Ambiguous Terms In Insurance Policy Should Be Interpreted To Favour Insured, Says Bombay High Court

The Bombay High Court recently sent out a clear message to insurers: when insurance contracts contain ambiguities, they must be read in favour of the insured. This ruling came in a case involving Tata AIG General Insurance Company, which had denied a claim under a compulsory credit-linked policy tied to a housing loan.

Justice Sandeep V. Marne, while dismissing Tata AIG’s petition against an Insurance Ombudsman’s award, upheld the widow’s right to receive Rs 27 lakh after her husband’s sudden death from cardiac arrest.

The Court, in its judgment, noted that the insurer had attempted to take a “hyper-technical” view of the policy and evade its responsibility.

What Was The Dispute

The insured had died within minutes of a cardiac arrest in April 2021. He had taken a home loan bundled with a Tata AIG group credit secure policy.

Since no diagnostic tests, such as ECG or Troponin could be performed in that brief window, the company rejected the claim, relying instead on its panel doctor’s opinion that the cause of death was sepsis rather than a heart attack.

The treating doctor, however, had certified the cause as cardiac arrest. The Court made it clear that the testimony of the treating physician could not be brushed aside simply because diagnostic reports were absent.

“The insured succumbed within 15-20 minutes of chest pain, leaving no time for tests. To deny the claim on this basis defeats the very object of such insurance,” the Court said.

Court’s Observation

The Court observed that the very purpose of bundling such policies with home loans is to secure repayment in the event of death or incapacity of the borrower.

If read narrowly to cover only survival after a “critical illness,” but not death from such an illness, the policy “would become absurd and frustrate its purpose,” Justice Marne said in his judgment.

Reaffirming the principle of ‘contra proferentem’, that ambiguous terms in insurance contracts must be interpreted against the drafter and in favour of the insured, the Court found Tata AIG’s conduct “far from bona fide.” It added that the insurer had forced the widow into litigation for four years while her home remained under threat of attachment by the lender.

While the Court stopped short of imposing costs on the company, it directed the insurance company to pay the full claim amount under the Ombudsman’s award within four weeks.

Why Policyholders Should Read The Fine Print

For policyholders, this judgment is a reminder that the fine print of your policy document matters when it comes down to such claims.

When it comes to policies that are bundled with loans, policyholders should keep the proper copy of the insurance document and check whether coverage extends to natural deaths or is restricted to only listed illnesses or accidents.