SC: Insurance Ombudsman's Award Can Be Assailed In Writ Jurisdiction

ADITYA BIRLA SUN LIFE INSURANCE CO LTD V FATEMA F CHHATRIWALA
Decision dated 18 August 2022 passed by the Bombay High Court in Writ Petition No. 7804 of 2021

IN A RECENT LANDMARK DECISION, THE BOMBAY HIGH COURT HAS HELD THAT an Insurance Ombudsman's Award can be set aside in a writ petition on the ground of perversity.

LET'S FIRST CONSIDER PROVISIONS APPLICABLE TO AWARD OF AN OMBUDSMAN | OMBUDSMAN SCHEME UNDER INSURANCE INDUSTRY

The Institution of Insurance Ombudsman was formed by the Government of India in November 1998.

Its main objective is to handle customer grievances systematically and bring fair resolution. The policyholders can get their complaints resolved in an unprejudiced and efficient manner.

OMBUDSMAN: An Ombudsman is an officer,appointed by the Government, who investigate complaints,lodged by citizen against Government, Universities, Colleges, Municipalities, Companies, Financial Institutions etc., and attempt to resolve the complaint with mediation or marking recommendations.

“Ombudsman” is taken from a Swedish word it means “ Legal Representative”, appointed to investigate the cases lodged before it by common citizen, who is aggrieved by any act of Government or non-Government Organizations.

An Ombudsman is an important Government Authority under Insurance Industry. It is a fast and most effective grievance solving authority. In other sectors also Government has introduced Ombudsman Scheme.

The Central Government framed rules known as Redressal of Public Grievances Rules, 1998 in exercise of the powers vested in it under Section 114(1) of the Insurance Act, 1938.

The institution of Insurance Ombudsman was created by a Government of India Notification dated 11th November 1998 with the purpose of quick disposal of the grievances of the insured customers and to mitigate their problems involved in redressal of those grievances. This institution is of great importance and relevance for the protection of interests of policy holders and also in building their confidence in the system. The institution has helped to generate and sustain the faith and confidence amongst the consumers and insurers.

APPOINTMENT OF INSURANCE OMBUDSMAN

The governing body of insurance council issues orders of appointment of the insurance Ombudsman on the recommendations of the committee comprising of Chairman, IRDA, Chairman, LIC, Chairman, GIC and a representative of the Central Government. Insurance council comprises of members of the Life Insurance council and general insurance council formed under Section 40 C of the Insurance Act, 1938.

The governing body of insurance council consists of representatives of insurance companies.

ELIGIBILITY

Ombudsman are drawn from Insurance Industry, Civil Services and Judicial Services.

TERMS OF OFFICE

An insurance Ombudsman is appointed for a term of three years or till the incumbent attains the age of sixty-eight years, whichever is earlier. Re-appointment is not permitted.

TERRITORIAL JURISDICTION OF OMBUDSMAN

The governing body has appointed twelve Ombudsman across the country allotting them different geographical areas as their areas of jurisdiction. The Ombudsman may hold sitting at various places within their area of jurisdiction in order to expedite disposal of complaints.

The offices of the 17 insurance Ombudsman's are located at (1) Bhopal, (2) Bhubaneswar, (3) Cochin, (4) Guwahati, (5) Chandigarh, (6) New Delhi, (7) Chennai, (8) Kolkata, (9) Ahmedabad, (10) Lucknow, (11) Mumbai, (12) Hyderabad,etc.

The areas of jurisdiction of each Ombudsman has been mentioned in the list of Ombudsman.

THE OMBUDSMAN MAY RECEIVE AND CONSIDER COMPLAINTS OF INDIVIDUALS RELATING TO

i) Any partial or total repudiation of claim by an insurer;

ii) Any dispute in regard to premium paid or payable in terms of the insurance policy;

iii) Any dispute in regard to the legal construction of the policies in so far as such

iv) dispute relate to the claims;

v) Delay in settlement of claims;

vi) Non-issue of insurance document to the customer after receipt of premium;

vii) The ombudsman shall act as counsellor and mediator in matters which are within his terms of reference and, if requested to do so in writing by mutual agreement by the insured person and insurance company;

viii) The ombudsman's decision whether the complaint is fit and proper for being considered by it or not shall be final.

