Bombay High Court
Kalyani Avinash Gokhale & Ors vs United India Insurance Company Limited ... on 19 August, 2013
Author: D.Y. Chandrachud
Bench: D.Y.Chandrachud, S.C. Gupte
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 1219 OF 2012
Kalyani Avinash Gokhale & Ors. ..Petitioners
vs
United India Insurance Company Limited & Anr. ..Respondents
WITH
WRIT PETITION NO. 10 OF 2013
Kalyani Avinash Gokhale & Anr. ..Petitioners
vs
United India Insurance Company Limited & Ors.
ig ..Respondents
WITH
WRIT PETITION NO. 19 OF 2013
Kalyani Avinash Gokhale & Ors. ..Petitioners
vs
United India Insurance Company Limited & Anr.. ..Respondents
.....
Mr.Gaurav Joshi - Amicus Curiae.
Ms.Varda A. Gokhale, Petitioner No.3 present in person
Mr.A.S. Vadyarthi for Respondent No.1.
Mr.Sachin Joshi for Respondent No.2.
....
CORAM : DR.D.Y.CHANDRACHUD, AND
S.C. GUPTE, JJ.
19 AUGUST 2013
ORAL JUDGMENT (PER DR.D.Y. CHANDRACHUD, J.) :
In this batch of petitions, the decision of the First Respondent to decline a renewal of the Health Insurance Cover has been called into question. The first two writ petitions relate to group insurance policies while the third relates to a top up medicare policy.
2 On 18 May 2006, an agreement was entered into between the
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Bank of Maharashtra (the Second Respondent) and United India Insurance Company Limited (the First Respondent) under which a group Mediclaim insurance cover was to be provided under a scheme of the bank called "Mahabank Swasthya Yojna". The scheme was intended to provide medical insurance coverage to persons who hold accounts with the bank through what was described as "a Tailor made Group Mediclaim". Clause 1(b) of the agreement provided that every account-holder between the ages of five and sixty-five was eligible and that renewals could be granted upto the age of eighty. Clause 2 provided for coverage to the account-holder and to members of his or her family; the expression "family" being defined to mean a prime account- holder, spouse and two dependent children. Clause 2(d) provided as follows :
"(d) The risk coverage under this policy shall be in addition to any other policy held by the Account Holders with this Insurance Company or any other Insurance Company whether within this Scheme or outside the Scheme. However, claims will be paid on its ratable proportion of sum insured of all the policies to total claim amount subject to maximum of actual expenses incurred."
Hence, the coverage of risk under the policy was to be in addition to any other policy held by the account-holder either with the First Respondent or with any other insurance company whether under the scheme or otherwise. However, if an account-holder was insured under more than one policy, a claim was liable to be paid only in ratable proportion. Annexure-I to the agreement stipulates the terms of the policy, conditions and exclusions. Clause 4.1 provided for the following exclusions:
"4. EXCLUSIONS :
The Company shall not be liable to make any payment under this policy in respect of any expenses whatsoever incurred by any Insured Person in connection with or in respect of :
4.1 All diseases / injuries which are pre-existing when the cover incepts for the first time. For the purpose of applying this condition, the date of inception of the initial Mediclaim Policy taken from any of the Indian Insurance Companies shall be ::: Downloaded on - 06/01/2014 03:51:27 ::: sat 3/18 wp 1219-2012, wp 10-2013, wp 19-2013 taken, provided the renewals have been continuous and without any break. However, this exclusion will be deleted after 3 consecutive continuous claim free policy years, provided, there was no hospitalisation for the pre-existing ailment during these 3 years of insurance.
4.2 Any disease other than those stated in clause 4.3, contracted by the Insured person during the first 30 days from the commencement date of the policy.
This condition 4.2 shall not however, apply in case of the Insured person having been covered this Scheme or Group Insurance Scheme with any of the Indian Insurance Companies for a continuous period of preceding 12 months without any break."
