UPSC Prelims Practice Questions — Insurance firms using ‘ambiguous’, ‘sloppy’ terms to evade liability: SC
Q1. Consider the following statements about the contra proferentem principle as applied to insurance contracts:
1. Where the principle applies, an ambiguity that survives interpretation is resolved in favour of the insured rather than the insurer.
2. A court resorts to construing the term against the drafter only after a harmonious reading of the contract as a whole fails to resolve the ambiguity.
3. The principle imposes on the insured a duty of utmost good faith to disclose all material facts before the policy is issued.
Which of the statements given above is/are correct?
- Where the principle applies, an ambiguity that survives interpretation is resolved in favour of the insured rather than the insurer.
- A court resorts to construing the term against the drafter only after a harmonious reading of the contract as a whole fails to resolve the ambiguity.
- The principle imposes on the insured a duty of utmost good faith to disclose all material facts before the policy is issued.
- A. 1 and 2 only
- B. 2 and 3 only
- C. 1 and 3 only
- D. 1, 2 and 3
Q2. When faced with an ambiguous clause in an insurance policy, which interpretive step do courts apply first, before invoking the contra proferentem rule?
- A. A harmonious construction, reading the policy as a whole to see if the ambiguity resolves
- B. The rule of uberrimae fidei, casting the disclosure burden on the policyholder
- C. The doctrine of caveat emptor, placing the entire risk on the policyholder
- D. The ejusdem generis rule, confining general words to the class of the preceding specific words
Q3. Under Section 173 of the Motor Vehicles Act, 1988, within how many days of a Claims Tribunal's award must an aggrieved person ordinarily file an appeal before the High Court?
- A. 90 days
- B. 30 days
- C. 60 days
- D. 120 days
Q4. Which single forum has been vested with jurisdiction to adjudicate applications for compensation arising out of motor-vehicle accidents, to the exclusion of ordinary civil courts?
- A. The Motor Accident Claims Tribunal
- B. The District Consumer Disputes Redressal Commission
- C. The Court of the District Judge
- D. The permanent Lok Adalat for public utility services
Q5. Consider the following statements about the constitution of a Motor Accident Claims Tribunal (MACT):
1. It is constituted by the State Government through a notification in the Official Gazette for a specified area.
2. A person qualified for appointment as a Judge of a High Court, or as a District Judge, is eligible to be a member.
3. Unlike a civil court, a Tribunal must consist of exactly one member, who also serves as its Chairman.
Which of the statements given above is/are correct?
- It is constituted by the State Government through a notification in the Official Gazette for a specified area.
- A person qualified for appointment as a Judge of a High Court, or as a District Judge, is eligible to be a member.
- Unlike a civil court, a Tribunal must consist of exactly one member, who also serves as its Chairman.
- A. 1 and 2 only
- B. 1 and 3 only
- C. 2 and 3 only
- D. 1, 2 and 3
Q6. Under which section of the Motor Vehicles Act, 1988 is a State Government empowered to constitute one or more Motor Accident Claims Tribunals?
- A. Section 165
- B. Section 166
- C. Section 168
- D. Section 169
Q7. In its 2026 observations criticising 'ambiguous' and 'sloppy' insurance policy drafting, the Supreme Court invoked the contra proferentem principle. What does this principle require in effect?
- A. An ambiguous contractual term is construed against the party that drafted it
- B. Both parties to the contract must disclose every material fact in good faith
- C. The insured bears the risk of any ambiguity it failed to clarify before signing
- D. A contract must be read so as to give business efficacy to the transaction intended
Q8. The 2026 Supreme Court observations on ambiguous insurance terms were made while hearing an appeal filed by which insurer against a High Court order awarding motor-accident compensation?
- A. Oriental Insurance Company
- B. New India Assurance Company
- C. National Insurance Company
- D. United India Insurance Company
Q9. Consider the following statements about a contract of adhesion (standard-form contract):
1. One party unilaterally sets the terms and the other can only accept or reject them as a whole.
2. Because of this imbalance, courts apply the contra proferentem rule to construe ambiguities against the drafting party.
3. Insurance policies are typically negotiated clause-by-clause between insurer and insured, giving both equal bargaining power.
Which of the statements given above is/are correct?
- One party unilaterally sets the terms and the other can only accept or reject them as a whole.
- Because of this imbalance, courts apply the contra proferentem rule to construe ambiguities against the drafting party.
- Insurance policies are typically negotiated clause-by-clause between insurer and insured, giving both equal bargaining power.
- A. 1 and 2 only
- B. 2 and 3 only
- C. 1 and 3 only
- D. 1, 2 and 3
Q10. Express statutory recognition of an 'unfair contract' — enabling a consumer to challenge one-sided standard-form terms before a consumer commission — was introduced in India by which legislation?
- A. The Consumer Protection Act, 2019
- B. The Consumer Protection Act, 1986
- C. The Indian Contract Act, 1872
- D. The Sale of Goods Act, 1930
Q11. Which one of the following statements about the regulation of motor-insurance policy terms in India is correct?
- A. The IRDAI, a statutory body under the Ministry of Finance, regulates insurers and protects policyholders' interests
- B. The IRDAI functions as an attached office exclusively under the Ministry of Road Transport and Highways
- C. All insurance disputes are adjudicated solely by the IRDAI, wholly ousting the jurisdiction of consumer courts
- D. The Controller of Insurance under the Insurance Act, 1938 remains the sole regulator of insurers
Q12. The removal of the monetary ceiling on an insurer's third-party liability for death or bodily injury — making that liability effectively unlimited — was brought about by which amendment to the Motor Vehicles Act, 1988?
- A. The 1994 amendment (Act 54 of 1994)
- B. The original Act as enacted in 1988
- C. The amendment of 2000
- D. The Motor Vehicles (Amendment) Act, 2019