Madras High Court
The Divisional Manager vs Mulji Virji Thakkar on 27 February, 2008
Bench: A. Kulasekaran, P. Murgesen
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED : 27/02/2008 CORAM THE HONOURABLE MR. JUSTICE A. KULASEKARAN and THE HONOURABLE MR. JUSTICE P. MURGESEN W.A. (MD) NO. 535 of 2007 -o- The Divisional Manager New India Assurance Co Ltd Rekha Towers Kamarajar Salai Madurai - 625 009 .. Appellant Versus 1. Mulji Virji Thakkar 2. Smt. Radha Ben Mulji Thakker 3. Nayan Mulji Thakker .. Respondents Appeal under Clause 15 of the Letters Patent against the Order dated 24.07.2007 made in W.P. (MD) No. 3930 of 2007 on the file of this Court. !For Appellant ... Mr. G.R. Swaminathan ^For Respondents ... Mr. S. Srinivasa Raghavan :JUDGMENT
This writ appeal is directed against the order dated 24.07.2007 passed by the learned single Judge allowing W.P. (MD) NO. 3930 of 2007, which was filed by the respondents herein praying for a Writ of Certiorarified Mandamus to call for the records relating to the order dated 01.03.2007 of the appellant herein and to quash the same and consequently direct the appellant to renew the hospitalisation and domiciliary hospitalisation benefit policy (individual Medi- claim Policy) No.720300/48/05/76191 dated 24.02.2006 from 00.00 hours on 25.02.2007 to midnight of 24.02.2008.
2. The case of the respondents is that the respondents 1 and 2 are father and mother of the third respondent. The third respondent is the proposer of Hospitalisation and Domicilliary Hospitalisation Benefit Policy (Individual Medi-claim Policy) NO. 720300/48/05/76191 dated 24.02.2006 held by the first and second respondents. The said policy was originally issued by the appellant in the year 1999 and the same was renewed every year, which was to expire on 23.02.2007. Prior to the said date, a cheque for renewal of premium by loading of 40% more than the previous year on account of age and claim factor was sent by the third respondent through his agent. After receipt of the same, the appellant returned the said cheque on the ground that the appellant have already informed the insurer to make his own alternative arrangement for renewal and in any event, the request for renewal has come from unconnected source (agent), for both the reasons, the renewal sought was not considered. Thereafter, the third respondent himself once again sent the cheque and renewal request along with a covering letter dated 24.02.2007 to the appellant for which, the appellant has sent a reply dated 01.03.2007 refusing to renew the policy for the reasons mentioned therein and the same was challenged by the respondents in the above said writ petition.
3. The case of the appellant is that the respondents 1 and 2 are aged 77 and 72 years respectively and no insurer would accept such high risk proposal as there is no statutory compulsion, however, the appellant originally accepted the proposal for the reasons that the third respondent has taken several insurance policies for his family, employees of industries, inclusive of the policies of the respondents 1 and 2 upto 2006-2007. In the year 2007, the third respondent transferred all other policies to M/s. Iffco Tokyo General Insurance, except the policies of respondents 1 and 2 as they refused to take up the same which is evident that the said Insurance company itself while refusing to accept the request of the respondents 1 and 2, has returned their cheques for renewal and forwarded it to the appellant at the instance of the third respondent, instead of returning it to him or respondents 1 and 2. Under clause 5.9 of the Mediclaim Insurance, the policy can be renewed only by mutual consent and the parties have the right to even cancel the contract during the currency of the policy by issuing notice, as provided, hence, the cheque and renewal request sent by the third respondent was returned and ultimately, the impugned order has been passed.
4. The learned single Judge relied on Clause 5.9 and 11 of Mediclaim Insurance Policy and found that the appellant has retained the standing offer for renewal subject to the insurer paying the renewal premium in time; that if the policy sought for the first time is acceptable, in the absence of any other valid reasons, the insurance company cannot refuse the renewal; that clause 11 stipulates that the insurance policy is issued for a period of one year and subject to review, continuation of insurance cover will be available if the renewal premium is paid in time, in such event, insured is eligible to the benefits; that a joint reading of clause 5.9 and 11 would make it clear that there is a standing offer from the appellant and the moment the renewal fee is paid, there is an automatic acceptance from the insurer to offer the services continuously, hence, the order dated 01.03.2007 is nothing but an arbitrary exercise of discretion, which is deserved to be quashed and quashed it accordingly by allowing the writ petition.