Clause 5.9 provided that the policy may be renewed by mutual consent. Clause 5.9 also stipulated that the insurer may, at any time, cancel the policy with a notice of 30 days but would remain liable for any claim which may arise prior to the date of cancellation. A provision for arbitration in regard to disputes and differences was made in Clause 5.10.
3 The Second Petitioner, Avinash Gokhale, is the spouse of the First Petitioner who is an employee of the Bank of Maharashtra. The Second Petitioner had a policy under the Mahabank Swastha Yojna Scheme on a family floater basis from 27 December 2006 with a sum insured of Rupees five lakhs. That policy has been renewed thereafter from time to time until date. In February 2009, the Second Petitioner was detected to be suffering from cancer of the colon. On 18 April 2009, a proposal for insurance was submitted by the First Petitioner under the Swastha Yojna Scheme on a family floater basis with a sum insured of Rupees five lakhs. The proposal contained in item no.15, a query as to whether the person insured had ever suffered from ailments of the nature specified therein. Clause (h) was "any disorder of the stomach, Ulcer, Bowel or gall bladder, Kidney stones etc." To this, as regards the Second Petitioner, the query was in the affirmative with a note annexing a discharge card of the hospital at Mumbai of March 2009. The discharge card specifically referred to the diagnosis of cancer of the colon, the surgery which had been performed ("Hemicolectomy") as well as the histo pathology findings. Clause 15(i) of the proposal form required a disclosure of "any cancer, Malignant growth, Boil, Cyst ::: Downloaded on - 06/01/2014 03:51:27 ::: sat 4/18 wp 1219-2012, wp 10-2013, wp 19-2013 or wound etc. which does not heal or improve despite treatment". This was answered in the negative. On 20 April 2009, an insurance policy was issued by the First Respondent. As regards special exclusions, there was an endorsement to the effect that it would be in accordance with the standard group mediclaim and as per the MOU between the bank and the insurer. As regards existing diseases / illness / injury, the insurance policy stated that the discharge card from Bhartiya Arogya Nidhi was attached in respect of the treatment undertaken.
4 No claim was lodged in respect of the policy for 2008-09. The policy was renewed for 2010-11. When a claim came to be lodged, the First Respondent on 28 September 2010 restricted the disbursement of the claim to an amount of Rs.1.5 lakhs. The Petitioners moved a complaint before the Insurance Ombudsman aggrieved by the partial settlement of the mediclaim. On 16 September 2011, the Ombudsman made a determination by directing the First Respondent not to renew the Swastha Yojna policy held by the First Petitioner after 17 April 2012. The Insurance Ombudsman categorically rendered a finding that the First Petitioner had made a truthful disclosure of the incidence of cancer which her husband was suffered from, while applying for the policy.
However, the Ombudsman was of the view that the insurance policy ought to have made a specific endorsement to the effect that cancer being a pre-existing disease will be covered only after three years of continuous coverage. This, in his view, was a mistake of the insurer. Moreover, the Ombudsman held that the insurance policy ought to have incorporated a condition whereby a maximum cover of Rs.5 lakhs could have been provided so as to obviate the taking of multiple policies. This was admittedly not done.
5 Upon the order of the Ombudsman, the First Respondent informed the Second Petitioner that the policy could not be renewed. The grounds for non- renewal were as follows :
"A] Mahabank Swasthya Yojana Policy is a Family Package Policy and its underlying spirit is "One Family One Policy" One cannot take multiple policies by changing the Name of the Proposer where all the family members are account holders of Bank of Maharashtra.::: Downloaded on - 06/01/2014 03:51:27 :::
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B] The Insurance Ombudsman have correctly
interpreted the spirit of Mahabank Swasthya Yojana Scheme and vide their Order No.IO/MUM/A/GI-
189/2011-12 dated 16.09.2011 has been clearly ordered not to renew the above Policy after 17.04.2012. Refer to Point 03 of the Ombudsman Order No.IO/MUM/A/GI-189/2011-12 dated 16.09.2011.[Appended] C] Mrs.Kalyani Gokhale proposed above policy only after detection of your Cancer with a clear intention to take advantage of benefits of the Policy. This is selection against the Insurer.
