Supreme Court Criticises ‘Ambiguous’ and ‘Sloppy’ Insurance Policy Terms, Says Insurers Cannot Evade Liability Through Unclear Clauses
In a significant judgment strengthening consumer protection in insurance disputes, the Supreme Court has sharply criticised insurance companies for drafting policies with “ambiguous” and “sloppy” terms that are later relied upon to deny legitimate claims. The Court observed that insurers, as the authors of insurance contracts, bear the responsibility of using clear and precise language and cannot escape liability by taking advantage of vague or confusing policy wording.
The observations came while the Court was examining the interpretation of disputed clauses in an insurance policy. Reiterating the long-settled doctrine of contra proferentem, the Bench held that where a policy term remains genuinely ambiguous even after reading the contract as a whole, the ambiguity must be resolved against the insurer and in favour of the insured. The Court emphasised that policyholders should not suffer because of imprecise drafting by insurance companies.
Expressing concern over the quality of drafting, the Supreme Court remarked that insurers frequently employ imprecise expressions and loosely worded exclusions which later become the basis for repudiating claims. The Court noted that if an insurer intends to exclude a particular risk or limit its liability, it must do so in language that is explicit, unambiguous and incapable of multiple interpretations. It observed that nothing prevents insurers from expressing exclusions in plain and definite terms.
At the same time, the Court clarified that the rule favouring policyholders does not permit courts to rewrite insurance contracts. The doctrine of contra proferentem applies only where a real ambiguity exists. If the policy wording is clear and admits only one reasonable interpretation, courts are bound to enforce the contract as written, regardless of whether the outcome is favourable or unfavourable to the insured.
The judgment reinforces the principle that insurance contracts are drafted almost entirely by insurers, leaving policyholders with little or no opportunity to negotiate individual terms. Consequently, the Court held that any uncertainty created by the insurer’s drafting must ordinarily operate to the benefit of the consumer rather than the company that prepared the document. This approach, the Bench observed, promotes fairness, transparency and accountability in the insurance sector.
The ruling is expected to have significant implications for future insurance litigation across India. It sends a strong message that insurers cannot rely on vaguely worded exclusion clauses or technical interpretations to defeat bona fide claims. Going forward, insurance companies may be compelled to adopt clearer policy language, while consumer forums and courts are likely to scrutinise ambiguous exclusions more rigorously before permitting insurers to avoid contractual liability.
