SC: Any change in terms and conditions of insurance should be intimated to the insured at the time of renewal

JACOB PUNNEN & ANR.Vs.UNITED INDIA INSURANCE CO. LTD.
THE SUPREME COURT OF INDIA
CIVIL APPEAL NO. 6778 OF 2013

BRIEF FACTS

• The undisputed facts are that the appellants contracted with the respondent (hereinafter referred to as "the insurer") and secured a medical insurance policy (hereinafter referred to as "Mediclaim"), for the first time in 1982.
• The policy was annual and was renewed successively, each year by the appellants by paying the appropriate premium - the last renewal policy forming the subject matter of the present appeal.
• The policy renewed by the appellants on 28.03.2007 was in force for a year i.e., till 27.03.2008. Before the date of expiry of the Mediclaim (on 27.03.2008), the insurer sent a reminder to the appellants to renew their policy, if they so wished, annually.
• The reminder also intimated the appellants that the premium was 17,705/- and had to be paid by Rs. 27.03.2008.
• The appellants paid the requisite amount by cheque (issued on 26.03.2008) and in this regard the receipt was received from the insurer on 30.03.2008.
• This receipt indicated that the insurance policy period would be operative from 28.03.2008 to 27.03.2009. The monetary coverage of the policy was 8,00,000/- (4,25,000/- for the first appellant and 3,75,000/- for the second appellant).
• The second appellant had to undergo angioplasty in June (09.06.2008 to 12.06.2008) at Chennai.
• The appellants submitted a claim for Rs. 3,82,705.27/- to the insurer, as amounts due under the contract of insurance policy, towards the expenses incurred by them. The insurer, however, accepted the claim and paid the partial amount by releasing 2,00,000/- to them.
• Feeling aggrieved, the appellants represented to the insurer, repeatedly and unavailingly to the insurer to make good the balance amount.

District Consumer Disputes Redressal Forum (hereafter "the District Forum"), Kottayam

• Exhausted, the appellants filed a complaint before the District Consumer Disputes Redressal Forum (hereafter "the District Forum"), Kottayam for a direction that the insurer ought to pay them 2,07,705/- along with costs and interests on the compensation.
• The insurer's position before the District Forum was that the terms and conditions of Mediclaim policy changed periodically. The policy for the relevant year indicated that in respect of procedures (such as angioplasty), 70% of the policy limit could be claimed subject to an overall limit of 2,00,000/- for any one surgery or procedure. The insurer also argued that having been issued with the policy document, which was accepted by the appellants, the latter could not then complain that they were any amounts over and above the terms agreed upon.
• The District Forum allowed the appellants' complaint holding firstly that an insurance contract evidences a commercial transaction, and is to be construed like any other agreement, on its own terms subject to fulfilment of the conditions of uberrima fides i.e., utmost good faith by the parties and secondly that the insurer was under a duty to intimate to be insured with respect to change in terms before the renewal of the policy.
• On the basis of these findings, the District Forum directed the insurer to pay the appellants, 1,75,000/- as the balance amount and also awarded 5,000/- as compensation.

The State Consumer Redressal Commission

• Aggrieved, the insurer approached the State Consumer Redressal Commission which by its order upset the findings of the Consumer Forum, holding that the terms of the policy were known to the appellants who were bound by it.

The National Consumer Disputes Redressal Commission

• In these circumstances, the appellants approached the NCDRC with a revision petition.
• The NCDRC upheld the insurer's contention that the insurance policy renewed by the appellants on 28.03.2008 was a fresh contract entered into between the parties which reflected changes compared with the previous terms.
• These conditions - the NCDRC held - were known to the appellants or were presumed to be known since they had claimed under that policy and that it was not open to them to claim ignorance of the terms under the fresh policy which had placed percentage and monetary cap on certain types of surgical procedures.