D] All the policies held by Mrs.Kalyani Gokhale, after detection of your Cancer will not be renewed for the reasons as stated above."
Subsequently, by a letter dated 27 February 2012 the First Respondent informed the First Petitioner that there had been a non-disclosure of material facts.
Besides this, it was stated that since the policies had been obtained only after the detection of cancer, it was a case of "moral hazard and misrepresentation". The insurance company relied upon the order of the Ombudsman directing it not to renew the policy held by the First Petitioner through the Bank of Maharashtra.
In a subsequent communication dated 17 April 2012, the First Respondent again informed the Petitioners of the decision not to renew the policy in view of the decision of the Insurance Ombudsman. Accordingly, these facts have led to the institution of the first petition1.
6 The second Writ Petition2 relates to the Group Mediclaim policy for Executives and Officers of the Bank of Maharashtra. A circular was issued by the Bank of Maharashtra on 5 March 2012 stipulating the terms of the Group Mediclaim policy. The circular stipulates that all pre-existing diseases would be covered. Moreover, the sum insured was to be on a floater basis so that any one or more members of the family could avail of hospitalisation benefits upto the sum that was insured. The First Petitioner, as noted earlier, is an employee of the Bank of Maharashtra. The First Respondent issued a group insurance policy in the total sum of Rs.45.60 crores to cover 1429 employees of the bank whose names were attached. The insurance policy specifically states that it was not 1 Writ Petition 1219/2012 2 Writ Petition 10/2013 ::: Downloaded on - 06/01/2014 03:51:27 ::: sat 6/18 wp 1219-2012, wp 10-2013, wp 19-2013 subject to a special exclusion. An identity card under the group insurance cover was issued, both to the First Petitioner and to her spouse, the Second Petitioner. The subject matter of the Petition relates to a letter addressed on 23 July 2012 by the First Respondent to the bank stating that the First Petitioner had covered her spouse under the group insurance policy for the first time upon the refusal of the First Respondent to renew the other policy in accordance with the decision of the Insurance Ombudsman, since according to the First Respondent, the matter was sub judice and pending in the court. The name of the Second Petitioner was deleted from the date of inception and the premium paid on that account was refunded.
7 The third Petition3 relates to a Super Top Up Medicare policy. The salient features of the policy as described in the brochure of the First Respondent are as follows :
"This Policy covers aggregate hospitalisation expenses in respect of all covered hospitalisation of insured person/s during the policy period exceeding the Threshold Level up to a Sum Insured stated in the policy. It gives additional protection at an affordable price when hospitalisation costs are very high. This is irrespective of whether the insured has any other Health Insurance Policy or not.
This policy will respond only when the aggregate of covered hospitalisation expenses exceeds the "Threshold Level" stated in the policy."
Significantly, the exclusions in respect of the cover provided are to the following effect :
"EXCLUSIONS:-
Pre-existing disease coverage will not be available for an insured person during the first four years since inception of his/her Super Top Up Medicare policy with the Company.
N.B.: A Pre-existing disease is defined as "any condition, ailment or injury or related condition(s) for 3 Writ Petition No. 19/2013 ::: Downloaded on - 06/01/2014 03:51:27 ::: sat 7/18 wp 1219-2012, wp 10-2013, wp 19-2013 which insured person had signs or symptoms, and / or was diagnosed and/or received medical advice/treatment within 48 months prior to Super Top Up Medicare Policy with the Company."
In case of persons having any other Health Insurance Policy from any Company with a Sum Insured above Threshold Level at the time of taking this policy, the exclusion period of 48 months for Pre-existing Disease/Condition will be reckoned from the date of inception of the policy for such portion of Sum Insured, including Cumulative Bonus earned if any, above the Threshold Level. If expiring policy sum insured has increased over the years, the 48 months of continuous coverage has to be completed for the incremental sum insured."
