India’s Supreme Court has issued a ruling with direct commercial implications for every motor insurer operating in the country, finding that ambiguous policy language drafted unilaterally by insurers has allowed them to evade liabilities they should rightfully bear – and directing the Insurance Regulatory and Development Authority of India (IRDAI) to close a regulatory gap that courts have been left to navigate on a case-by-case basis.
In a July 20 ruling arising from a cross-border motor accident claim, a bench comprising Justices Sanjay Karol and N Kotiswar Singh directed IRDAI to consider issuing a master circular standardizing cross-border coverage clauses across all motor insurance policies. For compliance officers, underwriters, and product managers across India’s non-life market, the ruling is a prompt to audit territorial exclusions in standard policy wordings – before a court does it for them.
The bench’s reasoning rests on the contra proferentem doctrine – the established principle that where a standard-form contract is ambiguous, courts resolve that ambiguity against the party that drafted it. In Indian insurance law, that means the insurer. “When the party with all the drafting power writes an ambiguous policy, it is the ordinary policyholder who suffers. Insurers have, in many cases, exploited this ambiguity, either to escape liability which they should rightfully bear, or, conversely, found themselves burdened with liability they never intended to assume simply because their policy language was sloppy,” the bench stated, according to The Hindu Business Line. The court set out a clear commercial warning: “Cover what you want. Exclude what you want. But make sure you do it clearly. Sloppy drafting could cost you something.”
The bench identified a structural problem underpinning the dispute. India’s Inter-Country Transport Vehicles Rules, 2021 establish the legal framework for Indian vehicles operating under inter-country permits and require them to carry valid insurance meeting the applicable legal requirements. However, as the Court noted, the rules do not expressly clarify whether a domestic motor insurance policy automatically extends coverage to the foreign country in which the vehicle is authorised to operate, leaving that question to the policy wording.
The significance of this gap is reinforced by the scale of cross-border vehicle activity. According to India’s Consulate General in Birgunj, Nepal, there is large movement of cross-border vehicular traffic between India and Nepal, yet no bilateral Motor Vehicle Agreement governs it – movement between the two countries operates on the basis of an understanding reached between the two governments in the 1960s. A study published by the Land Ports Authority of India found that at the Raxaul land port alone, nearly 293,000 passengers crossed the India-Nepal border in 2019-20, with the report also recommending enhanced vehicle insurance protocols at integrated check posts.
The court advised IRDAI to issue a master circular specifying that if cross-border coverage is excluded, policies must say so expressly and inform policyholders that a separate endorsement is required before undertaking international travel. IRDAI has not yet publicly responded to the recommendation. The stakes are material across the broader motor insurance market. Motor insurance collected ₹99,093 crore in premiums in FY2025, representing 7.97% growth and accounting for approximately 32% of total non-life premium in India, according to IRDAI’s FY2024-25 Annual Report. Any standardization directive affecting territorial coverage clauses would require policy wording reviews across every general insurer’s motor book.
The ruling arose from a 2010 accident involving a vehicle insured with Oriental Insurance Company, carrying passengers on a religious tour from Durg to destinations in Nepal. The vehicle collided with a hill, killing three people, including driver Riaz Khan and passenger Harish Yadav. Yadav’s family filed a compensation claim of ₹48.99 lakh before the Motor Accident Claims Tribunal (MACT), which directed the vehicle owner to pay with interest at 6% per annum. The Chhattisgarh High Court subsequently modified the award on February 4, 2025, shifting liability to the insurer.
Oriental Insurance appealed on the grounds that the accident occurred outside Indian territory. The Supreme Court rejected that argument, noting the vehicle had lawfully crossed into Nepal with border authorities’ clearance, and that the insurer had not expressly excluded cross-border coverage. The court directed Oriental Insurance to deposit the full award of ₹32.67 lakh within four weeks. The ruling is also notable given the respondent’s financial position. As of March 2025, Oriental Insurance carried a negative solvency ratio of -1.03, against IRDAI’s stipulated minimum of 1.5, making it one of three public sector general insurers operating below the regulatory threshold, according to the IRDAI FY2024-25 Annual Report.
The ruling lands against a backdrop of entrenched delays in India’s motor accident compensation system. Citing an analysis of more than 100 MACT cases, the Supreme Court noted that average pendency before Motor Accident Claims Tribunals was about six years, while appeals remained pending in High Courts for around eight years. The Court also noted that, in 2025-26, there were approximately 10.73 lakh pending MACT cases involving about ₹96,257 crore in compensation, with nearly one-quarter pending for more than five years.
IRDAI data shows motor insurance complaints accounted for 24.8% of total insurance complaints in FY2024-25, down from 26.18% the year prior. Between FY2022-23 and FY2024-25, the Insurance Ombudsman received 10,156 complaints under the motor insurance category, of which 9,943 were disposed of. The bench was pointed in its diagnosis: MACT orders lacking adequate reasoning are driving the appeals volume. “The clearer the reasoning and higher the fidelity to the judgments and orders passed by this Court... 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,” the court stated, as reported by Verdictum.
The absence of a standardized cross-border motor insurance framework in India contrasts with structures already operating elsewhere in Asia. Protocol 5 of the ASEAN Framework Agreement on the Facilitation of Goods in Transit mandates third-party liability insurance for vehicles in transit movement, requiring operators to purchase cover for the country of departure, transit, and destination. The ASEAN Council of Bureaux, established under Article 11 of Protocol 5, coordinates the legal, technical, administrative, and financial operations of national bureaux across contracting parties and has progressively enhanced the Compulsory Automobile Liability Insurance framework over time. India is not an ASEAN member, but the Supreme Court’s identification of a regulatory vacuum – and its call for IRDAI to act – suggests the country’s cross-border motor insurance architecture may be moving toward greater formalization, with product and endorsement implications for the broader non-life market.