THE ARGUMENTS

THE LEARNED COUNCIL OF THE APPELLANT

The learned council for appellant argued, placing reliance on Biman Krishna Bose v. United India Insurance Co. Ltd. , and United India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera3 , it was argued that the renewal of an insurance policy would imply that the existing terms would bind the parties. As a consequence, the insurer being a party cannot impose unilateral changes, either at the point of time when the policy is renewed or during its currency

• Learned counsel for appellant compared the terms of the previous policy (which had covered the period March 2007-March 2008) with the policy in question (for the period March 2008 to March 2009) and submitted that the overall limit of coverage was changed by the appellants as compared to the previous year. It was also stated that the previous policy covered health risks of three individuals i.e., the appellants and their son whereas the policy in question covered only the appellants. Counsel submitted furthermore that the insurer had undeniably issued a notice pursuant to which a policy was renewed on 26.03.2008. In the circumstances, it was duty of the insurer to inform the insured of the likely change in coverage to enable them to explore an alternative i.e., to opt for a policy that would cover all risks more comprehensively, even if it were to cost them more. Counsel urged that in these circumstances, the insurer was clearly guilty of deficiency of service in as much as the insurer was in the dark about the nature of the limited coverage.

THE LEARNED COUNCIL OF THE INSURER

• It was submitted that the insurer was under no obligation to indicate or to intimidate to the appellants about the likely changes under its policies. In other words, there was no duty in law which obliged the insurer to intimate the policy holder - at the point of time of renewal that the terms of the new policy would be different from those of the earlier, lapsed/expired policy. It was submitted that the term "renewal" has no special significance given that the contract of insurance i.e., policy in this case is the first annual one. Therefore, the policy for 2008-09 is a different contract of insurance from the one which preceded it. Learned counsel submitted that the very circumstance that a higher coverage limit was indicated in respect of two individuals only as compared to three insured under the previous policy showed that the insurer had complied with the offer of the insured, who desired such coverage.
• Learned counsel for the insurer brought to the notice of this Court that the obligation of intimating the insured, has been spelt out in the Standardized General Terms and Clauses in Health Insurance Policy Contracts by the Insurance Regulatory and Development Authority of India (IRDA), in 2020. He submitted that the obligation to intimate stems out of Clause 14 which deals with the possibility of revision of terms of a policy including the premium rates. This clearly indicates that only the existing policy holder has to be notified. However, in renewal of same policy does not place any such obligation upon the insurer to intimate insured person at the point of renewal of the policy.
• It was urged furthermore that the monetary cap of 2,00,000/- in the Rs. present case was not conjured by the insurer, which merely complied the IRDA's directions. In this regard, the learned counsel submitted that insurer acted upon the IRDA's direction, which were communicated to its offices and branches by way of internal guidelines. Learned counsel also submitted that at the point of time of renewal, no implied obligation on the part of the insurer can be inferred given that each transaction signifies a fresh contract of Insurance. In other words, it is up to the insured to inquire, if the terms of the renewed policy would be in any way would be different from the previous one.

ANALYSIS BY THE SUPREME COURT

• Suffice it to say that the appellants are husband and wife and along with their son obtained an insurance policy in the year 2006 with certain conditions attached.
• In fact, they have a case that they had a policy of insurance for several years with the respondent insurer. They obtained the policy in question for the year 2008, however, wherein the son was not included and there was also change in the amount of the insurance. The period of insurance was operative from 28.03.2008 to 27.03.2009. It is while this policy was in force that the second appellant went for angioplasty in June 2008 and a claim for Rs.3,82,705.27 was submitted.
• The insurer paid a sum of Rupees Two Lakhs only. The reduction in the claim was based on the express provisions which was in force in the policy in issue. Under the earlier policy for previous year such a clause was conspicuous by its absence. It is also true that a notice was issued by the respondent Insurer for renewal and the appellants issued a cheque towards renewal on 26.3.2008. It is thereafter that the policy in question for the period in question (28.3.2008 to 27.3.2009) came to be issued.

