Cross-Border Motor Insurance: SC Calls for Clarity in Coverage Clauses

The Hon’ble Supreme Court in Oriental Insurance Co. Ltd. v. Durg Roadways Pvt. Ltd. [2026 INSC 722; SLP (Civil) No. 20645 of 2025], decided on 20 July 2026, addressed an important issue in cross-border motor insurance: how should territorial limitation clauses be interpreted where the insured vehicle is lawfully operating outside India under a statutory permit?

The Court held that the insurer cannot deny liability solely on the basis of a territorial limitation clause, where the policy, read as a whole, covers a vehicle operating under a valid permit under the Motor Vehicles Act, 1988 (MVA). It further remarked that any exclusion of such coverage must be expressly stated.

In this case, a bus was travelling from Chhattisgarh to Nepal under a special permit issued under Section 88(8) of the MVA. The problem arose when the bus got into an accident, resulting in three fatalities. The insurer denied liability on the ground that the “Geographical Area” under the policy was limited to India, and no additional premium had been paid under General Regulation 4 (GR.4) of the India Motor Tariff, 2002 (IMT), to extend coverage to Nepal.

Interpreting Cross-Border Coverage Clauses

The Court rejected the insurer’s attempt to deny liability by relying on the geographical limitation clause. Referring to National Insurance Co. Ltd. v. Chief Electoral Officer [(2023) 6 SCC 441] and Export Credit Guarantee Corporation of India Ltd. v. Garg Sons International [(2014) 1 SCC 686], it reiterated that insurance contracts must be read as a whole and all clauses harmonised rather than construed in isolation.

The Court further noted that even though the policy described the geographical area as India, it also provided under the “Limitation as to Use” clause that coverage extended to vehicles operating under a permit within the meaning of the MVA. Since the bus was travelling under a valid permit falling within the definition of Section 2(31) and specifically authorising travel to Nepal, the Court held that the territorial limitation could not be interpreted to nullify the permit clause. However, it clarified that the geographical limitation clause would continue to operate where a vehicle travelled outside India without a permit authorising such travel.

The Court also stated that as insurance policies are standard-form contracts drafted by insurers, exclusions must be expressed in clear terms. Applying the doctrine of contra proferentem, as recognised in United India Insurance Co. Ltd. v. Pushpalaya Printers [(2004) 3 SCC 694] and Sangrur Sales Corporation v. United India Insurance Co. Ltd. [(2020) 16 SCC 292], the Court remarked that ambiguities in policy wording cannot operate to the detriment of the insured. It further relied on Syed Mehaboob v. New India Assurance Co. Ltd. [(2011) 11 SCC 625], emphasising that the beneficial object of the MVA requires an interpretation advancing compensation rather than defeating it.

Further rejecting the insurer’s reliance on GR.4 of the IMT, the Court referred to the non-obstante clause in Section 147(5) of the MVA, and relying on Mohd. Abdul Samad v. State of Telangana [(2025) 2 SCC 49] and A.G. Varadarajulu v. State of Tamil Nadu [(1998) 4 SCC 231], it held that statutory liability under the Act cannot be displaced by conflicting tariff regulations where the policy itself purports to cover the risk. The Court also referred to Article 245(2) of the Constitution, Sections 139 and 149 of the MVA, and Article 7 of the India-Nepal Treaty of Peace and Friendship, 1950, to recognise that the legislative framework itself contemplates lawful cross-border movement of Indian vehicles. The Court also rejected the insurer’s contention that the driver lacked a licence valid in Nepal, holding that a driving licence issued by a competent authority in India and verified by the Nepalese authorities at the border was sufficient to operate the vehicle lawfully on the permitted route.

The decision assumes greater significance in light of the de-notification of the India Motor Tariff with effect from April 1, 2024. While the Inter-Country Transport Vehicles Rules, 2021, regulate permits for international travel, they do not clarify the territorial extent of domestic motor insurance policies. Identifying this regulatory gap, the Court advised IRDAI to consider issuing a master circular standardising cross-border coverage clauses and requiring insurers to clearly communicate whether extraterritorial coverage is included or whether a separate endorsement is necessary.

Key Takeaways

• For insurers: 
  • Interpretation of cross-border motor insurance policies: Insurance policies must be read as a whole, with each clause interpreted harmoniously rather than in isolation. A vehicle operating under a valid permit within the meaning of the Motor Vehicles Act falls within the scope of the “Limitation as to Use” clause and, in the absence of an express exclusion, the insurer remains liable under the policy.
  • Clear drafting: Insurance contract forms must clearly set out the extent of coverage. If cross-border travel has to be excluded from the contract despite the existence of a valid permit, the exclusion must be expressly stated. Any ambiguity in the policy will be interpreted in a way that is in favour of the insured.
  • For liability under the Motor Vehicles Act: Section 147(5) of the MV Act prevails over the additional premium requirement under General Regulation 4 of the India Motor Tariff, 2002, where the policy purports to cover the liability. The Court also observed that the Motor Vehicles Act recognises lawful cross-border movement of vehicles through its statutory framework.
• For IRDAI: Noting the absence of regulatory clarity on cross-border insurance coverage, the Court recommended that IRDAI issue a master circular addressing cross-border coverage. It also observed that insurers should clearly define territorial limits, if any, and any requirement of specific coverage or additional premium for such travel.
• For Vehicle Owners: If the vehicle runs under a valid permit that authorises the route, including cross-border routes, the policy is likely to respond, even for an accident abroad. Silence or ambiguity in the policy works in the owner’s favour, not the insurer’s. Still, it is important to factor in the “Geographical Area” and “Limitation as to Use” clauses before travelling and the specific endorsement where cross-border cover is unclear.