5. The learned counsel appearing for the appellant confined his argument as mentioned below:-
The word 'mutual consent' employed in Clause 5.9 of Mediclaim Insurance makes it clear that it gave equal right to the parties to renew the policy as well as not to renew the policy, thus, renewal is not automatic or without any reservation, hence, the finding of the learned single Judge that the appellant has made a standing offer and the moment when the renewal premium is paid the policy is renewed automatically is incorrect; that the ratio laid down in the decision of the Honourable Supreme Court in Biman Kishore Bose's case (2001 (6) scc 477) keeping in view that Government company having monopoly business with right and privilege to carry on such business to the exclusion of others, now number of private and multinational companies carry on such business and the appellant has been facing tough competition, expecting the appellant not to enforce strictly the terms of contract at this period on the ground it is a government instrumentality is an unreasonable condition and prayed for allowing of the writ appeal. In support of this contention, the learned counsel appearing for the appellant relied on the below mentioned decisions:-
i) General Assurance Society Ltd. v. Chandmull Jain and another,(1966) 3 SCR 500, wherein it was held thus:-
"In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e. good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against the company in case of ambiguity or doubt. A contract is formed when there is an unqualified acceptance of the proposal. Acceptance may be expressed in writing or it may even be implied if the insurer accepts the premium and retains it. In the case of the assured, a positive act on his part by which he recognises or seeks to enforce the policy amounts to an affirmation of it. This position was clearly recognised by the assured himself, because he wrote, close upon the expiry of the time of the cover notes, that either a policy should be issued to him before that period had expired or the cover note extended in time. In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves. Looking at the proposal, the letter of acceptance and the cover notes, it is clear that a contract of insurance under the standard policy for fire and extended to cover flood, cyclone etc. had come into being."
ii) (National Insurance Co. Ltd. v. Laxmi Narain Dhut,(2007) 3 SCC 700, wherein in Para No.18, it was held thus:-
"18. It is also to be noted that the terms of the policy have to be construed as they are and there is no scope for adding or subtracting something. However liberally the policy may be construed, such liberalism cannot be extended to permit substitution of words which are not intended. [See United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal and Polymat India (P) Ltd. v. National Insurance Co. Ltd.]"
iii) (Polymat India (P) Ltd. v. National Insurance Co. Ltd.,(2005) 9 SCC 174 wherein in Para No.19, 20 21, and 23, it was held thus:-
19. In this connection, a reference may be made to a series of decisions of this Court wherein it has been held that it is the duty of the court to interpret the document of contract as was understood between the parties. In the case of General Assurance Society Ltd. v. Chandumull Jain, SCR at p. 510 A-B it was observed as under:
"In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves."
20. Similarly, in the case of Oriental Insurance Co. Ltd. v. Samayanallur Primary Agricultural Coop. Bank, SCC para 3 at p.546f it was observed as under:
"The insurance policy has to be construed having reference only to the stipulations contained in it and no artificial far-fetched meaning could be given to the words appearing in it."
21. Therefore, the terms of the contract have to be construed strictly without altering the nature of the contract as it may affect the interest of parties adversely
23. In this connection, our attention was invited to decision of this Court in the case of United India Insurance Co. Ltd. v. M.K.J. Corpn. wherein it was observed as under: (SCC p. 431, para 7) "After the completion of the contract, no material alteration can be made in its terms except by mutual consent."
iv) (Ashok Leyland Ltd., vs. State of T.N. and another) (2004) 3 scc 1 wherein in Para No.79, it was held thus:-
".... Section 9(2) of the Act is subject to the other provisions of the Act which would include sub-section (2) of Section 6-A of the Act. "Subject to" is an expression whereby limitation is expressed. The order is conclusive for all purposes. It can only be reopened on a small set of grounds such as fraud, misrepresentation, collusion etc.
