Motor Insurance Policy Covers Cross-Border Travel If Specifically Authorized By Valid Permit Under MVA: Supreme Court

"The insurer should communicate this requirement of extending coverage, as in the case of separate health insurance policies that are undertaken while travelling abroad, as it is possible that an average consumer may be unaware of the rigours of law" Supreme Court, in a significant ruling, held that a motor insurance policy must provide coverage for extra-territorial travel if the vehicle possesses a valid permit under the Motor Vehicles Act 1988 (MVA), notwithstanding the absence of additional premiums under tariff regulations.

A bench comprising Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh observed that when an insurance contract is ambiguous, the interpretation favoring the insured must prevail, particularly when the insurer has failed to explicitly exclude foreign coverage.

Insurance Policy Must Be Read As A Whole

The dispute arose after the appellant-insurer denied liability for a fatal accident involving a bus that occurred in Nepal, despite the owner holding a special permit issued by the Additional Regional Transport Authority, Durg, authorizing travel on the Durg-Nepal route. The insurer contended that the "Geographical Area" clause in the policy was limited to India and that the owner failed to pay additional premiums required under the India Motor Tariff (IMT) for foreign extension. The court rejected this, emphasizing that insurance contracts must be read as a whole and that clauses must be harmonized.

Validity Of Permit Under Section 2(31) MVA

The court found that the "Limitations as to Use" clause in the policy, which covers vehicles used under a valid permit, did not impose any geographical restrictions. Since the vehicle was operating under a permit specifically authorizing travel to Nepal, the policy provided coverage for that use. The judges noted that if the insurer intended to restrict coverage to India, it should have clearly and explicitly communicated such an exclusion in the standard-form contract.

Non-Obstante Clause Overrides Tariff Regulations - Statutory Override Of Regulatory Instruments

Analyzing the legislative framework, the bench held that Section 147(5) of the MVA, which mandates an insurer to indemnify liabilities the policy purports to cover, acts as a non-obstante clause that overrides the binding nature of General Regulation 4 of the IMT. The court clarified that in instances of ambiguity, the rule of contra proferentem must be applied, favoring the interpretation that aligns with the beneficial and remedial purposes of the MVA legislation.

Article 245 And Extra-Territorial Operation

The bench further observed that the MVA, as a piece of beneficent legislation, was drafted with the cognizance of extra-territorial situations, as evidenced by Section 139 which empowers the government to grant authorizations for taking vehicles outside India. The court emphasized that the statute is intended to apply regardless of whether an accident takes place in India or in a foreign territory like Nepal, particularly under reciprocal arrangements.

"The language adopted in the policy should be clear and unambiguous and every policy, if it is meant to cover any extra territorial jurisdiction, must be clearly mentioned"

Rejection Of Driver License Argument

Regarding the contention that the deceased driver lacked a license valid for Nepal, the court noted that the driver held a valid Indian license and that Nepal authorities had verified and accepted the documents at the border. Relying on the 1950 Treaty of Peace and Friendship between India and Nepal, the bench affirmed that authorizations held by Indian nationals are recognized for movement, and the insurer provided no evidence to the contrary.

Suggestions To IRDAI For Standardisation

The court expressed concern over the "sloppy drafting" of insurance policies and the resulting hurdles for claimants in motor accident cases. It suggested that the Insurance Regulatory and Development Authority of India (IRDAI) should consider issuing a master circular to standardize cross-border coverage clauses across all motor insurance policies. The court ultimately dismissed the appeal, directing the insurer to deposit the compensation amount within four weeks.

Date of Decision: 20 July 2026