By a letter dated 23 August 2012, the First Respondent informed the First Petitioner that the policy could not be renewed on the ground that she held multiple policies.
8 These decisions of the First Respondent declining to renew the policies have been called into question.
9 At the outset, it would be necessary to define the role and position of the Insurance Ombudsman. By a notification dated 11 November 1998 of the Union Ministry of Finance (Department of Economic Affairs - Insurance Division), the Central Government framed the Redressal of Public Grievances Rules, 1998 in exercise of powers conferred by Section 114(1) of the Insurance Act, 1938. The Rules apply to all insurance companies operating in the general insurance business as well as in the life insurance business. The Insurance Ombudsman has been established under the Rules. Under Rule 12, the Ombudsman is required to consider (i) complaints under Rule 13; (ii) cases of partial or total repudiation of claims by an insurer; (iii) disputes in regard to the premium paid or payable; (iv) disputes on legal construction of policies insofar as they relate to claims; (v) cases of delay in settlement of claims; and (vi) non-issuance of insurance documents to customers after the receipt of premium. Rule 12(2) requires the Ombudsman to act as a counsellor and mediator in matters which are within his terms of reference and is requested to do so in writing by mutual ::: Downloaded on - 06/01/2014 03:51:28 ::: sat 8/18 wp 1219-2012, wp 10-2013, wp 19-2013 agreement between the insured and insurer. Rule 14(2) requires the Ombudsman to dispose of the complaint fairly and equitably.
10 Rules 15, 16 and 17 provide as follows:
"15. Recommendations made by the Ombudsman:
(i) When a complaint is settled, through mediation of the Ombudsman, undertaken by him in pursuance of request made in writing by complainant and insurer through mutual agreement, the Ombudsman shall make a recommendation which he thinks fair in the circumstances of the case. The copies of the recommendation shall be sent to the complainant and the insurance company concerned. Such recommendation shall be made not later than one month from the date of the receipt of the complaint.
(ii) If a complainant accepts the recommendation of the Ombudsman, he will sent a communication in writing within 15 days of the date of receipt of the commendation. He will confirm his acceptance to Ombudsman and state clearly that the settlement reached is acceptable to him, in totally, in terms of recommendations made by the Ombudsman in full and final settlement of complaint.
(iii) The Ombudsman shall sent to the insurance company a copy of the recommendation along with the acceptance letter received from the complainant. The insurer shall thereupon comply with the terms of the recommendations immediately not later than 15 days of the receipt of such recommendation and the insurer shall inform the Ombudsman of its compliance.
16. Award:
(1) Where the complaint is not settled by agreement under Rule 15, the Ombudsman shall pass an award which he thinks fair in the facts and circumstances of a claim.
(2) An award shall be in writing and shall state the amount awarded to the complainant: Provided that Ombudsman shall not award any ::: Downloaded on - 06/01/2014 03:51:28 ::: sat 9/18 wp 1219-2012, wp 10-2013, wp 19-2013 compensation in excess of which is necessary to cover the loss suffered by the complainant as a direct consequence of the insured peril, or for an amount not exceeding rupees twenty lakhs (including ex-gratia and other expenses), whichever is lower.
(3) The Ombudsman shall pass an award within a period of three months from the receipt of the complaint.
(4) A copy of the award shall be sent to the complainant and the insurer named in the complaint.
(5) The complainant shall furnish to the insurer within a period of one month from the date of receipt of the award, a letter of acceptance that the award is full and final settlement of his claim.
(6) The insurer shall comply with the award within 15 days of the receipt of the acceptance letter under sub-rule (5) and it shall intimate the compliance to the Ombudsman.
17. Consequences of non-acceptance of award: If the complainant does not intimate the acceptance under sub-rule (5) of rule 16, the award may not be implemented by the insurance company."