v) (State of Karnataka v. All India Manufacturers Organisation) (2006) 4 SCC 683 wherein in Para No.60, it was held thus:-
60. Shrilekha Vidyarthi v. State of U.P. is another authority for the proposition that the State Government has to act reasonably and without arbitrariness even with regard to the exercise of its contractual rights. In Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay the situation was one in which a lease between the Bombay Port Trust and certain parties was terminated in exercise of contractual rights and the lease rent was abnormally increased. It was held that there was always an obligation on the part of public authorities in their acts of omission and commission to be reasonable. In Biman Krishna Bose v. United India Insurance Co. Ltd. the question was whether an insurance company could arbitrarily and unreasonably refuse the renewal of a policy. Considering that the insurance company, as a result of State monopoly in the insurance sector, had become "State" under Article 12 of the Constitution, this Court held that:
"? it [the insurance company] requires (sic) to satisfy the requirement of reasonableness and fairness while dealing with the customers. Even in an area of contractual relations, the State and its instrumentalities are enjoined with the obligations to act with fairness and in doing so, can take into consideration only the relevant materials. They must not take any irrelevant and extraneous consideration while arriving at a decision. Arbitrariness should not appear in their actions or decisions."
6. The learned counsel appearing for the respondents submitted that the impugned order of the appellant refusing to renew the policy of the respondents 1 and 2 despite the renewal premium is paid in time is illegal; that the State and its instrumentalities have to act with fairness and take into account only relevant materials when reaching decisions even with regard to contractual relations with public and the reasons assigned in the impugned order refusing renewal of the policy of respondents 1 and 2 is arbitrary and illegal and prayed for dismissal of the writ appeal. In support of his contention, the learned counsel for the respondents relied on the below mentioned decisions:-
i) (United India Assurance Co Ltd., vs. Mohanlal Aggarwal) 2004 ACJ 1657 wherein a Division Bench of Gujarat High Court in Para No.32.2, held thus:-
"32.2 Therefore, the option of renewal given to the insured being an agreed term of the Mediclaim policy, if denied by any arbitrary refusal or on the ground that the contract has become more onerous or burdensome, would amount to breach of term of the contract which enabled the insured to get the policy renewed by accepting the standing offer to get it renewed contained in Clause 11 of the prospectus. If the offer to get the policy renewed by timely payment of insurance can be sent by a reminder-notice by the insurer and could be accepted by tendering the premium, there is no reason why the insured should not be in the same position to accept the offer to renew which was incorporated in Clause 11 of the prospectus of the Mediclaim insurance policy and also implied in the contract of insurance under which the insurance cover was stipulated to be continued on payment of the annual premium in time and it was provided that bonus benefits would be given where the continuance of cover was claim free and without break from year to year. Hardship or inconvenience or material loss by itself would not justify repudiation of the contract on the ground that there is thereby a change in the contractual obligation to renew the cover, when the insured fulfil his obligation to pay the premium in time as stipulated. There is no impossibility of performance of the contractual obligation to renew the cover as stipulated merely because the deal becomes less profitable or entails a loss. When renewal is given in respect of the insurance under the same policy for a number of claim-free years by letting the insured pay premium in time, then performance of the obligation to renew as per the stipulation of renewal, which is clearly implied having regard to the nature and contents of the contract and so understood by the insurer itself in its prospectus and the circular letter, cannot be refused on the ground that the continuance of cover by renewal of the Mediclaim insurance policy would become financially more onerous. Any arbitrary refusal to renew the cover by these Government Companies will be open to judicial review. Refusal would, however be justified on grounds such as misrepresentation, fraud, non-fulfilment of the obligations by the insured, or where the performance of obligation under the contract to renew the policy as stipulated is dispensed with or excused under the provisions of Contract Act or of any other law."
ii) Biman Krishna Bose v. United India Insurance Co. Ltd.,(2001) 6 SCC 477, wherein the Honourable Supreme Court in Para-4 and 5 held thus:-
"4. Coming to the next question whether the appellant's policy was required to be renewed with effect from the date when it fell due for renewal. The view taken by the High Court is that an insurance policy cannot be renewed for the period which has already expired. It is not disputed that original mediclaim policy taken out by the appellant provided for its renewal. It is also not disputed that the appellant applied for renewal of the insurance policy well in time and sent a cheque towards its premium. The respondent Company has not challenged the order of the High Court setting aside the order refusing to renew the mediclaim policy of the insured. Under such facts and circumstances of the case, whether the appellant can be directed to take a fresh mediclaim policy on the premise that no renewal of the policy can be ordered for the expired period.
