Supreme Court: Insurers Exploit Ambiguous Policies, Leave Policyholders in Lurch
The Supreme Court on Monday observed that insurance companies often draft 'ambiguous' and 'sloppy' policy terms to avoid paying legitimate claims, causing ordinary policyholders to suffer. The court noted that such practices also delay the resolution of motor accident compensation cases.
A Bench of Justices Sanjay Karol and N. Kotiswar Singh stressed that insurers must use clear and precise language in standard-form contracts. '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 Bench observed.
The remarks came while hearing an appeal by Oriental Insurance Company against a Chhattisgarh High Court order directing it to pay ₹32.67 lakh in a motor accident claim. The case involved a vehicle insured with the company that was on a religious tour to Nepal. It collided with a hill, killing three persons, including the driver and a passenger. The victim's family had sought compensation of ₹48.99 lakh.
The Motor Accident Claims Tribunal (MACT) initially held the vehicle owner liable, but the High Court modified the award, making the insurer responsible. The Supreme Court upheld the High Court's decision, rejecting the insurer's argument that the policy did not cover accidents outside India. The Bench said if the insurer intended to exclude cross-border coverage, it should have 'expressly mentioned' so in the policy.
The court also criticized the quality of MACT orders, noting that many lack 'adequate and clear reasoning,' leading to delays and appeals. 'In certain cases... the tone, tenor and extent of the orders passed by the concerned Tribunals has caused us considerable disturbance. In this case, for example, the Tribunal elaborately recorded the submissions and evidence. However, their correlation with the facts of the case, and the effect of this correlation on the ultimate outcome, was lacking,' said the judgment authored by Justice Karol.
The Supreme Court directed that if cross-border coverage is excluded, insurance policies must explicitly state so, adding that courts should interpret ambiguous terms in favor of the beneficial object of the Motor Vehicles Act, 1988.
