Supreme Court says insurance companies use ‘ambiguous’ and ‘sloppy’ policy terms to evade liability
The Supreme Court on Monday (July 20, 2026) observed that the practice of insurers drafting “ambiguous” and “sloppy” insurance policies to escape liabilities they ought
The Supreme Court on Monday (July 20, 2026) observed that the practice of insurers drafting “ambiguous” and “sloppy” insurance policies to escape liabilities they ought to bear had caused ordinary policyholders to suffer. The court said such “uncertainty” was also creating hurdles in the timely disposal of motor accident compensation claims. A Bench of Justices Sanjay Karol Kotiswar Singh observed that insurance companies must use clear and precise language while drafting standard-form insurance contracts to avoid multiple interpretations. “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 observations came while the court was hearing an appeal filed by the Oriental Insurance Company against a February 4, 2025 judgment of the Chhattisgarh High Court directing it to pay ₹32.67 lakh as compensation in a motor accident claim. The case arose from an accident involving a vehicle insured with the company, which was carrying passengers on a religious tour to various destinations in Nepal. The vehicle collided with a hill, killing three persons, including the driver, Riaz Khan, and passenger Harish Yadav.
Following the accident, Mr. Yadav’s wife, children and mother filed a claim petition before the Motor Accident Claims Tribunal (MACT) seeking compensation of ₹48.99 lakh. The Tribunal directed the owner of the vehicle to pay the compensation along with interest at 6% per annum from October 22, 2011, the date of institution of the claim petition. However, the High Court modified the award and held the insurer liable to satisfy the claim instead of the vehicle owner. MACT orders devoid of ‘clear reasoning’ The Bench also expressed reservations about the manner in which orders were being passed by MACTs, observing that many were devoid of “adequate and clear reasoning”. It said that unless this was addressed, claim petitions would continue to be delayed and appeals would continue to rise. “In certain cases that have come up before this Court, including the present one, 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,” the judgment authored by Justice Karol said. The insurance company had contended that since the accident had occurred outside the territory of India, the policy did not cover the claim.
The BriefWire