Rule 15(1) enables the Ombudsman to make a recommendation when a complaint is settled through the mediation undertaken by him. A complainant who accepts the recommendation of the Ombudsman has to send a communication to that effect within fifteen days of the receipt of the recommendation. Thereupon, the Ombudsman has to forward to the insurance company a copy of the recommendation together with a letter of acceptance for compliance. Under Rule 16, where the complaint is not settled under Rule 15, an Ombudsman has to pass an award which he thinks fair in the circumstances. Rule 16(5) enables the complainant upon receipt of the award to furnish to the insurer within a period of one month of a letter of acceptance that the award is in full and final settlement of the claim. Thereupon, Rule 16(6) provides that the insurer shall comply with the award within fifteen days of the receipt of the letter of acceptance under Sub-Rule 5. Rule 17 provides for the consequences of the non-acceptance of an award. It stipulates that if the complainant does not ::: Downloaded on - 06/01/2014 03:51:28 ::: sat 10/18 wp 1219-2012, wp 10-2013, wp 19-2013 intimate an acceptance under Rule 16(5), the award "may not be implemented by the insurance company".
11 Under the scheme which has been provided for in the Rules of 1998, the binding character either of a settlement before the Ombudsman under Rule 15 or of an award under Rule 16 emanates from the complainant indicating in writing an acceptance of the recommendation (in the case of a mediation) and of the award in other cases. In the case of an award under Rule 16, if the complainant does not indicate his acceptance as required under Rule 16(5), the award may not be implemented by the insurance company. The words "may not be implemented" do not confer a discretion on the insurance company to implement the award even where the complainant has not indicated an acceptance of the decision. If the complainant accepts the decision, the insurer has to comply with the award of the Ombudsman as stipulated by Rule 16(6). On the other hand, where the complainant has not indicated an acceptance by issuing a letter within a period of one month from the date of receipt of the order, the award is not to be implemented by the insurance company. The mechanism before the Ombudsman is a purely voluntary process and the binding character of the recommendation or as the case may be, of an award of the Ombudsman arises only when the complainant has accepted the decision.
12 In the present case, there has been a fundamental fallacy in the approach of the insurer to the recommendation of the award of the Ombudsman. In the absence of an unequivocal letter of acceptance by the First Petitioner, who had complained to the Ombudsman, the insurer could not have treated the decision of the Ombudsman as a binding direction that the policy which was issued to the First Petitioner should not be renewed after 17 April 2012. Since the First Petitioner had not accepted the decision, there was no occasion to treat the order of the Ombudsman as a binding edict. The decision of the insurer not to renew the policy on the basis of the decision of the Ombudsman is flawed and vitiated.
13 During the course of the hearing, the First Respondent has urged two submissions on the basis of which it has been urged that the Petitioners were not entitled to a renewal. Firstly, it has been submitted that there has been ::: Downloaded on - 06/01/2014 03:51:28 ::: sat 11/18 wp 1219-2012, wp 10-2013, wp 19-2013 a suppression of material facts on the part of the First Petitioner. Secondly, it has been submitted that it was not open to the First Petitioner to have multiple policies to cover the risk. Insofar as the issue of suppression is concerned, it is evident from a plain reading of the insurance proposal that the First Petitioner did disclose the fact that the Second Petitioner had been detected to be suffering from cancer of the colon. In answer to Clause 15(h), which was in the affirmative, reliance was placed on the discharge card of Arogya Nidhi hospital. The discharge card clearly refers to the diagnosis of the Second Petitioner as suffering from cancer of the colon, the surgical procedure that was performed and the histo pathology findings. As a matter of fact, when an insurance policy was issued by the First Petitioner, the policy document dated 28 April 2009 specifically made a reference to the discharge card which was attached in regard to the treatment undertaken for an existing disease / illness. In view of this clear disclosure, it would be preposterous to contend that that there was a suppression of fact or misrepresentation. Sub-clause (i) of Clause 15 of the proposal form which follows immediately after Sub-clause (h) requires a disclosure of "any cancer, Malignant growth, Boil, Cyst or wound etc." a person has been suffering "which does not heal or improve despite treatment". It has not been the case of the insurer that the case of the Second Petitioner was of the nature described in Clause 15(i) or that there was no improvement despite treatment. In any event, when the answers to Clauses 15(h) and 15(i) are read together, as they must be fairly read, there was a complete and full disclosure of the pre-existing condition of the Second Petitioner.