WHEN A COMPLAINT TO BE MADE TO THE OMBUDSMAN

i) If the insurer has rejected a written representation of the complainant; or

ii) The complainant has not received any reply within one month after the insurer receive his representation;

iii) The complainant is not satisfied with the reply given to him by the insurer;

iv) The complaint is made not later than one year after the insurer had rejected the representation or sent his final reply on representation of the complainant and

v) The complain is not on the same subject matter, for which any proceedings “ before any court or Consumer Court or Arbitrator” is pending or were so earlier.

RECOMMENDATIONS BY OMBUDSMAN

i) When a complaint is settled through mediation of the Ombudsman, he makes a “ recommendation” which he considers fair in the circumstances of the case.

ii) Copies of the “recommendation” shall be sent to the complainant and the insurance company.

iii) Such “recommendation” shall be made not later than one month from the date of the receipt of the complaint.

iv) If a complainant accepts the recommendations of the Ombudsman, he will communicate his acceptance within 15 days of receipt of the recommendation.

v) Acceptance letter to the Ombudsman should clearly state the settlement reached is acceptable to him in totality in full and final settlement of him claim.

vi) Thereafter, the Ombudsman will send a copy of the recommendation along with complainant's acceptance letter to the insurance company.

vii) The insurer shall comply with the terms and conditions of the recommendation immediately but not later than 15 days of the receipt of such recommendation.

viii) Finally, the insurer shall inform the Ombudsman about its compliance.

AWARDS; WHERE COMPLAINT IS NOT SETTLED THROUGH MEDIATION OF THE OMBUDSMAN

i) He shall pass Award which he consider fair in the facts of the case and award shall be in writing.
ii) It shall state the amount awarded to the complainant.
iii) Ombudsman shall not award any compensation in excess of the loss suffered by the complainant or 30 Lakhs whichever is less.
iv) Award shall be passed within a period of three months from the date of receipt of complaint by the Ombudsman Office.
v) Copies of Award shall be sent to the insurer and the complainant.
vi) Complainant shall furnish to the insurer within one month, a letter of acceptance that Award is in full and final settlement of his claim.
vii) The insurer shall comply with the award within a period of 15 days from the date of receipt of acceptance letter from the complainant and intimate the compliance to the Ombudsman Office.

CONSEQUENCES OF NON-ACCEPTANCE OF AWARD

i) If complainant does not intimate his acceptance of award to the insurer within a period of one month from the date of intimation of award, then the insurer is not liable to honor the award;

ii) If Ombudsman deems fit,he may award an Ex-Gratia payment.

THE DECISION OF OMBUDSMAN IS BINDING ON THE INSURERS, BUT THE CONSUMER IF HE FEELS AGGRIEVED BY THE DECISION CAN APPROACH THE CIVIL COURT FOR RELIEF.

BRIEF FACTS

1. On 29 December 2017 Dr. Fakhruddin F. Chhatriwala, late husband of Respondent No.2, (for short "the insured") applied to the Petitioner for a Life Insurance Policy, known as 'ABSLI Life Guaranteed Milestone Insurance Policy" through the Petitioner's Agent, HDFC Bank.

2. The proposal, as made to the Petitioner, was by the online method, by submitting a proposal form, bearing No.EA00136215.

3. Such proposal form provided for the insured's consent qua the information as contained in the said proposal.

4. It is the Petitioner's case is that the proposal form mandated the insured (late husband of Respondent No.2) to disclose particulars about his medical history and more particularly, question nos.14 II, III(i)(ii), IV (a)- the insured replied the same as in”Negative”.

5. On 31 December 2017 the Petitioner, having received a 'duly filled and signed' application/ proposal from the insured as also and the premium amount and accepting the representations as made by the insured, issued to the insured the life insurance policy in question bearing No.007453382.

6. The said insurance policy was delivered to the insured on 19 January 2018. In the event of a claim the sum assured under the said policy was of an amount Rs.75 lakhs, on the gross annual premium of Rs.5 lakhs being paid for a premium term of six years.

7. On 10 October 2019, the insured expired while undergoing treatment at the Saifee Hospital in Mumbai. The Medical Attendant's Certificate under the signature of Dr. Siddharth Shah of Saifee Hospital dated 4 November 2019 recorded the cause of death to be "septicemia with multiple organ failure k/c/o (known case of) Diabetes Mellitus/Hypertension (DM/HTN)".