5. A renewal of an insurance policy means repetition of the original policy. When renewed, the policy is extended and the renewed policy in identical terms from a different date of its expiration comes into force. In common parlance, by renewal, the old policy is revived and it is sort of a substitution of obligations under the old policy unless such policy provides otherwise. It may be that on renewal, a new contract comes into being, but the said contract is on the same terms and conditions as that of the original policy. Where an insurance company which has exclusive privilege to carry on insurance business has refused to renew the mediclaim policy of an insured on extraneous and irrelevant considerations, any disease which an insured had contacted during the period when the policy was not renewed, such disease cannot be covered under a fresh insurance policy in view of the exclusion clause. The exclusion clause provides that the pre-existing diseases would not be covered under the fresh insurance policy. If we take the view that the mediclaim policy cannot be renewed with retrospective effect, it would give handle to the Insurance Company to refuse the renewal of the policy on extraneous consideration thereby deprive the claim of the insured for treatment of diseases which have appeared during the relevant time and further deprive the insured for all time to come to cover those diseases under an insurance policy by virtue of the exclusion clause. This being the disastrous effect of wrongful refusal of renewal of the insurance policy, the mischief and harm done to the insured must be remedied. We are, therefore, of the view that once it is found that the act of an insurance company was arbitrary in refusing to renew the policy, the policy is required to be renewed with effect from the date when it fell due for its renewal."
7. We have heard the counsel on both sides and perused the material records placed. A renewal of insurance policy means repetition of the original policy in identical terms for further period. In other words, the old policy is revived and it is a sort of substitution of obligations under the old policy unless such policy provides otherwise. Under Article 47 of the Constitution of India, it is the obligation of the State to ensure the creation and sustaining of conditions congenial to health including ensuring the health insurance and it is being regulated. In exercise of the powers conferred under clause (zc) of Sub-section (2) of Section 114-A of Insurance Act, 1938 (4 of 1938) read with Sections 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), the Authority, in consultation of Insurance Advisory Committee made the Insurance Regulatory and Development Authority (Protection of Policyholders Interests) Regulations 2002. These Regulations applied to all insurances including mediclaims.
8. The mediclaim scheme was approved by Central Government, which is known as Hospitalisation and Domiciliary Hospitalisation Benefit Policy. Thus, the constitutional and statutory provisions regulate these insurance contracts and the interest of the community is kept paramount in consonance with the directive principles of State policy.
9. The issue in this case revolves on clause 5.9 and 11 of Mediclaim Insurance Policy. In short, the words "mutual consent" in clause 5.9, the words "....continuation of insurance cover will be available if the renewal premium is paid in time." It is argued by the counsel for appellant before us that the words 'mutual consent' employed made it clear that equal rights given to the parties to renew the policy as well as not to renew the policy, thus, the renewal is not automatic or matter of right by the issue. If the insurer finds that it is not prudent to continue the policy of a particular insurer, the insurer can stop it.
10. Apart from fiduciary relationships, contracts of partnerships, contracts of Insurance are the leading instances of contracts expressed by the Law to be contracts of utmost faith.
