Delhi High Court
Shri Mukut Lal Duggal vs United India Insurance Co. Ltd. on 7 January, 2005
Equivalent citations: 2006ACJ1576, 117(2004)DLT74, 2005(82)DRJ70, (2005)141PLR10
Author: Sanjay Kishan Kaul
Bench: Sanjay Kishan Kaul
JUDGMENT Sanjay Kishan Kaul, J.
1. The necessity of prompt medical attention in case of emergency cannot but be emphasised. In the absence of any social security systems in this behalf, the insurance companies had come up with the medi-claim policies to cater to such medical emergencies. The cost of medical treatment has increased manifold over a period of time and thus appropriate medical treatment can be out of the reach of citizens unless the citizens are covered by such medi-claim policy.
2. The petitioners are husband and wife and got themselves insured under the Medi-claim Insurance Scheme of the respondent insurance company in 1995-96. Petitioner No. 1 in July, 1998 suffered coronary disease and was admitted in the Escorts Heart Institute and Research Centre where he underwent Angioplasty. The claim made for medical treatment was paid by the respondent. In April 2000 petitioner No. 2 also got herself insured and a single policy was issued. In January 2001, petitioner No. 1 was once again admitted to the Escorts Heart and Research Centre and was again advised to get Angioplasty done which was undertaken in June 2001. These amounts were reimbursed in August 2001 by the respondent.
3. In May 2002, petitioner No. 1 was hospitalised in Holy Family Hospital for a minor operation and the medical expenses claimed were again reimbursed. Petitioner No. 1 was again required to be hospitalised on 04.12.2002 on account of uneasiness and chest pain and had to undergo bye-pass surgery. The petitioner was discharged after the bye-pass surgery and the bill raised by the hospital for Rs. 2,20,292/- was settled by petitioner No. 1 by arranging funds from various sources. The petitioner submitted the claim on 06.01.2003. The payment was, however, not made. During this period of time no occasion ever arose for petitioner No. 2 to claim any medical reimbursement.
4. Since insurance policy has been extended till the midnight of 05.04.2003, petitioner No. 1 approached the respondent on 03.04.2003 for renewal of the policy for himself and his wife and submitted the cheque for the premium for renewal of the policy for the year 2003-2004. This cheque was refused by the respondent and the reason for the same is stated to be the advise of the Divisional manager of the respondent company that because of the high claim ratio, the respondent was unable to renew the policy.
5. The petitioner issued a legal notice dated 05.05.2003 seeking renewal of the policy and once again enclosed the cheque for the premium. The petitioner received a response from the respondent dated 19.05.2003 stating that due to the high claim ratio respondent was not in a position to renew the policy and the cheque sent along with notice was returned. Interestingly there was silence on the part of the respondent in so far as the coverage for petitioner No. 2 was concerned since undisputedly there was no claim made by petitioner No. 2. Respondent remitted the cheque for Rs. 8673/- to petitioner No. 1 in June 2003 towards the claim lodged in June 2002.
6. The petitioner finally filed the present writ petition seeking quashing of the letter dated 19.05.2003 and seeking directions against the respondent to renew the policy. The petitioner further claimed relief of reimbursement of the amount of medical expenses admittedly covered by the policy which had been withheld by the respondent. Lastly the petitioner has prayed for exemplary cost for mental torture, harassment and agony by denying the rights of the petitioners.
7. The defense put up by the respondent is that the transaction in question is a contract between the parties and despite the respondent being a government undertaking, the reliefs claimed for in the petition cannot be granted in exercise of jurisdiction of Article 226 of the Constitution of India. It has been stated that the respondent cannot be compelled to enter into a contract of insurance. The reason for the rejection of the renewal has been justified on the ground that in a contract of insurance the insurer takes a calculated risk to compensate and indemnify the insured on the happening of a particular event by taking a very small premium. This if the risk is much greater then the insurer may not agree to accept the risk and issue the insurance policy.
8. Learned counsel for the respondent has also placed reliance specifically on clause 5.9 of the insurance policy which is as under :
"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-rata premium for unexpired period of insurance. The Company shall, however, remain liable for any claim which arose prior to the data 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 up to the date of cancellation."
9. Learned counsel for the respondent relied upon the commentary of "General Principles of Insurance Law" by E.R. Hardy Ivamy, 1979 4th edition where at page 263 it has been stated :
"2. Where the Policy is Renewable at the Option of the Assured The stipulation may make the policy renewable at the option of the assured. His right to claim a renewal may be absolute, in which case the policy must be renewed, if he so desires, or it may, by the terms of the stipulation, be liable to be defeated if, before it is exercised, the insurers have given notice of their intention to determine the policy at the expiration of the current period. In the latter case the stipulation amounts to a standing offer by the insurers to renew the policy, and the assured may accept it at anytime before he was received notice of its withdrawal. Upon complying with the terms of the policy as to renewal, therefore, he is entitled to insist upon his policy being renewed, and the insurers cannot decline to renew it unless they have first given notice of their intention not to do so."
10. Learned counsel for the respondent has emphasised that the insurance company has a right to cancel the policy for insurance at any time during the currency of the policy prior to the claim having arisen and the insurer is bound to honour the claim which has arisen prior to its cancellation. In this behalf learned counsel referred to the commentary of Insurance Law by MacGillivrary 5th edition where it is stated that :
"Conditions reserving liberty to terminate the risk. A fire policy may provide that either party shall have the right to terminate the risk at any time during the currency thereof subject to the return of a proportionate part of the premium for the unexpired term. In some policies the return of the unearned portion of the premium is made a condition precedent to the insurers' right to terminate the risk, but in others the risk is determined either immediately upon or within a specified number of days after notice by the insurers and the obligation to return the premium is merely collateral. The right of the insurers to terminate the risk may be limited to cases where there is an increase of hazard, but as a rule the policy reserves to them an absolute discretion to terminate in any circumstances."
