implications for motor insurance claims involving cross-border travel and puts insurers on notice to draft clearer policy terms. The court emphasised that insurance policies must be read as a whole and interpreted harmoniously, rather than cherry-picking clauses.
“When the party with all the drafting power writes an ambiguous policy, it is the ordinary policyholder who suffers. Insurers have, in many cases, exploited this ambiguity, either to escape liability which they should rightfully bear, or, conversely, found themselves burdened with liability they never intended to assume simply because their policy language was sloppy,” the SC observed.
Although the geographical area clause referred to India, yet the “limitations as to use” clause covered vehicles operating under a valid permit. Since the bus had a special permit authorising travel to Nepal, the insurer could not deny liability, the bench ruled.
“The insurer ought to have expressly mentioned that their policy would not cover any area outside India even with a permit,” it said.
Hearing the case, the SC rejected the argument that the driver had no licence to operate the vehicle outside the country after noting that his Indian licence was verified and accepted by Nepalese authorities at the border, in line with the 1950 Treaty of Peace and Friendship between the two countries.
In an important directive, the court asked the Insurance Regulatory and Development Authority of India (IRDAI) to issue a master circular to standardise cross-border coverage clauses in motor insurance policies.
The court further observed that policies must clearly state whether they exclude extra-territorial coverage and inform policyholders about the need for separate endorsements, similar to international travel health insurance.
