Renewal of insurance policy cannot be denied on the basis of insured contracted disease during policy period

United India Insurance Company vs. Mohanlal Aggarwal
Dated: 5th December 2003
Hon'ble Gujarat High Court

HELD THAT

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.

THE BRIEF FACTS

1. In this case, the petitioner had applied for a Mediclaim insurance policy for the first time in 1990 for a sum of Rs.90,000/-.

2. The sum insured under the policy was thereafter revised to Rs.3 lakhs from 1993-94.

3. The policy was being renewed from time to time on the regular payment of the premium amount by the insured and was lastly renewed on 4th October 2001.

4. The insured requested for a further renewal by his letter dated 9th September 2002 forwarding the banker's cheque of the premium amount to the insurer, which was well ahead of the date of 3rd October 2002 on which the existing policy was to end.

5. A reminder was sent by the insured on 17-9-2002 requesting the insurer to renew the policy, followed by a legal notice dated 27-9-2002.

6. Thereafter, on 30th September 2002, the insurer addressed a letter to the insured that, due to "high claim experience", the policy will be renewed by loading of 300% premium and the insured was accordingly required to issue a cheque for the revised premium.

7. The insured accordingly deposited the amount of the revised premium by cash on 1-10-2002 being 300% premium for which a receipt was issued by the insurer on 1-10-2002.

8. The regular premium as well as extra premium were thus paid by the insured in time i.e., before the end of the term of the existing policy.

9. However, thereafter, on 3rd October 2002, the insurer issued a letter on the insured to the effect that the policy could be renewed only subject to the exclusion of five diseases. The major diseases against which the insured was covered were sought to be excluded from the policy.

10. According to the insured, he was 65 years of age and needed coverage of Mediclaim the most, because of his chronic renal failure, and the action of the insurer seeking to exclude all major diseases from the coverage was arbitrary and illegal and not befitting a Government of India Company, which was created for the public and social.

11. The insurer contested the petition by filing affidavit-in-reply dated 25th December 2002 contending that the insured was not entitled to get the Mediclaim insurance policy renewed without the exclusionary clause in view of the stipulation in clause No.5.9 of the policy, as per which, the policy may be renewed by mutual consent and the company may at any time cancel the same by sending the insured a thirty days' notice and refunding the prorata premium for the unexpired period.

According to the insurer, the policy cannot be renewed without mutual consent and the extraordinary jurisdiction of the High Court cannot be invoked in getting it renewed.
It was further contended that the Mediclaim policy which was issued by the insurance company was "not statutorily required and, therefore, there is no legal right and obligation between the Company and the petitioner".

It was also submitted that there was nothing arbitrary in refusing to renew the policy, and that the decision of the Apex Court in Biman Krishna Bose v. United India Insurance Company Ltd., reported in 2001 (6) SCC 477, was not applicable to the case, because, the question that the policy could be renewed only by mutual consent did not arise in that case and that the monopoly as regards the general insurance business did not now remain with the companies.

It was also contended that the condition of the insured was a chronic condition requiring dialysis at least four times in a month and the suggestion implied in his letter dated 2nd October 2002 that dialysis would continue till the end of October 2002 as opined by the doctor, amounted to making of a false statement for getting the policy renewed.

It was submitted that the insured was financially very sound and had a roaring business and therefore, the statement that he was unable to make both ends meet was false. It was also pointed out that, in the past, the claims of the insured for Rs.80,000=00 for heart surgery in the year 1994, for Rs.60,000=00 for T.B. treatment in the year 2000 and for Rs.2,05,000=00 for kidney failure treatment in the year 2002, were paid by the insurer.

It was further contended that now the diseases contracted by the insured were undisputedly known and in such circumstances, the element of "unforeseen event or occurrence" had ceased to exist and therefore, the insurance being essentially an agreement whereby the insurer agrees to indemnify the person insured against an unforeseen event, the insured was not entitled to get the insurance of such diseases which were by now known.

OBSERVATIONS

12. 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 sweet will of the insurance company even when the renewal premium is paid in time. In fact, the guideline No.4 of the said Underwriting 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 premiums in such cases.

FINAL ORDER

14. For the foregoing reasons, we find ourselves in agreement with the reasoning and conclusions of the learned Single Judge in the impugned order from which the Letters Patent Appeals No.1028 of 2003, No.1003 of 2003 and 1004 of 2003 arise, and there being no warrant for interference with the same, all the three appeals are, therefore, dismissed with costs.

15. For the foregoing reasons, since the grounds given for refusing to renew the Mediclaim insurance policies of petitioners Nos. 2 and 3 are arbitrary and also against the contractual terms, the Special Civil Application No.9425 of 2002 is partly allowed, by holding that the refusal of renewal of the Mediclaim insurance policy of the petitioners No.2 and 3 was arbitrary and illegal, and it is directed that the respondents insurance companies will renew their respective policies from the date on which they expired, on payment of the renewal premium payable by them under the Scheme, without excluding the diseases that may have been contracted by them during the period of their existing policies for the concerned year. Rule is made absolute accordingly with costs.

CONCLUSIONS

(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-fulfilment 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 arbitrarily cancel or refuse to renew an existing Mediclaim policy.

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