11. Learned counsel for the respondent has emphasised that the principles of medical insurance cannot be different from the general insurance and in this behalf referred to the judgment of the Supreme Court in General Insurance Society Ltd. v. Chandmull Jain and Anr. , where it was held that a condition in an insurance policy giving mutual right to parties to terminate the insurance at any time is a common condition in policies and must be accepted as reasonable and the right to terminate at will, cannot, by any reason of the circumstances be read as a right to terminate for a reasonable cause. The reason is stated to be the fact that where parties agree upon certain payments to regulate their relationship the Court should not make new contract, however, reasonable if the parties had not made it for themselves. Cancellation was stated to be reasonable, possible before the liability under the policy had commenced or the loss had become inevitable.
12. Learned counsel for the petitioner has, however, relied upon the judgment of the Supreme Court in Biman Krishna Bose v. United India Insurance Co. Ltd and Anr., . In the said case the medi-claim policy was not renewed only because the insured had earlier taken the insurance company to Court for non-payment of claim. The policy expired in the meanwhile. The Supreme Court observed that the Division Bench of the High Court was right in directing renewal of the policy. The United India Insurance Co. Limited was held to be "State" within Article 12 of the Constitution of India and to act reasonably while dealing with the customers. On the aspect of renewal it was held that the same means repetition of the original policy and thus it is a new contract but on the same terms and conditions as the original policy unless the original policy provides otherwise.
13. Learned counsel for the petitioner in the written synopsis had referred to certain judgments on the issue of maintainability of the writ petition. In my considered view they need not be gone in to in view clear pronouncement by the Supreme Court in Biman Krishna Bose case (supra) and that too relating to the medi-claim policy and against the same company.
14. Learned counsel for the petitioner has naturally tried to distinguish the aforesaid judgment on the ground that sea-change has come in the insurance sector and thus the approach must change. Further it is submitted that the in Biman Krishna Bose case (supra), refusal was based on account of the irrelevant material being taken into consideration by the insurance company of litigation by the insured.
15. In my considered view, the attempt on the part of the learned counsel for the respondent to distinguish the judgment cannot be accepted for the reason that the plea of the respondent that it is mutually terminable contract and thus cannot be compelled to be continued is negated as a concept.
16. In Ashok Kumar Dhingra v. Oriental Insurance Company Ltd and Ors., AIR 2004 V 161, learned Single Judge of this Court has succinctly dealt with the issue in respect of renewal of such medical policies after taking into consideration the judgment in Biman Krishna Bose case (supra). However, the plea there by the insurance company was that the renewal of the policy had not been refused but a higher premium had been loaded for renewal of the medical policy on the basis of the loss ratio in respect of that policy.
17. On the issue of maintainability the learned Single Judge held the same to be maintainable taking into consideration the judgment in Biman Krishna Bose case (supra). The right to however, load the premium was upheld.
18. In Talvinder Singh v. Union of India, 2004 113 DLT 100, once again the issue of renewal of medical had arisen. In the said case there was a delay in making the payment of the premium and in view of the observation in Biman Krishna Bose case (supra) as discussed in Ashok Kumar Dhingra's case (supra), on the issue of exercise of jurisdiction by the High Court under Article 226 of the Constitution of India it was observed that the exercise of jurisdiction under Article 266 was not disapproved in Biman Krishna Bose case (supra) but the Supreme Court went on to grant relief.
19. It has to be noticed that in Biman Krishna Bose case (supra) the Supreme Court was of the view that where renewal of policy was denied on extraneous consideration which are arbitrary, an insured cannot be denied even the retrospective benefit of the same, who would have been insured for the treatment of the disease during the relevant period of time. It was felt that this would give handle to the insurance companies to refuse renewal policies and would have disastrous effect. The Supreme Court was thus of the considered view that once it was found that the act of the 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 renewal.
20. Learned counsel for the petitioners have relied strongly on the recent judgment of the Division Bench of the Gujarat High Court in United India Insurance Company Limited and Anr. v. Mohanlal Aggarwal , AIR 2004 Gujarat 191. The decision is of 05.12.2003 and relating to the same insurance company. The submission of learned counsel for the petitioners was that it was the duty of the learned counsel for the respondent to have brought the same to the notice of this Court. The said judgment is binding on them. The very clause of the insurance agreement relied upon and the plea raised in the present proceedings have been dealt with in extentio by the Division Bench.
21. Learned counsel for the parties were asked to check up the position as to whether any further proceedings were filed against the said judgment of the Division Bench and the order passed by the Supreme Court in SLP (Civil) No. 9878/2004 has been brought to the notice of this Court to show that though the SLP is pending, the interim relief has not been granted. Not only the interim relief not been granted, the insurance company has been directed to renew the policy without prejudice to the contentions raised in the special leave petition. Thus the judgment of the Division Bench of the Gujarat High Court has been implemented. The Division Bench was also considering the issue arising from the refusal of the insurance company to renew the medical insurance policy on the ground that the insurer had contracted disease during this period of the policy and the continuance of the cover to such insured would be more onerous or burdensome with the insurer. The Division Bench held that the renewal of the policy can be refused only the grounds such as misrepresentation, fraud or non-disclosure of material facts by the insured.
