Supreme Court Pulls Up Insurers for Using ‘Ambiguous’ and ‘Sloppy’ Policy Terms to Avoid Liability
In a significant judgment reinforcing the rights of policyholders, the Supreme Court has strongly criticised insurance companies for drafting insurance policies with “ambiguous”, “sloppy” and imprecise language, observing that such unclear terms are often relied upon later to evade liability and deny genuine claims. The Court stressed that insurers, being the authors of policy documents, bear the responsibility of ensuring that contractual terms are clear, precise and easily understandable.
The observations came while the apex court was examining the interpretation of disputed clauses in an insurance policy. The Bench reiterated the well-settled legal principle of contra proferentem, under which any genuine ambiguity in an insurance contract must ordinarily be interpreted against the insurer, since it is the insurer that drafts the policy and possesses superior bargaining power.
The Court remarked that insurance companies cannot take advantage of vague or poorly drafted clauses to reject claims after accepting premiums from policyholders. It observed that if insurers intend to exclude a particular risk or limit their liability, they must do so through clear and unambiguous language, leaving no scope for multiple interpretations. Ambiguous wording cannot be used as a shield to escape contractual obligations.
Reaffirming long-standing jurisprudence, the Supreme Court noted that courts must first read the insurance policy as a whole to ascertain the parties’ intention. However, where uncertainty continues despite such an exercise, the interpretation most favourable to the insured should prevail. The Bench emphasised that this principle promotes fairness in insurance contracts, where policy terms are drafted exclusively by insurers without meaningful negotiation by consumers.
The judgment is expected to have far-reaching implications for the insurance industry. It serves as a reminder that insurers must simplify policy language and draft exclusion clauses with greater precision. Consumer rights advocates believe the ruling will strengthen the position of policyholders in disputes involving claim repudiation based on unclear contractual provisions.
Legal experts have observed that the decision reinforces the Supreme Court’s consistent approach that while courts cannot rewrite insurance contracts, they will not permit insurers to benefit from uncertainty created by their own drafting. The ruling is likely to influence future litigation involving health, life, motor and other insurance policies where the interpretation of exclusion clauses is in dispute.
