Motor insurance: Consider issuing circular standardising cross-border coverage clauses, SC to IRDAI

New Delhi, The Supreme Court on Monday advised the Insurance Regulatory and Development Authority of India (IRDAI) to consider issuing a master circular standardising cross-border coverage clauses across all motor insurance policies.

The apex court said the language adopted in the policy should be clear and unambiguous, and every policy, if it is meant to cover any extra-territorial jurisdiction, must be clearly mentioned.

A bench of Justices Sanjay Karol and N Kotiswar Singh observed it appeared that as of today, there is no clear statute or binding precedent or regulatory clarification in force which clarifies the extension of insurance policies for cross-border travel.


"This uncertainty causes hurdles in deciding motor accident claims timely and efficiently, thereby affecting the claimants the most," the bench said.

The top court passed the order on an appeal filed by an insurance firm challenging a February last year order of the Chhattisgarh High Court which had held the company liable to pay compensation of Rs 32.67 lakh to the kin of a man who died in a road accident in Nepal.

The bench noted that a bus, which was bound from Durg to certain destinations in Nepal for a religious tour, had suffered a collision with a hill resulting in death of three persons including the driver in 2010.

The apex court said the Inter-Country Transport Vehicles Rules, 2021, now provide a structured legal framework for Indian vehicles to travel to other countries under valid inter-country permits.

"It mandates that an inter-country vehicle should have a valid insurance policy, but it does not explicitly deal with extension of a domestic policy to the country in which such vehicle is going to ply," it said.

The bench said the root cause of this issue is the language of the policy and the manner in which these standard-form contracts are drafted by the insurers.

"When the party with all the drafting power writes an ambiguous policy, it is the ordinary policy holder who suffers," it said.

The bench said insurers have, in many cases, exploited this ambiguity either to escape liability which they should rightfully bear, or conversely, found themselves burdened with the liability they never intended to assume simply because their policy language was "sloppy".

It suggested that if cross-border coverage is excluded, the policy must say so explicitly and must inform the insured of the need to obtain separate endorsement before travelling inter-country.

"The insurer should communicate this requirement of extending coverage, as in the case of separate health insurance policies that are undertaken while travelling abroad, as it is possible that an average consumer may be unaware of the rigours of law," the bench said.

It further said, "IRDAI is advised to consider issuing a master circular standardising cross-border coverage clauses across all motor insurance policies".

The bench also observed that in certain cases that have come up before it, including the present one, the tone, tenor and extent of the orders passed by the concerned tribunals has caused it "considerable disturbance".

"In this case for example, the tribunal elaborately recorded the submissions and evidence. However, its correlation with the facts of the case and effect of this correlation on the end result was lacking," it said.

It said motor accident claims tribunals are bodies that people approach seeking compensation as a consequence of either accidents or deaths, both being entirely unwelcome scenarios.

"Then, it is only to be expected of the tribunals that whatever their conclusion be, the same must be supported by adequate and clear reasoning," it said.

The bench said it is a matter of reality that at least one of the parties to such a dispute takes the matter in appeal to a higher forum.

"The clearer the reasoning and higher the fidelity to the judgments and orders passed by this court in as much as it is the law that applies to the entirety of the country, the large gap between the date of institution and the date of disposal of such claim petitions will see reduction, as also the number of appeals," it said.

Dealing with the appeal, the bench noted that the insurance firm ought to have expressly mentioned that their policy would not cover any area outside the territory of India even with a permit.

It said the vehicle was lawfully allowed to travel outside India and into Nepal, and the authorities at the international border post, only after being satisfied with all compliances of law, allowed it to cross the border.

The bench said the legislators, while drafting the Motor Vehicles Act, 1988, were cognisant of the situations that may arise in terms of its geographical operation and thus, gave it an extra-territorial effect.

Referring to Article 7 of the Treaty of Peace and Friendship between India and Nepal signed on July 31, 1950, the bench noted that authorisations and licences carried by Indian nationals, including a valid driving licence issued in India, are recognised for the purposes of such movement.

The bench, while dismissing the appeal, said the amount determined by the tribunal along with the stipulated interest is held to be payable by the insurer to the claimants.