14 That apart, the agreement which was entered into between the insurer and the bank on 18 May 2006 stipulates in Clause 4.1 of Annexure-I that all diseases which were pre-existing when the cover incepts for the first time would be outside the coverage. For the purpose of complying with the condition, the date of inception of the initial mediclaim policy taken from any Indian insurance company was to be counted so long as the renewals had been continuous and without a break. However, even this exclusion was to be deleted after three consecutive continuous claim free years provided there was no hospitalisation for the pre-existing ailments during that period. The issue as to whether a claim falls within an exclusion is to be distinguished from whether the policy itself is capable of being renewed. Even if a policy is renewed, in a given ::: Downloaded on - 06/01/2014 03:51:28 ::: sat 12/18 wp 1219-2012, wp 10-2013, wp 19-2013 case, a claim if lodged may fall within the terms of an excluding clause. The present case is not concerned with whether the claim falls or was within the exclusions stipulated in the policy. The issue is whether the insurance company was justified in declining to grant a renewal altogether.
15 Clause 5.9 of Annexure-I to the Agreement dated 18 May 2006 provides that the policy may be renewed by mutual consent. The insurer is under Clause 5.9 permitted to cancel the policy with a notice of thirty days. The renewal of a mediclaim policy cannot lie at the whim and caprice of the insurer. Health Insurance is in contemporary times one of the most fundamental needs of every person in society being a vital component of the right to live a life which is secure from disease and ailment. The First Respondent is an insurer who operates in a field which is regulated by public law, being an authority of the State within the meaning of Article 12 of the Constitution. Decisions of an authority of the State are subject to constitutional safeguards. When an insurer who is subject to the mandate of Part III of the Constitution takes a decision not to renew a policy of insurance, that decision is subject to scrutiny, on whether the reason for non-renewal was arbitrary and violative of Article 14 of the Constitution. The jurisdiction under Article 226 of the Constitution cannot be ousted merely by asserting that the dispute arises in the contractual sphere. Contractual matters are not alien to the exercise of the jurisdiction under Article 226 of the Constitution. Undoubtedly, as a matter of self imposed restraint, the court would not be inclined to consider complicated issues which turn upon an assessment of evidence and disputed questions of fact. But, where as in the present case, the decision of the insurer is sought to be challenged on the ground that it is based on a wholly extraneous consideration, such a decision cannot be immune from judicial review. The reliance which has been placed by the insurer on a non-binding procedure before the Insurance Ombudsman is thoroughly arbitrary because in the absence of the consent of the insured, the decision of the Ombudsman could not have been enforced in view of the Rules of 1998. The second reason to the effect that there was a suppression of material facts is, for the reasons already indicated, equally perverse. There was indeed no suppression of fact on the part of the Petitioners.
16 The third reason for denying the benefit of renewal is that the First
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Petitioner had taken recourse to multiple policies. Now in this regard, it is evident from the terms of the agreement dated 18 May 2006 between the insurer and the bank that the risk coverage under the policy was to be in addition to any other policy held by the account-holder either with the First Respondent or any other insurance company; either within the scheme or outside the scheme. However, the claims were liable to be paid only on a rateable basis. Thus, there could be no manner of doubt that there was absolutely no bar to the insured seeking an extended cover with more than one policy either with the same insurer or with more than one insurer.
