Ambiguous Terms Of An Insurance Policy Must Be Interpreted To Favour The Insured: Bombay High Court
The Bombay High Court has held that in cases of ambiguity in an insurance policy, the principle of contra proferentem would apply and the terms must be interpreted in favour of the insured. The Court expressed serious concern over the conduct of TATA AIG General Insurance Company in repudiating the claim of a widow whose husband had availed a compulsory credit-linked insurance policy bundled...
The Bombay High Court has held that in cases of ambiguity in an insurance policy, the principle of contra proferentem would apply and the terms must be interpreted in favour of the insured. The Court expressed serious concern over the conduct of TATA AIG General Insurance Company in repudiating the claim of a widow whose husband had availed a compulsory credit-linked insurance policy bundled with his housing loan, observing that the company had attempted to escape its obligations by taking a hyper-technical view.
“Here, there appears to be a clear element of ambiguity in the insurance policy, and the principle of contra proferentem would apply where ambiguous terms of the insurance policy would receive an interpretation favourable to the insured. The principle of contra proferentem can be invoked while interpreting the provisions of an insurance contract,” the Court observed.
Justice Sandeep V. Marne was hearing a writ petition filed by TATA AIG General Insurance Company challenging the award of the Insurance Ombudsman dated 21 November 2022, which had directed the insurer to pay a sum of ₹27,00,000 to respondent no. 2, the widow of the insured. The insured had died following a sudden cardiac arrest, but the company rejected the claim on the grounds that no supporting diagnostic reports, such as ECG or Troponin tests, were available to prove that the death was due to a “critical illness” as defined in the policy.
The Court noted that the insured was hospitalised and succumbed within 15–20 minutes of suffering chest pain, leaving no time to conduct medical investigations. The treating doctor had certified that the death was caused by a cardiac arrest. The Court held that the insurer's reliance solely on the opinion of its panel doctor, who discounted the possibility of cardiac arrest merely due to the absence of medical reports, could not override the testimony of the treating physician.
It was observed that in such circumstances, mere absence of opportunity to conduct tests cannot be used to deny a genuine claim. It observed:
“… the opinion of the doctor who actually treated the insured cannot be ignored altogether, and the report of Dr. Asrani cannot be blindly accepted, which is premised only on account of the inability of Respondent No.2 to produce any test reports relating to cardiac arrest.”
The Court further held that the very object of bundling such insurance with housing loans is to secure repayment of the loan in the event of death or incapacity of the borrower. If interpreted literally to cover only survival after critical illness but not death from such illness, the policy would become absurd and frustrate the purpose for which it was compulsorily imposed on borrowers. The Court held that this ambiguity had to be resolved in favour of the insured under the principle of contra proferentem.
The Court also remarked that the insurer's conduct was far from bona fide, and the Court would have been justified in imposing costs on the Petitioners for their conduct in erroneously refusing the claim of Respondent No.2 and in making her litigate for the last four long years.
Accordingly, the Court dismissed the writ petition and directed TATA AIG to make full payment under the Ombudsman's award within four weeks.
Case Title: TATA AIG General Insurance Co. Ltd. v. Vinay Sah & Anr. [Writ Petition No. 1244 of 2023]