22. The Division Bench considered the General Insurance Business (Nationalisation) Act and the Insurance Act to come to a conclusion that even if medical insurance policy provided both for continuity of cover on renewal premium in time as well as the clause for cancellation and renewal by mutual consent, the policy had to be construed against the insurer and thus the policy was liable to be continued on payment of insurance premium. The judgment in Biman Krishna Bose case (supra) was also discussed. The insurance policy was on similar lines as in the present case containing the same clause 5.9 as relied upon by the learned counsel for the respondent herein.
23. It has to be noticed that in the said petition reliance was placed on a circular dated 18.12.1998 of the National Insurance Company Limited showing the directions issued on the basis of the general insurance corporation circular dated 13.06.1988 which require that in case of renewal without a break in the period, the policy was to be renewed including disease contracted during the period of expiring policy. This circular has not been placed on record before this Court and has come to light in view of the said judgment being brought to the notice of this Court.
24. Since the reasoning of the Division bench in extentio dealt with the same aspect as raised in the present petition and I am in full agreement with the said view, it would be appropriate to re-produce some of the paragraphs where this view has been enunciated.
"12. Improvement of public health is one of the primary duties of the State under Article 47 of the Constitution of India. Protecting health of the citizens against infectious diseases, promoting better standards of health care and ensuring that there are adequate safeguards against financial risks connected with severe ailments would constitute key objectives of the public health policy in a welfare State. The socially and economically marginal groups in the society can hardly afford the financial burden involved in treatment of disease. This calls for an equitable distribution of the financial burden of ill-health. Such disproportionate economic burden on the poor sections demands State intervention to ensure that private health insurance is regulated in a manner that would promote the goals of the national health policy in the context of the directive principles of securing high standards of living of the people, to improve public health and to secure that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment as mandated by Articles 39 and 47 of the Constitution. When the Government is acting through its statutory agencies, it is discharging its obligations contained in the directive principles of State policy through such arms.
13. The entire general business in India was nationalized by the General Insurance Government of India, through nationalization, took over the shares of 55 Indian Insurance Companies and the Undertakings of 52 Insurance carrying on general insurance business. General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of the Act of 1972, and was incorporated on 22nd November 1972 under the companies Act, 1956, as a Private Limited Company. The GIC was formed for the purpose of superintending, controlling and carrying on the business of general insurance. As soon as the GIC was formed, the Government of India transferred all the shares it held of the general insurance companies to the GIC. Simultaneously, the nationalized undertakings were transferred to the Indian insurance companies. After a process of mergers among Indian insurance companies, four companies were left as fully owned subsidiary companies of the GIC (1) National Insurance Company Limited, (2) The New India Assurance Company Limited (3) Te Oriental Insurance Company Limited, and (4) United India Insurance Company Limited. The next landmark happened on 19th April 2000, when the Insurance Regulatory and Development Authority Act, 1999 (IRDAA) came into force. This Act also introduced amendments to Act of 1972, the exclusive privilege of the GIC and its subsidiaries carrying on general insurance in India was removed. By Section 10A inserted in the Act of 1972, by General Insurance Business (Nationalization) Amendment Act, 2002 all the shares in the capital of these Government Insurance Companies that vested in the GIC before the commencement of the said Amendment Act stood transferred to the Central Government on such date. Thus the ownership of these companies was vested in the Government of India. The GIC was notified as the "Indian Re-Insurer" in November 2000 and through administrative instructions, its supervisory role over subsidiaries was ended. (source : Website of General Insurance Corporation of India - Http:/www.glcofindia.org/about - us html).
14.3 In this context, it was urged before us on behalf of the insurance companies by their learned counsel that these insurance companies should now be treated on the same footing as the private companies. In the realm of the general insurance business, including health insurance contracts, with freedom to decide whether they should or should not renew a mediclaim policy. This contention has no merit for the simple reason that despite entry of private companies in the field, these insurance companies over which the Governmental controls is all pervasive and are owned by the Government of India and therefore `State' within the meaning of Article 12 of the Constitution, cannot overlook the underlying object of their formation and the Constitutional obligation to act in a fair and reasonable manner without arbitrariness. In providing cover to persons in the field of general insurance.
15. Limitations have been imposed increasingly both through legislation and judicial precedents on freedom of contract to secure fairness and prevent unfair advantage, for securing social interest. Equity demands a moral conduct. In the law of insurance, legislation and judicial decisions have co-operated to limit freedom of contract." Statutes such as valued policy laws, provisions as to warranties, and laws providing for standard policies, have taken many features of the subject out of the domain of agreement. To no small extent, under the guise of interpretation, the tendency of judicial decision is, in effect, to attach rights and liabilities to the relation of insurer and insured and thus, remove the whole subject from the category of contract." (See "Jurisprudence" by Dean Roscoe Pound, Volume I, at page 439).
16. Insurance is regulated in increasing measure by administrative supervision by statutory authorities controlling terms of policies and prescribing limits to what may be agreed upon. Legislature has conferred large powers of regulation to administrative agencies, the effect of which is to limit freedom to make contracts and prescribe guidelines or standardize contracts.