8. On 7 November 2019, Respondent No.2, being the nominee of the insured under the said insurance policy, intimated to the Petitioner about the death of her husband. She also lodged a claim in the prescribed form, titled as "Claimant's Statement Form (Death Claim)". In one of the columns, in the form under the heading "Past Medical History", Respondent No.2 as a claimant was required to set out information as to whether the insured was ill prior to his death and the nature and the duration of illness with date of diagnosis and names of doctors consulted in the last three years. Such column was answered in the 'Nil' by Respondent No.2.

9. On receiving the "claim form" from Respondent No.2, the Petitioner investigated such claim. On a careful evaluation of the documents obtained during investigation, it was revealed to the petitioner that the deceased insured had concealed material facts and/or had provided incorrect information in respect to his past medical history. The petitioner's investigation revealed that the life assured was under treatment for schizophrenia and hypertension prior to the issuance of the policy, however, such material fact was not disclosed by the deceased/insured while obtaining the insurance policy.

10. The Petitioner has contended that in regard to such information and medical history of the insured, also an opinion of an external expert was sought by the Petitioner, by appointing Dr.C.H. Asrani, who furnished an opinion to the Petitioner dated 14 February 2020, stating that the insured had knowledge of schizophrenia and hypertension, that he was under the treatment for such diseases much prior to the making of a proposal to avail such insurance policy. The opinion further recorded that as per the hospital discharge summary of August 2015, the insured was a known case of both such diseases, which implied that such ailments existed prior to the insured applying for the insurance policy in question. It was recorded that the documents revealed that the insured was receiving treatment for schizophrenia since the year 2013. Such expert also recorded that there has been an apparent non-disclosure of these ailments by the insured, which was a significant non-disclosure and such revelation at the proposal stage would have led to an altogether different conclusion for the Petitioner as to whether the proposal be accepted.

11. The Petitioner considering the investigation report, and the other relevant materials so procured, and in accordance with the provisions of policy and regulations, arrived at a decision to repudiate the insurance claim as made by Respondent No.2. Such decision was communicated to Respondent No.2 by the Petitioner by its letter dated 27 February 2020.

12. Respondent No.2 however requested for reconsideration of her claim. She accordingly moved the Grievance Redressal Committee (for short "the GRC").

13. The GRC, upon evaluation of the material and the evidence, however, came to a conclusion to stand by the petitioner's decision to repudiate the claim, thereby accepting the Petitioner's case that there was a significant non-disclosure of the ailments by the insured and hence, the decision as taken by the Petitioner to repudiate the claim was an appropriate decision. The GRC's decision came to be communicated to Respondent No.2 by its letter dated 22 May 2020, as also, by its email dated 3 June 2020.

14. The case of Respondent No.2 before the Ombudsman was to the effect that the insured was never suffering from schizophrenia and hypertension at the time of availing the insurance policy, except for mild depression. Respondent No.2 contended that the Petitioner did not carry out premedical test/examination and that the death of the deceased was due to 'septicemia and multiple organ failure' which had no correlation with the illnesses namely schizophrenia and hypertension. Respondent No.2 also contended that HDFC Bank, being the agent of the Petitioner, forced and induced the insured to purchase the policy from the Petitioner.

THE INSURANCE OMBUDSMAN

15. Responding to the objection of the Petitioner, Respondent No.2 submitted a letter dated 11 September 2020 before the Insurance Ombudsman purporting to reduce her claim to rupees thirty lakhs.

SUPREME COURT IN BRANCH MANAGER, BAJAJ ALLIANZ (SUPRA), the Supreme Court reiterated the principles that the contract of insurance is one executed in utmost good faith and the proposer who seeks to obtain a policy of life insurance is duty bound to disclose all material facts bearing upon the issue as to whether the insurer would consider it appropriate to assume the risk which is proposed. It was observed that it is with this principle in view, that the proposal form requires a specific disclosure of pre-existing ailments, so as to enable the insurer to arrive at considered decision based on the actuarial risk.
In paragraphs 9, 12 and 13, the Supreme Court observed the effects of non-observation as under :

"9. A contract of insurance is one of utmost good faith. A proposer who seeks to obtain a policy of life insurance is duty bound to disclose all material facts bearing upon the issue as to whether the insurer would consider it appropriate to assume the risk which is proposed. It is with this principle in view that the proposal form requires a specific disclosure of pre-existing ailments, so as to enable the insurer to arrive at a considered decision based on the actuarial risk. In the present case, as we have indicated, the proposer failed to disclose the vomiting of blood which had taken place barely a month prior to the issuance of the policy of insurance and of the hospitalization which had been occasioned as a consequence. The investigation by the insurer indicated that the assured was suffering from a pre-existing ailment, consequent upon alcohol abuse and that the facts which were in the knowledge of the proposer had not been disclosed. This brings the ground for repudiation squarely within the principles which have been formulated by this Court in the decisions to which a reference has been made earlier.

