‘Contra Proferentem’ Applies to Ambiguous Loan-Linked Insurance Policies; Insurer’s Repudiation Set Aside: Bombay High Court - 2025-09-11

Bombay High Court Upholds Ombudsman's Award, Slams Insurer for Repudiating Widow's Claim on 'Absurd' Policy Terms

Mumbai: In a strongly worded judgment highlighting the plight of a grieving family, the Bombay High Court has upheld an Insurance Ombudsman's award directing Tata AIG General Insurance to pay a Rs. 27 lakh claim to a widow. Justice Sandeep V. Marne dismissed the insurer's petition, criticizing its attempt to "wriggle out" of its obligations under an ambiguous loan-linked insurance policy and pushing a widow to the brink of losing her home.

The court invoked the principle of contra proferentem , ruling that any ambiguity in an insurance policy, especially one compulsorily bundled with a home loan, must be interpreted in favor of the insured.

Case Background: A Family's Tragedy and an Insurer's Denial

The case stemmed from a writ petition filed by Tata AIG challenging the Insurance Ombudsman's award in favor of the widow (Respondent No. 2). The widow and her late husband had taken a housing loan of Rs. 27 lakh from India Infoline Housing Finance Limited (IIFL). As a mandatory condition, a 'Group Credit Secure Insurance Policy' worth Rs. 27 lakh was bundled with the loan, for which a premium of Rs. 84,767 was added to the loan amount and paid directly to Tata AIG.

Tragically, after the husband’s sudden death in April 2021, the family faced further calamities, losing two more male members within six months. When the widow filed a claim to cover the outstanding home loan, Tata AIG repudiated it, leading her to face eviction proceedings from IIFL.

Arguments of the Parties

Tata AIG's Stance: The insurer argued that the policy only covered death due to a list of specified "critical illnesses." While 'Myocardial Infarction' (heart attack) was on the list, they contended there was no medical evidence to prove it was the cause of death. They relied on the opinion of their panel expert, Dr. C.H. Asrani, who, after reviewing medical papers, concluded the cause of death was sepsis and septicemia, citing the absence of ECG and other cardiac-specific reports.

The Widow's Plight: Representing the widow, counsel argued that her husband suffered a sudden and severe cardiac arrest, passing away within 15-20 minutes, which left no time for diagnostic tests like an ECG. The treating doctor, Dr. Rashmin Jain, had issued a certificate confirming a heart attack as the cause of death. It was further argued that the policy was a compulsory part of the loan package, meant to secure the family's home in such an unfortunate event.

Court's Scathing Rebuke and Legal Reasoning

Justice Marne found the insurer's conduct to be "far from bona-fide" and the Ombudsman's decision to be "plausible" and well-supported.

1. Treating Doctor's Opinion vs. Panel Expert's Review: The court noted that the Ombudsman was correct in weighing the conflicting medical opinions. It found the opinion of the treating doctor, who had first-hand information, more credible than that of the insurer's panel expert, whose conclusion was based merely on the absence of documents—an absence explained by the suddenness of the event.

"In these peculiar circumstances, the Insurance Ombudsman has weighed opinion of both the Medical Experts and has held that mere absence of opportunity to conduct tests could not be a reason to disbelieve the cause of death as heart attack."

2. Ambiguity and the 'Absurdity' of the Policy: The court critically examined the purpose of the loan-linked policy. It observed the inherent absurdity in a policy that would pay Rs. 27 lakh to an insured who survives a critical illness and can repay the loan, but would deny payment to the nominee of an insured who dies from an unlisted illness, leaving the family unable to pay the loan.

"However if the policy, upon its plain reading, does not cover death of the insured due to 15 specified illnesses, but covers survival of the insured after suffering from the 15 specified illnesses, the policy becomes absurd, especially when considered from the objective why the same is bundled with the home loan package."

3. Application of Contra Proferentem : Citing Supreme Court precedent, the High Court held that when an insurance contract contains ambiguous terms, the rule of contra proferentem applies. This legal doctrine mandates that the ambiguity be resolved against the party that drafted the contract—in this case, the insurance company.

Final Decision and Implications

The High Court dismissed Tata AIG's petition, refusing to interfere with the Ombudsman's award under its supervisory jurisdiction. The court noted the "extremely unfortunate circumstances" of the family and chastised the insurer for frustrating the noble objective of loan-securing insurance policies.

"If this Court allows the petition... IIFL would attach and sell the residential house of Respondent No.2 to recover outstanding loan amount and Petitioner-Insurance Company would indulge in profiteering by not disbursing the claim amount even in a genuine case involving death of insured borrower."

Tata AIG has been directed to pay the full amount due under the award, including interest, to the widow within four weeks. The ruling serves as a significant affirmation for policyholders, emphasizing that insurers cannot use technical loopholes or ambiguous clauses to deny genuine claims, particularly in cases involving compulsory loan-linked policies designed to provide security to borrowers and their families.