17. It is the statutory duty of these Government Insurance Companies under Section 19 of the Act of 1972 "to carry on general insurance business" and to so function under the Act, "as to secure that general insurance business is developed to the best advantage of the community". Thus, these statutorily controlled companies which are `State' within the meaning of Article 12 of the Constitution cannot function arbitrarily in doing their general insurance business and should act in the best advantage of the community, failure in which will justify judicial intervention to keep them within the bounds of their constitutional duty to act in a reasonable and fair manner. Any action of the Government Insurance Company which is arbitrary, unfair or untenable, if adverse to the interest of the community, would the therefore, amount to breach of duties cast upon these Government Companies and become subject to judicial review. The contention that these Government Insurance Companies, which are `State' under Article 12 should now be treated at par with the private Insurance Companies which are not `State' for the purpose of considering whether there is breach of constitutional obligations imposed on `State', cannot, therefore, be countenanced. We, however, make it clear that these observations should not be construed to mean that the private companies doing statutorily regulated business of general insurance, particularly health care, have no similar obligations arising by virtue of regulatory control and the Code of Conduct/Practice that may apply to them for a fair and reasonable conduct in the field of health care, which predominantly involves public interest. After all, public health cannot be thrown to the mercy of any arbitrary freedom of private contracts, because, the very nature of contracts involving health insurance is not a matter of mere private concerns of two contracting parties, but operates in a public field where concerns of community interest have to be read in such transactions in the regulatory field. The law in India has addressed this concern and the Tariff Advisory Committee and the IRDA have the power to issue guidelines relating to non-discrimination and control and regulation of rates, advantage, terms and conditions."
17.3 The Mediclaim Insurance Scheme, which was framed by the GIC, was a scheme approved by the Central Government. It was approved by the Central Government. It was not a scheme floated by some private party. This is evident from Circular No. 464, dated 18th July, 1986 issued by the CBDT under Section 119 of the Income-tax Act, 1961, in which, there is a reference to the Budget Speech in the year 1986-87 of the Finance Minister in which a proposal to provide relief to self-employed persons and salary earners other than whose medical needs were taken care of by the employers in respect of medical expenses incurred by them by allowing a deduction out of their total income, subject to limits, for any premium on medical insurance policies taken by them with the General Insurance Corporation of India, was announced. Pursuant to that, a new clause (ib) in sub-section (1) of Section 36 of the Income Tax Act, 1961, was inserted, to allow a deduction to an employer in respect of premium paid by him by cheque for insurance on the on the health of his employees in accordance with a scheme framed in this behalf by the General Insurance Corporation of India and approved by the Central Government. Section 80D was inserted in the Income-tax Act, 1961 to provide a deduction to an assessed up to Rs. 3,000/- a year in respect of the insurance premium paid by him by cheque. In para 4.2 of the Circular, it was mentioned that the scheme was being finalized separately. Accordingly, the scheme was finalize which is known as "Hospitalisation and Domicillary Hospitalisation Benefit Policy". (The said Circular is re-produced in Chaturvedi and Pithisaria's Income-tax Law, Fifth Edition, Volume 2, at page 3407 under Section 80D of that volume). Thereafter, Circular No. 537 dated 12th July, 1989 was issued by the C.B.D.T., which is re-produced in 179 ITR (Statutes) Page1, on the subject of Deduction of Tax at Source during the financial year 1989-90 under Section 192 of the Income-tax Act, 1961 and will be seen from para (ix) thereof that the said scheme framed by the General Insurance Corporation of India is referred to and it is stated that it was approved by the Central Government and was popularly known as "mediclaim". We had to resort to this exercise of finding out whether this Mediclaim Insurance Scheme approved by the Central Government, because, we did not get any assistance throughout the hearing on the genesis of the scheme and perhaps the insurance companies themselves were not aware that the scheme which was framed by the GIC was a Scheme approved by the Central Government, on an assumption that this fact could not have been deliberately withheld from the Court, if it was to their knowledge.
17.4 It is, therefore, difficult to accept the argument that the directive principles of State Policy declared under Articles 39 and 47 of the Constitution would not be germane in the context of the Insurance business in health care carried out by these Government Companies when their exclusive privilege was given a go-bye, as was sought to be contended on behalf of the insurer companies.
20. The Government intervention for improving health of the people is a constitutional obligation as reflected from the Directive Principles of State Policy under Articles 38, 39, and 37 of the Constitution. It becomes more imperative for the Government to intervene where illness are very expensive to treat. Equity in health care would mean equity in the burden of health spending. By providing subsidized health services or health insurance, the Government can militate the inequity in such cases to achieve an equitable distribution of the financial burden of ill-health and morbidity. "The Societies are concerned not just about improvements in "average health", but also, specially, about the health and economic" welfare of the socially and economically marginal groups in the society". (See Health Policy challenges for India: Private health Insurance and Lessons from the International experience". By Ajay Mahal).
20.1 Any tendency to undertake risk selection so as to insure low risk individuals and exclude the high risk ones from insurance via exclusion conditions would impose a heavy financial burden on the people who are prone to get sick and most in need of risk protection, and obviously work against the above constitutional perspective. Public Health Insurance Schemes have, therefore, to be safeguarded against such tendencies that maybe disguised under a refined argument of business or commercial prudence.
22. It is, therefore, clear to us that the nationalization insurance sector remains in the field and these four Government Insurance Companies continue to be bound by their constitutional obligations attached to the State as defined by Article 12 of the Constitution for the purpose of Parts III and IV of the Constitution. Thus, the right to equality as guaranteed by Article 14 of the Constitution cannot be violated by them and they cannot act in a discriminatory manner or arbitrarily even in the matter of insurance contracts besides being under duty to apply the directive principles laid down in Part IV of the Constitution which are fundamental in the governance of the country. We would, therefore, view the obligations of these Government Insurance Companies under the Mediclaim Insurance Scheme which was introduced by the GIC with prior approval of the Central Government and the terms and conditions of the cover in the above constitutional perspective and not from the angle of a purely private negotiatory contract between two individuals not involving any public interest or statutory regulation of contractual freedom.