IN LIFE INSURANCE CORPORATION OF INDIA V. ASHA GOEL, THIS COURT HELD

"12...The contracts of insurance including the contract of life assurance are contracts uberrima fides and every fact of material ( sic material fact) must be disclosed, otherwise, there is good ground for rescission of the contract. The duty to disclose material facts continues right up to the conclusion of the contract and also implies any material alteration in the character of risk which may take place between the proposal and its acceptance. If there is any misstatements or suppression of material facts, the policy can be called into question. For determination of the question whether there has been suppression of any material facts it may be necessary to also examine whether the suppression relates to a fact which is in the exclusive knowledge of the person intending to take the policy and it could not be ascertained by reasonable enquiry by a prudent person."

12. ... ... ...

13. The medical records which have been obtained during the course of the investigation clearly indicate that the deceased was suffering from a serious preexisting medical condition which was not disclosed to the insurer. In fact, the deceased was hospitalized to undergo treatment for such condition in proximity to the date of his death, which was also not disclosed in spite of the specific queries relating to any ailment, hospitalization or treatment undergone by the proposer in Column 22 of the policy proposal form. We are, therefore, of the view that the judgment of the NCDRC in the present case does not lay down the correct principle of law and would have to be set aside. We order accordingly."

(emphasis supplied) Applying the principles of law as laid down by the Supreme Court in the above decisions to the facts of the present case, it is quite clear that the insurance contract in question itself stood vitiated and was rightly repudiated by the petitioner.

BOMBAY HIGH COURT

The writ was held maintainable, and the Award was set aside for the following reasons:

1. In the court opinion such approach on the part of the Insurance Ombudsman was objectionable for more than one reason. As seen from the reading of respondent No.2's letter dated 11 September 2020, respondent no. 2 has stated that she would be satisfied with an amount of Rs.30 lakhs to be settled by the Ombudsman. In my opinion, such letter of respondent no. 2 was a settlement proposal not an amendment of the claim as made by respondent No.2 which was for an amount of Rs.75 lakhs. Thus, the fact remains that the principal claim of respondent No.2 even on respondent No.2's showing as contained in the said letter, continued to be for an amount of Rs.75 lakhs, implying that the Insurance Ombudsman per se had no jurisdiction to entertain such complaint. Since original claim by the respondent no. 2 was Rs. 75.00 Lakhs and further reduction of claim amount for settlement Rs. 30.00 Lakhs,which is under pecuniary threshold limit of Ombudsman,it is a settlement proposal and not amendment of the claim as made by the respondent and hence does not falls under pecuniary limit of the Ombudsman.

2. The Award failed to consider the doctrine of uberrima fidae and the fact that the Insured had failed to disclose his pre-existing ailments in the proposal form.

3. The Ombudsman incorrectly observed that non-disclosure of material facts by the Insured did not have any relevance to the cause of death.

4. The Ombudsman's finding that the proposal form was completed by the Insurer's agent, not by the Insured, was bereft of valid reasoning and extraneous as it was not the Insured's wife's case that the Insured was unaware of the contents of the proposal form.

5. The Ombudsman had no jurisdiction to entertain a complaint which was beyond his pecuniary jurisdiction of Rs. 30 lacs - the sum insured in this case was Rs. 75 lacs.

CONCLUSION

An Insurance Ombudsman's award is assailable under the court's writ jurisdiction. It means that an award of Insurance Ombudsman,which is beyond defined pecuniary limit and against fundamental principles of insurance can be challenged in High Court through writ petition. In the above case the insurance has not disclosed material facts of his pre-existing diseases at the time of taking insurance and hence this act violates fundamental principle of insurance of good faith.

DISCLAIMER: The article presented here is only for sharing information with the readers. The views are personal and in case of necessity do consult with professionals.