17 In the second writ petition4 the only ground which has been pressed on behalf of the insurer is that multiple insurance policies had been obtained.
Now it is abundantly clear from the policy document issued by the First Respondent in favour of the First Petitioner that the policy was not subject to any special exclusion. Moreover, even pre-existing diseases were covered, as is evident from the Bank's Circular dated 5 March 2012. As regards the third petition5 the only ground for refusal to renew is again that multiple policies have been obtained. For the reasons which we have already indicated earlier, there was no bar on the insured seeking multiple covers. As a matter of fact, the salient features of the policy as stipulated in the prospectus issued by the First Respondent stipulate that the top up medicare policy was to give additional protection at an affordable price when hospitalisation costs are very high and this was irrespective of whether the insured has or does not have any other health insurance policy. However, the policy would respond only when the aggregate of covered hospitalisation expenses would exceed the threshold level stated in the policy.
18 The principle that decisions in regard to the renewal of an insurance policy must be based on logical and cogent considerations has been laid down in several judgments of the Supreme Court. In the Biman Krishna Bose vs. United India Insurance Co.Ltd.6, the Supreme Court held as follows :
5. A renewal of an insurance policy means repetition of 4 Writ Petition No.10/2013 5 Writ Petition No.19/2013 6 (2001) 6 SCC 477, ::: Downloaded on - 06/01/2014 03:51:28 ::: sat 14/18 wp 1219-2012, wp 10-2013, wp 19-2013 the original policy. When renewed, the policy is extended and renewed policy in the 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 consideration, 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 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. (emphasis supplied) 19 A similar view was reiterated in United India Insurance Company Limited vs. Manubhai Dharmasinhbhai Gajera7 as follows :
50. As a proposition of law, where a renewal is based on mutual consent, there may be no automatic renewal as has also been held by this Court in H.P. Corpn. Ltd. v. Kolhapur Agricultural Market Committee (2007) 6 SCC 159 but as would be discussed hereinafter, a mediclaim policy where a senior citizen is involved would stand somewhat on a different footing. It will depend upon the contract entered into between the parties and the statutes 7 (2008) 10 SCC 404 ::: Downloaded on - 06/01/2014 03:51:28 ::: sat 15/18 wp 1219-2012, wp 10-2013, wp 19-2013 operating in the field as also constitutional scheme.
We do not agree with the submission of the learned Solicitor General that wherever renewal is subject to mutual consent to the parties, a State may at its whims and caprice refuse to renew. (emphasis supplied) The Supreme Court further held as follows :
"70. When an exclusion clause is resorted to, the terms thereof must be given effect to. What was necessary is a pre-existing disease when the cover was incepted for the first time. Only because the insured had started suffering from a disease, the same would not mean that the said disease shall be excluded. If the insured had made some claim in each year, the insurance company should not refuse to renew insurance policies only for that reason. The words "incepts for the first time" as contained in Clause 4.1 as also the words "continuous and without break" if the renewal premium is paid in time, must be kept in mind as also the reasons for cancellation as contained in Clause 7(1)(n) thereof.
"71. Renewal of a mediclaim policy subject to just exceptions should ordinarily be made. But the same does not mean that the renewal is automatic. Keeping in view the terms and conditions of the prospectus and the insurance policy, the parties are not required to go into all the formalities. The very fact that the policy contemplates terms for renewal, subject of course to payment of requisite premium, the same cannot be placed on a par with a case of first contract."
20 On 31 March 2009, the Insurance Regulatory and Development Authority issued a circular in regard to the renewal of health insurance policies. The circular was issued in compliance with the provisions of Section 14(1) and Section 14(2)(b) of the Insurance Regulatory and Development Authority Act, 1999 and in view of recent court judgments and the recommendations of the various committees and working groups constituted by the authorities. The circular stipulates as follows :
"1. A health insurance policy shall be ordinarily renewable except on grounds such as fraud, moral ::: Downloaded on - 06/01/2014 03:51:28 ::: sat 16/18 wp 1219-2012, wp 10-2013, wp 19-2013 hazard or misrepresentation and upon renewal being sought by the insured, shall not be rejected on arbitrary grounds. Specifically, renewal shall not be denied on the ground that the insured had made a claim (or claims) in the previous or earlier years."