24. In the Prospectus of the Mediclaim Insurance Scheme, at Annexure "J" to Special Civil Application No. 9425 of 2002. Clause 11 which has a bearing on the aspect of renewal of the policy, reads as under:
"11.Tthe 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 become 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 hospitalization 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."
24.1 The words "continuance of cover will be available if the renewal is paid in time" and the provision to the effect that the benefits on the continuance of cover will accrue from the first day after renewal, are clearly indicative of the fact that the only pre-condition to continuance of cover was timely payment of the renewal. The rider below this clause that "any disease contracted during the period of 7 days extensions will be excluded from the date of renewal", would mean that if the disease is already covered under the policy and renewal premium is paid in time, such disease will continue to be covered as it was already under the existing policy.
24.2 The terms and conditions referred in the prospectus would throw light on the intention of the parties to the contract of insurance. The Mediclaim Insurance Scheme reflected in the prospectus, as noted above, was floated by the GIC and its subsidiaries which are "State" and the renewal provision in Clause 5.9, on which much reliance was placed, is required to be read in the light of the option of renewal given to the insured as implied in the aforesaid clauses of the mediclaim policy and as expressed under Clause 11 of the prospectus.
28. The expression "policy may be renewed by mutual consent" and "the company may at any time cancel this policy" occurring in Clause 5.9 of the policy and Clause 14 of its prospectus cannot be resorted to by these Government Companies for urging that they can arbitrarily put an end to the Mediclaim policy or arbitrarily refuse to accept renewal premium which is tendered in time. These Government Companies being "State" under Article 12 are under a constitutional obligation to act reasonably and without any arbitrariness even in the matter of contract. The stipulation regarding renewal my mutual consent will, therefore, 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. The disease covered by the insurance during the continuance of the policy by renewal can never by itself become the ground for refusing renewal when the disease surfaces and creates the obligation to the extent of the sum insured under the cover which cover is required, as per the `stipulation' "to be continued on payment of the renewal premium in time". Happening of the event which may give rise to a claim under the policy cannot be a ground for cancelling the cover. A party to the contract cannot disown the liability under the contract by cancelling it. The insurer is under a duty to accept the renewal premium paid in time because of the standing offer to renew implied in various clauses of the policy and expressly stipulated under Clause 11 of the prospectus, which standing offer can be accepted by timely payment of the renewal premium. The cancellation Clause 5.9 of the policy stating that the policy may be cancelled by giving 30 days' notice will have to be read in the context of the grounds mentioned in Regulation 7(1)(m) of the Protection of Policy Holders' Interests Regulations, 2002, which provides that cancellation can be made only on grounds of misrepresentation, fraud, non-disclosure of material facts or non-cooperation of the insured.
30. No excuse of "prudent insurer" or "business sagacity" can be put forth for shirking the liabilities that arise by virtue of the terms of the contract of mediclaim Insurance. Business prudence theory does not warrant escapement from the contractual obligations. These Government Insurance Companies, therefore, cannot arbitrarily refuse the cover, which is required to be continued when renewal premium is paid in time, under the guise of business sagacity. Business prudence or sagacity is not a defense to commit a breach of a contractual obligation. Prudent insurer may ponder before issuing the cover at its inception and can refuse to issue the cover for valid reasons or may even stop doing business, but once the contract is entered into, the contractual rights and obligations alone matter even while "prudence" might lament for the onerous situation that may have arisen under the contract.
30.1 All the bargains of insurance covers need not result in profits. The very nature of insurance business would have instances where the disease may or may not occur, raising liability in some of greater measure than others. While arguing that no philanthropic approach is required to be adopted, the learned counsel for the insurer overlooked that it is the terms of the renewal as understood by these Government Companies themselves in their prospectus that bind them and the insured were within their legal rights to insist on continuance of the cover of their Mediclaim Insurance on payment of the renewal premium in time and did not need to appeal to any philanthropical instincts of the insurer companies. Indeed, for those who are oblivious of their constitutional, legal and contractual duties, philanthropy would be an alien concept.
31. Frequency of claim when it arises under the cover issued under this Mediclaim Scheme, which the insurer is bound to honour under the contract, cannot constitute a ground for evading the liability nor can it said that such frequency amounts to a "high moral hazard" entitling the insurer to cancel or refuse to renew the cover. Claims based on occurrence of diseases covered by the Mediclaim Insurance can never be considered to be having any bearing on the moral integrity of the insurer when they are genuine, and their cover cannot be treated a "high moral hazard" justifying refusal to renew, or cancellation of the cover, as was sought to be urged.
32.3 Therefore, 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 the 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 fulfillls 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 lefting 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 the ground such as fraud, misrepresentation, non-fulfillment 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 the Indian Contract Act or of any other law.
