Insurer Cannot Deny Motor Accident Compensation for Accident in Nepal When Policy Covers Use Under a Valid Cross-Border Permit: Supreme Court
Case Name: The Oriental Insurance Co. Ltd. v. Durg Roadways Private Limited & Others
Date of Judgment: 20 July 2026
Citation: 2026 INSC 722
Bench: Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh
Held: The Supreme Court held that a motor insurance policy must be read as a whole and its clauses construed harmoniously. Where the policy covered use of the vehicle under a permit issued under the Motor Vehicles Act, 1988, and the vehicle possessed a valid special permit expressly authorising travel to Nepal, the insurer could not rely solely on the clause stating “Geographical Area: India” to deny liability. Any exclusion of cross-border coverage had to be stated expressly and unambiguously in the policy.
The Court further held that Section 147(5) of the Motor Vehicles Act overrides the requirements under General Regulation 4 of the India Motor Tariff. Therefore, the absence of an additional premium or IMT-1 endorsement could not defeat a liability which the policy itself purported to cover.
Summary: The dispute arose from a bus accident in Nepal during a religious tour from Durg. Three persons, including passenger Harish Yadav, died when the bus collided with a hill. The Motor Accident Claims Tribunal awarded ₹32.67 lakh with 6% interest to the deceased passenger’s family but fastened liability upon the vehicle owner. The Chhattisgarh High Court shifted the liability to Oriental Insurance Company, prompting the insurer’s appeal.
The insurer contended that the policy was territorially restricted to India and had not been extended to Nepal through payment of the additional premium prescribed under the India Motor Tariff. It also argued that the driver’s Indian driving licence did not authorise him to drive in Nepal.
The Supreme Court noted that the vehicle had a valid special permit issued under Section 88(8) of the Motor Vehicles Act specifically permitting travel from Durg to destinations in Nepal. The insurance policy’s “Limitation as to Use” clause covered use under a permit and did not contain any geographical restriction. The insurer had also failed to expressly state that travel outside India would remain excluded even where a valid cross-border permit existed.
Applying the rule of contra proferentem, the Court held that ambiguity in a standard-form insurance contract must be interpreted in favour of the insured. An insurer may define or exclude the risks it intends not to cover, but such exclusions must be communicated clearly and cannot be introduced through a restrictive interpretation after the accident.
The Court also rejected the driving-licence objection. The driver held a valid Indian licence, and Nepalese border authorities had verified his licence and vehicle documents before permitting entry. The insurer produced no evidence showing that the licence was invalid in Nepal.
Recognising uncertainty in cross-border motor insurance policies, the Court advised IRDAI to consider issuing a master circular standardising such clauses. It also stated that insurers must expressly disclose whether foreign travel is covered or excluded and inform policyholders when a separate endorsement is necessary.
Decision: The Supreme Court dismissed the insurer’s appeal and affirmed its liability to pay the compensation of ₹32.67 lakh with the stipulated interest. The amount was directed to be deposited or remitted to the claimants within four weeks.