11. In interpreting documents relating to contract of insurance, the duty of the Court is to interpret the words in which the contract is expressed without altering the nature of the contract, since, it may affect the interest of the parties adversely. Followed (Polymat India (P) Ltd. v. National Insurance Co. Ltd.,(2005) 9 SCC 174
12. The preamble of Mediclaim Insurance and its clauses 4.1, 4.2, 4.3, 5.9, 7.0, 8 and 11 are required to be read jointly because all clauses are closely interlinked. Examination of particular clause in isolation alone is incorrect way of reading, particularly when all the said clauses are closely interlinked. The meaning of the clause has to be tested in the light of its circumstances of the scheme and no general test be applied to a particular clause alone. The relevant clauses are extracted below:-
Preamble:-
NOW THIS POLICY WITNESSETH that subject to the terms, conditions, exclusions and definitions contained herein or endorsed or otherwise expressed hereon, the company undertakes that if during the period stated in the schedule or during the continuance of this policy by renewal any insured person shall contract any disease or suffer from any illness (hereinafter called DISEASE) or sustain any bodily injury through accident (hereinafter called INJURY) and if such diseases or injury shall require any such insured person, upon the advise of a duly qualified Physician/Medical Specialist/Medical Practitioner (hereinafter called MEDICAL PRACTITIONER) or of a duly qualified surgeon (hereinafter called SURGEON) to incur (a) hospitalisation expenses for medical/surgical treatment at any nursing home/hospital in India, as herein defined (hereinafter called HOSPITAL) as an inpatient OR (b) on domiciliary treatment in India under domiciliary hospitalisation benefits as hereeinafter defined, the company will pay to the insured person the amount of such expenses as are reasonably and necessarily incurred in respect thereof by or on behalf of such insured person but not exceeding in any one period of insurance the sum insured in aggregate state in the schedule hereto."
4.1 Such diseases which have been in existence at the time of proposing this Insurance, Pre-existing condition means any injury which existed prior to the effective date of this insurance. Pre-existing condition also means any sickness or its symptoms which existed prior to the effective date of this insurance, whether or not the insured person had knowledge that the symptoms were relating to the sickness. Complications arising from pre-existing disease will be considered part of that pre-existing condition.
4.2 Any expenses on hospitalisation / domiciliary incurred during first 30 days from the date of commencement of insurance cover except in case of injury arising out of accident.
4.3 During the first year of the operation of insurance cover, the expenses on treatment of diseases such as Cataract, Benign Prostatic Hypertrophy, Hysterectomy for Menorrhagia or Fibromyoma, Herna, Hydrocele, Congenital Internal disease or defect, Fistula in anus, piles, sinusitis and related disorders are not payable. If these diseases/defect other than congenital internal diseases/defects are pre-existing at the time of proposal, they will not be covered even during subsequent period of renewal too. If insured is aware of the existence of congenital internal diseases/ defects before inception of policy, it will be treated as pre-existing.
5.9 The policy may be renewed by mutual consent. The company shall not however be bound to give notice that it is due for renewal and the company may at any time cancel this policy by sending the insured 30 days notice by registered letter at the insureds last known address and in such event the company shall refund to the insured a pro-rate premium for unexpired period of insurance. The company shall however, remain liable for any claim which arose prior to the date of cancellation. The insured may at any time cancel this policy and in such event the company shall allow refund of premium at company's short period rate only (table given herebelow) provided no claim has occurred upto the date of cancellation.
PERIOD ON RISK RATE OF PREMIUM TO BE CHARGED Upto One month 1/4 of the annual rate Upto three months 1/2 of the annual rate Upto six months 3/4 of the annual rate Exceeding six months Full annual rate
7. CUMULATIVE BONUS Sum insured under the policy shall be progressively increased by 5% in respect of each claim free year of insurance subject to maximum accumulation of 10 claim free years of insurance.
7.1 In case of a claim under the policy in respect of insured person, who has earned the cumulative bonus, the increased percentage will be reduced by 10% of sum insured at the next renewal. However, basic sum insured will be maintained and will not be reduced.
N.B.1) For existing policy holders (as on date of implementation) the accrued amount of benefit of cumulative bonus will be added to the sum insured, subject to maximum of 10 claim free years.
2) Cumulative bonus will be lost if policy is not renewed on the date of expiry Waiver: In exceptional circumstances the seven days extension in period of renewal is permissible to be entitled for cumulative bonus although the policy is renewed only subject to medical examination and exclusion of diseases.
8. .....
IMPORTANT For Cumulative Bonus and Health Check-up Provisions as aforesaid:
Both Health Check-up and Cumulative Bonus provisions are applicable only in respect of continuous insurance without break excepting however, wherein exceptional circumstances the break in period for a maximum of seven days is approved as a special case subject to medical examination and exclusion of disease during the break period. Health check-up benefit will be accrued after completion of four years continuous claim free insurance.