33. If the Insurance Company provides continuity of cover under the Mediclaim policy on payment of renewal premium in time and simultaneously in the cancellation clause provides that renewal will be by mutual consent, then on a harmonious construction of the two seemingly opposite provisions, the mutual consent provision will apply to such renewals which are not consequential upon the timely payment of premium that would entail continuity of the cover. This can be illustrated by reference to the cases where the insured may want to continue their cover, but with enhancement of the sum insured. In such cases, the question of consenting to renew the cover for the extent of enhancement of the sum insured would arise and it is in the context of such enhanced sum that the company may become justified to consider exclusion of the disease so far the enhanced sum is considered though it would be liable to continue the cover for the basic sum insured, if the renewal premium was paid in time, without seeking such enhancement. If, however, a conflict is to be read between these two provisions, namely, Clause 11 of the Standard Prospectus and Clause 5.9 of the policy, same as Clause 14 of the Prospectus, the policy will have to be construed strongly against the insurer by giving due weight to the standing offer to renew contained in Clause 11 of the prospectus which gives proper meaning to various clauses of the policy, entitling continuance of cover on payment of renewal premium by the insured in time.
33.1 It is a settled legal position that where, after every effort to reconcile more than two clauses of contract of insurance appear plainly in conflict, it is necessary to consider the comparative weight to be given to each of them. In such cases, one of the rules applicable to determine which clause shall prevail is that the policy should be construed strongly against the insurers. In case of ambiguities in a policy, the rule is that the policy being drafted in a language chosen by the insurers, must be taken most strongly against them. It is construed contra proferentes (Verba cartarum fortius accipiuritur contra proferentem i.e. Words are to be interpreted most strongly against him who use them), against those who offer it. The insured cannot put his own meaning upon a policy, but, where it is ambiguous, it is to be construed in the sense in which he might have reasonably understood it. If the insurers wish to escape liability under given circumstances, they must use words admitting of no possible doubt. (Lord Russel of Killowen in Provincial v. Morgan, (1933) AC 240, 250).
34. In the context of the renewal Clause 5.9 of the policy and Clause 11 of the prospectus, it would be most significant to refer to the circular letter dated 18th December, 1998, at annexures "I" to the Special Civil Application No. 9425 of 2002, which totally derails the argument convassed on the basis of the cancellation clause in Clause 5.9 of the policy to the effect that the insurer has a contractual privilege to refuse to renew even when the insured is paying renewal premium in time as stipulated in the Mediclaim Insurance Scheme or even to cancel the cover. This circular-letter is based on the GIC's letter No. Tech/A/185/2 (6), dated 30th June, 1988 which clarified the position in case of renewal, if there was a claim under the expiring policy. It was emphasized that the Mediclaim policies which are renewed without break in the policy period and without enhancing the "sum insured" may be renewed, including the disease contracted during the expiry period. The circular was issued by the National Insurance Company Limited, noting that, in certain instance, the operating offices while renewing the policies, were excluding the illness for which a claim was made by the insured under the existing policy. The circular summarizes how to deal with different situations which may arise during renewal of insurance in the following terms :
"Different situations which may arise during the renewal of insurance and how to deal with them are summarized below :-
(1)In case of renewal without a break in the period the policy will be renewed including the disease contracted during the expiring policy period.
(2)If there is a break, the fresh policy must specifically exclude the disease contracted during the expiring policy period and during the break period and it should be mentioned in the schedule of the policy specifically.
(3)If an insured is already covered under an insurance policy, say, a group Mediclaim, and wants to take an individual policy, the same may be issued up to the identical sum insured on the same terms and conditions if there is no break..
(4)If a person is insured with another subsidiary and wishes to renew with us, the same should be considered only after ascertaining the claim status and exclusion under the previous policy.
In case the claim status revealed is adverse or there is a continuing illness or an impending illness, such cases should be advised to continue with the same subsidiary and should not be accepted."
(Emphasises added) 34.4 In the contract of insurance, the term "renewal" is used to denote both extension of the original period of cover by the exercise of a right given to the insured by the contract to extend the period of cover without the assent of the other, and the making of a new contract though the agreement of both. It is important to distinguish the two types of renewal, since only in the former case, will vitiating elements in the original contract, such as, failure to make full disclosure affect the extension, any conversely only in the later case will a duty arise to make full disclosure, at the time of renewal. Where the insurance (e.g. Life insurance) gives the assured the right to renew automatically on the payment of a further premium t the end of the first period, such renewal does not constitute a new contract. (See Chitty on Contracts, 24th Edition, para 3491 at page 707).
34.5 The health insurance contract is related to the category of life contracts. A life contract would obviously include the natural process of dying and a health insurance contract would obviously include what may be inevitable illness, which perils would be covered by the insurance. In a normal contract of life assurance as distinct from contracts intended to be for a term certain, the assured must have, at least a right of renewal subject to reasonable conditions. A policy of health insurance is for insuring against the risk of disease. One is a policy for life while the other for a health life. Even in a health policy, though under an annual contract on payment of annual premium, the assured must have a right of renewal subject to reasonable conditions, because the policy is not intended to be for a term certain, but meant to cover the risk of disease for life so long the renewal premium is paid in time, as per the renewal clause. The contract of health insurance, like that of life insurance made in consideration of an annual premium, is an insurance for a year with an irrevocable offer to renew upon payment of the agreed renewal premium.
35. In an existing contract where it is specifically provided that the insurer is not bound to give notice when the policy is due for renewal and the insured remits the renewal premium in time, the insurer cannot invoke the cancellation clause for refusing renewal, unless any one of the contingencies permitting cancellation has occurred. There is already a standing offer seeking renewal and that is why clause 5.9 stipulates that notice of renewal need not be given by the insurer. The moment insured pays premium in time the acceptance of that offer is complete and there would be no option with the insurer to deny renewal.