Undoubtedly, the circular also stipulates that it shall not be applicable to Tailor made or Group Health Insurance policies. However, it is evident that the principle which is enunciated in the circular, as extracted above, is a reiteration of the norm that the decision of an insurer not to renew a health insurance policy must be for reasons which are germane and on considerations which are not arbitrary or extraneous. On 16 February 2013, the Insurance Regulatory and Development Authority (Health Insurance) Rules, 2013 have been notified.
Clause 5(f) has now made the following provisions as regards the renewal of policies :
"f. Renewal of Policies i. A health insurance policy shall ordinarily be renewable except on grounds of fraud, moral hazard or misrepresentation or non-cooperation by the insured.
ii. The renewal of a health insurance policy sought by the insured shall not be denied arbitrarily. If denied, the insurer shall provide the policyholder with cogent reasons for such denial of renewal.
iii. A insurer shall not deny the renewal of a health insurance policy on the ground that the insured had made a claim or claims in the previous or earlier years, except for the benefit based policies where the policy terminates following payment of the benefit covered under the policy like critical illness policy following payment of the critical illness benefit, the policy terminates.
iv. The insurer shall provide for a mechanism to condone a delay in renewal up to 30 days from the due date of renewal without deeming such condonation as a break in policy. However coverage need not be ::: Downloaded on - 06/01/2014 03:51:28 ::: sat 17/18 wp 1219-2012, wp 10-2013, wp 19-2013 available for such period.
v. The promotion material and the policy document shall explicitly state the conditions under which a policy terminates, such as on the payment of the benefit in case of critical illness benefits policies."
21 Regulation 1(c) provides that unless otherwise provided by the Regulation, nothing in the Regulations shall be deemed to invalidate health insurance contracts which were entered into prior to the Regulations coming into force. We have, already and quite independently of the Regulations of 2013, come to the conclusion that even on the basis of the law, as it then stood prior to the enforcement of the regulations, the decision of the insurer not to renew a health insurance cover was required to be for reasons which were fair, reasonable and not arbitrary. These principles have now, in fact been codified in the new Regulations of 2013.
22 For these reasons, we are of the view that the decision of the First Respondent in declining to renew the insurance policies was arbitrary and would have to be set aside. We, however, clarify that we have not for the purposes of these proceedings entered upon the question as to whether the Petitioners would be entitled to claim any specific amount in respect of the insurance policies in question. In respect of the first of the three writ petitions, it is common ground that an award was passed in pursuance of the arbitration agreement which was challenged unsuccessfully before the District Court and in appeal before this Court. That aspect does not form the subject matter of these proceedings in which the only issue for the court to determine was whether the First Respondent was justified in declining to renew the insurance policies.
23 For these reasons, we set aside the communications of the First Respondent declining to grant the benefit of renewal and directing the deletion of the name of the Second Petitioner from the Group Insurance cover. The First Respondent shall now abide by the aforesaid directions.
24 Before we conclude, we would also refer to the fact that the
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Petitioners are being represented in these proceedings by the Third Petitioner (an Advocate, who is the daughter of the First and Second Petitioners). Since the Third Petitioner is a junior lawyer and was appearing in person, we have considered it appropriate to request Mr.Gaurav Joshi, learned Counsel practising before this Court to assist the court as amicus curiae. The Court wishes to record its appreciation of the able assistance which has been rendered by the learned amicus curiae.
25 Rule is made absolute accordingly in the aforesaid terms. There shall be no order as to costs.
ig (Dr. D.Y.Chandrachud, J.)
(S.C. Gupte, J.)
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