11. The Policy is issued for a period of one year and subject to review.
Continuation of insurance cover will be available if the renewal premium is paid in time. On continuation of insurance cover and timely remittance of premium insured becomes eligible to following benefits from first days after renewal:
(a) Cumulative bonus, if accrued (ref. item 9)
(b) Cost of health check-up if due (ref. item 10)
(c) Payment of hospitalisation cost for disease/illness/injury sustained even during first 30 days of renewal and first year exclusion (ref.deletion of 4.2 and 4.3) Renewal of insurance cover: A further period of 7 days from the date of expiry will be permissible in exceptional cases subject to health certificate from medical practitioner.
N.B: Any disease contracted during the period of seven days extensions will be excluded from the date of renewal in addition to other disease excluded in the expiring policy, whereas other benefits mentioned above in item 11 (a), (b), (c) will be permissible."
13. The clauses 4.1, 4.3 say that only in respect of diseases, injuries which are pre-existing, the liability of the insurance company will be excluded. The expression in clause 5.9 and 11 of the policy read along with the preamble of the policy that if during the continuance of the policy by renewal, the insured person affected by any disease, the company will pay reasonable and necessary expenses incurred. It means the policy continue by renewal. The clause 7 extend benefit of cumulative bonus if the policy is continued or renewed periodically. Thus, the said clauses made it clear the insurance company and the insured treat the policy without break as a continuance of cover so long as the premium for renewal is paid in time, particularly it is very clear in clause 11 the policies issued for a period of one year and subject to review and continuation of insurance cover will be available if the renewal premium is paid in time. The expression 'policy may be renewed by mutual consent' and 'the company may at any time cancel this policy' found in clause 5.9 and corresponding clause 14 cannot be construed by the company to say that they can arbitrarily put an end to the mediclaim policy or refuse to accept renewal premium which is tendered in time. The stipulation regarding renewal by mutual consent apply to cases where the government insurance company is not obliged, under the existing policy, to continue the cover, on payment of the renewal premium in time. No doubt that IRDA (PPI) Regulations 2002 referred to above, wherein clause 7 (n) provides for cancellation of the policy on grounds mentioned therein i.e., misrepresentations, fraud, non-disclosure of material facts or non-cooperation of the insured.
14. For the said reasons, the plea of the appellant that they are entitled to refuse the renewal, taking shelter under clause 5.9 and that in the absence of mutual consent, the renewal is not automatic or without any reservations is rejected.
15. In the impugned order, the appellant alleged that the third respondent insured less aged group of his family members and staff with another insurer and prefers to insure aged respondents 1 and 2 with it, is certainly invalid reason besides contrary to basic principles of insurance laws. In this context, it is necessary to mention that even in an area of contractual relations, the State and its instrumentalities are enjoined with the obligation to act with fairness and while doing so can take into consideration only the relevant materials, not irrelevant and extraneous considerations while arriving at a decision. Arbitrariness should not appear in their action or decisions. Followed Biman Krishna Bose v. United India Insurance Co. Ltd.,(2001) 6 SCC 477.
16. It is immaterial that a government company having monopoly in a particular business or not, but arbitrariness should not appear in their actions or decisions. No doubt, the terms of policy have to be construed as they are and there is no scope for adding or subtracting something, however the policy be construed liberally, such liberalism cannot be extended to permit substitution of words which are not intended as held by the Honourable Supreme Court in the decision reported in (National Insurance Co. Ltd. v. Laxmi Narain Dhut, (2007) 3 SCC 700.
17. In this case, the renewal is denied arbitrarily on the extraneous reason that some of the policies of third respondent, his family members and staff were transferred to other insurer and continuing the respondents 1 and 2 policy alone with them has become more onerous or burdensome, defeats the aims and objects of mediclaim.
18. For the said reasons, the order passed by the learned single Judge is confirmed. The appellant is directed to renew the mediclaim policy of the respondents 1 and 2 with retrospective effect forthwith. The writ appeal is dismissed with costs of Rs.10,000/-.
rsh