35.1 When offer of renewal comes from the insurer by a renewal notice or it is there in form of a standing offer contained in the existing insurance cover or under the scheme itself as declared in the prospectus, enabling the insured to get the cover continued by paying renewal premium in time, payment of the appropriate premium would amount to acceptance of such offer so as to create a binding contract and there is no room for refusing to take the premium in such a case. Therefore, there was no scope for refusing to continue the cover when the insured of Letters Patent Appeal No. 1028 of 2003 sent the revised premium by accepting the offer made by the insurer in its letter dated 30th September, 2002 stating that the policy will be renewed by paying 300% premium and requesting insured to send the revised premium.
36. The contention that once the disease occurs it ceases to be an uncertain event and, therefore, there can be no insurance of the disease that occurs during the period of the existing policy mocks at the very concept of health insurance and the public welfare scheme like the Mediclaim Insurance Scheme. At the time when the insurance cover incepts, the pre-existing diseases are not covered and, therefore, their being covered during the duration of the policy at any stage so long as it is renewed, cannot be considered to be a known event existing at the time when the cover first incepts.
37. Our above reasoning, which is in the context of the Mediclaim Insurance Scheme approved by the Central Government, floated by the GIC, and implemented by the Government Companies, draws its full vigour from the decision of the Hon'ble the Supreme Court in Biman Krishna Bose (supra), in which the Supreme Court, while considering the Mediclaim insurance policy, holding that these Insurance Companies were "State" under Article 12 of the Constitution, in terms, further held in paragraph 5 of the judgment that, the renewed contract was on the same terms and conditions as that of the original policy, and that if a view was taken 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 considerations thereby deprive the claim of the insured for treatment of disease which have appeared during the relevant time, and further deprive the insured, for all time to come, to cover those disease under an insurance policy by virtue of the exclusion clause. It was held that 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. The Court held that, once it is found that the act of the 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. Earlier, in paragraph 3 of the judgment, the Court held that, 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. The Court agreed with the view taken by the High Court that the order of the Insurance Company refusing to renew the Mediclaim policy of the appellant was unfair and arbitrary. It is clear from the judgment that its ratio is directed against all arbitrary or unfair refusals to renew the Mediclaim policy. The fact that, in the case before the Supreme Court, the ground for refusal was extraneous, will not reduce the impact of the decision from the level of setting aside any arbitrary and unfair order to merely applying it to a particular instance where refusal is on some extraneous consideration, such as, approaching the Consumer Forum.
38. It was tried to be urged on the basis of Critical Illness Insurance Policy, by the learned counsel for the insurers that, under that policy, disability of insured arising out of serious illness, such as, coronary artery surgery, cancer, renal failure, stroke etc., the policy is required to be surrendered and cancelled on payment of claim and such policy cannot be required to be renewed. It will be seen from the Revised Underlying Guidelines of the Critical Illness Insurance Policy that it is a benefit policy covering disability of the insured. The policy is meant to cover earning individuals where the insured, the company or business will be affected financially due to the occurrence of disability from the critical illness. Therefore, no parallel can be drawn from the nature of that policy for urging that renewal of mediclaim policy can be refused at the sweetwill of the Insurance Company even when the renewal premium is paid in time. In fact, the guideline No. 4 of the said Undertaking Guidelines, which were relied upon by the learned counsel for the insurers, incorporates a pre-condition that the insured "should be having a Mediclaim policy preferably also an LIC policy". Therefore a person suffering from such critical illness in order to cover disability is required to have a Mediclaim policy which also supports the view that contracting of a disease, which is covered, during the period of existing policy cannot be a ground for arbitrary refusal of renewal when the premium is paid in time by such insured. The insurer may, however, be entitled to load the premium at the time of renewal if permissible under the existing contract and the relevant law prevalent in relation to charging of premium in such cases.
Conclusions:
39. For the foregoing reasons, we conclude as under :
(1)The insured has an option under the existing Mediclaim Insurance Policy to continue the cover by payment of renewal premium in time in respect of the sum insured.
(2)In case of renewal without break in the period, the mediclaim insurance policy will be renewed without excluding any disease already covered under the existing policy which may have been contracted during the period of the expiring policy. Renewal of Mediclaim Insurance policy cannot be refused on the ground that the insured had contracted disease during the period of the expiring policy so far as the basic sum insured under the existing policy is concerned.
(3)In cases where the insured seeks an enhancement of the amount of sum insured at the time of renewal, the option to renew will not extend to the amount of such enhancement and renewal in respect thereof will depend upon the mutual consent of the contracting parties.
(4)Renewal of a medical claim insurance policy cannot be refused, despite timely payment of the renewal premium, on the ground that continuance of the cover would become more onerous or burdensome for the insurer due to the insured contracting a covered disease during the period of the existing policy.
(5)The insurer may refuse renewal, even in cases where the insured has an option to renew the policy on payment of the renewal premium in time, on the grounds, such as, misrepresentation, fraud or non-disclosure of material facts that existed at the inception of the contract and would have vitiated the insurance of the cover at its inception or non-fulfillment of obligations on the part of the insured or any other ground on which the performance of the promise under the contract is dispensed with or excused under the provisions of the Indian Contract Act or any other law or when the insurer has stopped doing business.
(6)The Government Insurance Companies continue to be "State" within the meaning of Article 12 of the Constitution notwithstanding the entry of private companies in the field of general insurance, ending their monopoly by virtue of insertion of Section 24A in the Act of 1972, and they cannot be arbitrarily cancel or refused to renew an existing Mediclaim policy."
