Duty to Read the Policy

Insureds cannot escape their responsibility under the policy, if not read by them. Under the "duty-to-read" and "imputed-knowledge" doctrines, an insured is deemed to have knowledge of the insurance policy. An insured may not neglect or purposefully omit being acquainted with the terms and conditions of the policy and take a defence on that basis.

However, there can be exceptions to this rule.

The policy terms and conditions are not provided or attached to the policy sent by the insurer.

a)      In the case M/S Modern Insulators Ltd vs The Oriental Insurance Co. Ltd (2000), the Supreme Court rejected the ruling of the NCDRC that “"it is equally responsibility of the respondent to call for these terms and conditions even if they were not sent by the appellant as alleged, to understand the extent of risks covered under the policy and the associated aspects.” Rather the SC stated: “The insured has a duty to disclose and similarly it is the duty of the insurance company and its agents to disclose all material facts in their knowledge since obligation of good faith applies to both equally. In view of the above settled position of law we are of the opinion that the view expressed by the National Commission is not correct. As the above terms and conditions of the standard policy wherein the exclusion clause was included, were neither a part of the contract of insurance nor disclosed to the appellant. Respondent cannot claim the benefit of the said exclusion clause. Therefore, the finding of the National Commission is untenable in law.”

b)     This was reaffirmed by the SC in the case Anju Kalsi vs Hdfc Ergo General Insurance Co. (2022). The case related to the Card Package Policy of the insurer. The claim was not paid as the non-ATM swipe transaction within a stipulated period prior to the date of the event had not been fulfilled.  The insurer could not refute the case of the appellant that save and except for the covering letter no further documentation had been furnished to the account holder. Hence, the appellant was validly entitled to the award of the basic claim in the amount of Rs 5 lakhs together with interest as directed by the District Forum.

The Policy Wording Not Intelligible.

In the case Computer Corner v. Fireman's Fund Ins. Co., 2002, Court of Appeals of New Mexico, commented on the “the resulting semantic bog would be extremely discouraging to a layperson attempting to read and understand this exclusion.” The case quoted the Kentucky Court of Appeals that “Ambiguity and incomprehensibility seem to be the favourite tools of the insurance trade in drafting policies. Most are a virtually impenetrable thicket of incomprehensible verbosity. . . . The miracle of it all is that the English language can be subjected to such abuse and still remain an instrument of communication.”

Duty to read as stated in the case Hallowell v. State Farm Mut. Auto. Ins. Co (1982) by the Supreme Court of Delaware, that “an insured has a duty to read his insurance policy and he is bound by the provisions thereof if they are clear and unequivocal”; further that “the doctrine of reasonable expectations is applicable in Delaware to a policy of insurance only if the terms thereof are ambiguous or conflicting, or if the policy contains a hidden trap or pitfall, or if the fine print purports to take away what is written in large print.”

When there is no duty to read

The insured in the usual course may have no duty to read a renewal policy sent to him or her and may assume that the renewed policy contains the same terms and conditions as the previous policy. (Government Employees Ins. Co. v. United States, 400 F.2d 172, 175 (10th Cir. 1968); Whiteside v. New Castle Mut. Ins. Co., 595 F. Supp. 1096 (D. Del. 1984).)

Insurer also must read the Policy

In the case ABN Amro Bank NV v Royal & Sun Alliance Insurance Plc & Ors [2021] EWHC 442, decided by the England and Wales High Court, the court was clear that insurers must read the policies they write. The policy was issued on behalf of as many as 14 insurers, and even renewed. It gave a very wide cover that should not have been given. The court stated (para 294): “In these circumstances, there can be little doubt that, to adopt the language of Lord Neuberger, the Bank was the astute party, and the insurers unwise. This is not relevant to how the contract is to be interpreted. But the important point is that the adverse commercial consequences, which have manifested themselves as a result of the claim, should not in my view be permitted to sway the interpretation of the policy or to depart from its ordinary language.” The court had found that an “unusual” and “unprecedented” clause provided credit risk cover in an all-risks marine cargo policy. effectively finding all insurers liable to the insured under the “clear terms” of the credit insurance add-on.”

During the underwriters had submitted that they had not read the policy, and that the particular wording and its effect should have been brought to their attention as it was unfair to expect a marine cargo underwriter to understand the purpose of the clause. The bank contended that it was “frankly bizarre” for the underwriters to be essentially arguing that they, as leading participants in the London insurance market had to be told what terms were contained in the written policy wording presented to them and what those terms meant. The court agreed, finding that the underwriters could not properly allege that the clause was not disclosed to them when it was there in the policy to which they subscribed, and that further, as the bank contended, the insured was under no duty to offer the insurer advice. The insurer was presumed to know its own business and to be able to form its own judgment on the risk as it was presented.