In Biman Krishna Bose v. United India Insurance Co.Ltd.26 this Court inter alia held as follows:

"5. A renewal of an insurance policy means repetition of the original policy. When renewed, the policy is extended and the renewed policy in identical terms from a different date of its expiration comes into force.

In common parlance, by renewal, the old policy is revived, and it is sort of a substitution of obligations under the old policy unless such policy provides otherwise.

It may be that on renewal, a new contract comes into being, but the said contract is on the same terms and conditions as that of the original policy.

Where an insurance company which has exclusive privilege to carry on insurance business has refused to renew the Mediclaim policy of an insured on extraneous and irrelevant considerations, any disease which an insured had contacted during the period when the policy was not renewed, such disease cannot be covered under a fresh insurance policy in view of the exclusion clause.

The exclusion clause provides that the pre-existing diseases would not be covered under the fresh insurance policy. If we take the view that the Mediclaim policy cannot be renewed with retrospective effect, it would give handle to the Insurance Company to refuse the renewal of the policy on extraneous consideration thereby deprive the claim of the insured for treatment of diseases which have appeared during the relevant time and further deprive the insured for all time to come to cover those diseases under an insurance policy by virtue of the exclusion clause. This being the disastrous effect of wrongful refusal of renewal of the insurance policy, the mischief and harm done to the insured must be remedied.

We are, therefore, of the view that once it is found that the act of an insurance company was arbitrary in refusing to renew the policy, the policy is required to be renewed with effect from the date when it fell due for its renewal."

• Proceeding on the basis of the principles enunciated thereunder, a renewal of the contract would ordinarily, undoubtedly involve the expectation of replication of the terms of the original contract and what is more, the actual continuation of the terms. However, as noted, the actual contract may provide otherwise. The terms of the renewed contract of insurance may be located in the actual contract of insurance. A renewed contract of insurance may provide terms which are different from the terms of the original contract of insurance.
• However, the claim under the Consumer Protection Act must allowed on the ground that there has been a deficiency on the part of the Insurer. The Insurer brought about a change in the policy. This change introduced a cumbersome limitation. It kept the Insured in the dark about the limitation at the time , when the renewal notice was issued, and what is more, the premium was accepted.
• The Insurer had a duty to inform the appellants that a change regarding the limitation on its liability was being introduced. This duty to take the insured into confidence was breached. This was the deficiency in service. Even proceeding on the basis that the policy incorporates the terms of the contract, insofar as the respondent insurer unilaterally purported to incorporate a clearly cumbersome limitation involving a breach of the duty to take the appellants into confidence, the court would not be powerless to undo the wrong.

Be it that the policy purported to incorporate the substantive limitation, the appellant can be relieved of the result of the deficiency in service by the insured. This can be done by restoring the position, the appellants would occupy if there was no breach.

The Court of the view that the appeal be allowed on the basis that there was unjustifiable non-disclosure by the Insurer about the introduction of clause of limitation and, in this case, it constituted a deficiency in service and resultantly the appellants are entitled to relief.

Therefore, agree that the appeal be allowed.

CONCLUSION

From above decision it is clear that an insurance company has obligation and duty to intimate the insured at the time of renewal of exiting insurance polices ,if there is any change in the terms and conditions of insurance. It is generally assumed that renewal of an insurance policy will be held on the basis of terms and conditions contains in the old insurance policy and there is no change. One of the most important principles on which insurance is based is "Utmost Good Faith," it means than insurer and the insurance company has to declare and reveal and material facts to each other on the basis of which contract of insurance entered. If there is any change in the terms and conditions of insurance same should be intimated and shared with the insured ,so that insured will take informed decision and his /her claim would not be repudiated by the insurance company at the time of need.

DISCLAIMER: The case law produced above is for information of readers only. The views expressed here are the personal views of the author and same should not be taken as professional advice. In case of necessity do consult with professionals for more clarity and understanding of subject matter.