25. In view of the aforesaid observations of the Division Bench there is nothing more required to be said and the present case is fully covered by the aforesaid observations. It has to be appreciated that in the present case the insurance company did not say that it wants to load the premium. The said loading of premium may be permissible but that too only to a reasonable extent and not with the object of making the renewal impossible. The other factor to be considered in the present case is that the policy is a joint and since 2000 no claim has been raised by petitioner No. 2.
26. An insurance company has to take an over all view and there are vast number of cases where only the premium is paid and no claims are made. It is not the respondent company's plea that it has suffered any losses in any financial year on account of payment of large amount of claims. It is not that each policy has to be seen under a microscope to determine whether the same should be renewed or not merely on account of some higher claims being made under a particular policy.
27. Learned counsel for the petitioners have also emphasised that the concept of such medial insurance has seen a sea-change even in the foreign countries and in U.S.A. Insurance Regulatory Development Authority (Protection of Policy Holder) Regulation 2002 have been enacted. In an article published titled "Protecting Consumers from unfair Rates Hikes: The need for regulation of health insurance renewal premium increases" in the Issue Brief of February 2003 - Families USA. these aspects have been considered. It may be useful to refer to some of the observations in the said article "
"People purchase health insurance to protect themselves from the financial consequences of possible future illness. Health insurance pools people who have lesser need for health care services with those who have greater need. An insurer then looks t the total pool and sets premium for everyone in it based on the collective risk of claims. People who are currently healthy subsidize the medical care of people who are not currently healthy; if they become sick, they then will benefit from this cross-subsidization of costs.
There is only one reason why healthy consumers pay for insurance : they expect to have financial help if they are unlucky and get sick some time in the future. If health insurance could be canceled or premium dramatically increased whenever people used their coverage, why would any of us buy health insurance?
In order to increase their profits, health insurers try to maximize the number of people who will pay premiums but submit few claims and to minimize the number who will make substantial claims. That is, they want to "cherry pick" the healthiest people and avoid covering people who are sick. While insurers strive to bet on customers that will stay healthy, consumers purchase health insurance anticipating that they will need coverage at some time in the future.
However, health insurance is different from these other forms of insurance for several reasons. First, while people have some control over how they choose to drive or how they protect their home. People cannot control the onset of the majority of illnesses. Our society's values and our laws generally do not support policies that penalize people on the basis of genetic make-up or other factors over which an individual has no control. Insurance companies already have the ability to raise premiums to deter some behaviors that are linked to health problems (e.g., smoking). Second compared to auto or home insurance, health insurance addresses a more fundamental need and thus the state has a much higher stake in protecting people who purchase health insurance. Policy makers must consider whether or not they truly want health insurance to work like auto insurance. Third, when people are forced to go without health insurance coverage the state is often left holding the bag: State costs for Medicaid and for public hospitals and clinics that provide care to the uninsured are likely to increase."
28. A reference has also been made by learned counsel for the respondent to the Health Insurance Probability and Accountability Act of 1996 which was enacted with the object of meeting probability and continuity of health insurance coverage in the group and individual markets, to combat waste, fraud, and abuse in health insurance and health care delivery.
29. Learned counsel for the respondent naturally sought to distinguish the aforesaid on the plea that these are based on legislation and we have no legislation in India.
30. The object, however, of the petitioners is to bring to the notice of this Court the changing international practice in respect of medical insurance. This aspect certainly needs a grater degree of scrutiny and keeping in mind the privatisation of the insurance sector it may be appropriate for the Legislature to consider enacting suitable legislation in this behalf.
31. The question now arises as to what directions is to be issued in the present case. I am of the considered view that in view of the observations in the aforesaid judgments, the medical policy of the petitioners is liable to be renewed on the same terms and conditions though for future it is open to the respondent insurance company to load the premium to a limited extent in case of high payments for insurance cover but not ignoring the fact that the policy in question is a joint policy and no claim has been made on behalf of petitioner No. 2. The over all figures with the respondent company in respect of such medical policies has also to be kept in mind and it should be ensured that in case of such loading the same is not so prohibitive as to defeat the very object of continuation of the medi-claim policy.
32. A writ of mandamus is issued directing the respondent company to renew the policy from the date of its expiry on payment on renewal premium payable by the petitioners under the Scheme and without excluding the diseases that may have been contracted during the period of policy.
33. The matter does not end even at this since even for the claim made under the policy, there was delay in making the payment. The claim was made on 06.01.2003 and this ought to have been processed expeditiously. The total coverage was of Rs. 2 lakhs and the payments of this claim could not have been withheld. The respondent, however, paid a sum of Rs. 8673/- in June 2003 and the balance payment of Rs. 1,91,164/- was made only as recently as on 10.12.2004. If the claim would have been processed properly, there is no reason why more than a month's time ought to have been taken to make the payment. I thus consider it appropriate that the petitioner must be compensated with interest for the delay in making the payment of the amounts due under the policy for the period when the petitioner was covered which was paid belatedly as aforesaid. The interest would be payable starting from the expiry of one month from the date of the complete application of the petitioners till the date of payment. The rate of interest shall be 7% simple interest.
34. A further writ of mandamus is issued directing the respondent to make the payment of said interest to the petitioner within a period of one month from the date of receipt of this order along with calculations for such interest.
35. The petitioners have been wrongfully denied the renewal of the medi-claim policy and the amounts of Rs. 2 lakhs to be paid to the petitioner have also been withheld for almost two years. The petitioners have been compelled to approach this Court to redress their grievance.
36. The petitioners shall thus be entitled to costs of the present petition quantified at Rs. 10,000/-, to be paid within the aforesaid period of one month from the date of receipt of the order.