The Supreme Court came to rescue of an elderly couple in matter of renewal of Medical Insurance Policy and held that it is the duyt of the insurer to disclose any alteration in the terms of policy at the time of renewal, failure of which will amount to 'deficiency in service' within the ambit of the Consumer Protection Act 1986.
The Bench comprising of Justice S Ravindra Bhat and Justice KM Joseph while allowing mediclaim relief to two senior citizens, observed:
"the insurer was under a duty to disclose any alteration in the terms of the contract of insurance, at the formation stage (or as in this case, at the stage of renewal), the respondent cannot be heard to now say that the insured were under an obligation to satisfy themselves, if a new term had been introduced."
Brief Facts of the Case
The appellant, two senior citizens have availed a mediclaim policy from the respondent-insurer, renewable yearly. In 2008, going for the second angioplasty surgery, the appellant claimed medicalin of ₹3.82 lakhs against actual coverage estimated to be ₹8 lakhs to the best. However, the insurer accepted the claim for only ₹2 lakhs, saying that the renewed agreement had a clause which limited the liability with respect to surgeries like angioplasty to an amount provided amount.
The appellants then challenged this before the District Consumer Forum, which allowed the mediclaim and ordered insurer to pay the balanceb amount. However, the ruling was overturned later by the State Commission in an appeal filed by the isurer.
Aggrieved, the appellants challenged the same and filed revision petition before the National Commission which was eventually decided in Insurer's favour as well. Therefore the present plea before Supreme Court.
Arguements and Supreme Court Observation
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The Insurer contended that there was no deficiency in service by the respondents. It was submitted that the appellants never disputed that in fact the policy was dispatched pursuant to the renewal and a careful reading of the policy for the year 2008-2009 would have indicated that it differed radically from the policy from the previous year because of a term indicating a monetary limit on the reimbursable expenditure, by 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.
It was submitted that the term “renewal” has no special significance given that the contract of insurance and it is a fresh contract issued every year. It also contended that Clause 14 of the Standardized General Terms and Clauses in Health Insurance Policy Contracts by the Insurance Regulatory and Development Authority of India (IRDA), in 2020 clearly indicates that only the existing policy holder has to be notified and renewal of same policy doesn't place any such obligation upon the insurer to intimate insured person at the point of renewal of the policy.
[Justice S Ravindra Bhat Judgement]
He dealt the case in terms of two aspects:
1. Renewal of the Policy
The Judge noted that general rule of acceptance of an insurance proposal by the assured involves unconditional acceptance of all the terms and any alteration without prior intimation to the assured and without providing an opportunity to to seek alternate have, cannot said to be having consensus ad idem. The Policy Holder cannot be said to have knowledge of entering a new contract.
"as the appellants were not informed that they had paid premium for a new policy, but were led to believe that they had in fact renewed a pre-existing policy on the same terms, with only difference being the removal of their son as a beneficiary and a higher coverage (from Rupees 6 lakhs to Rupees 8 lakhs in total) for the appellants, which was accepted by the insurer."
The Court cited Biman Krishna Bose vs UoI in which it was held that if the renewed contract is agreed, in all respects, by both parties, undoubtedly the fresh terms (with restrictions) would be binding, however, that would not be the case when a new term is introduced unilaterally about which the policy holder is in the dark.
The Court completly rejected insurer's claim that it was a fresh policy.
"Further, the allusion to continuation of the terms of the Gold policy in respect of senior citizens (who were not to be compelled to migrate to another policy) but were to be subject to the same terms, upon payment of a different rate of premia, reinforces the conclusion that there was in fact, a renewal of the existing terms."
The also Court stated that assuming the appellants had received the policy documents on time (received after three months after payment of premium), the one of the likely results would be its avoidance and held that Section 22 of the Contract Act Act7 enacts that a unilateral mistake of fact, does not result in its nullity.
Court mentioned general law on avoidance of a contract in Canara Bank v. United India Insurance Co. Ltd and also cited Tarsem Singh Vs. Sri Sukhminder Singh which clarified that a unilateral mistake would not render a contract void under Indian contract law.
"Applied to the facts of this case, it is evident that the appellants could insist on the old insurance policy, on the premise that it renewed the pre-existing policy. The other conclusion would be cold comfort to the party seeking insurance cover, as the choice would be to avoid it altogether- too drastic as to constitute a choice. The first point is answered accordingly, in favour of the appellants."
2. Duty of Insurers
The Judge noted that a striking feature of insurance law, is the principle of uberrima fide (duty of utmost good faith) which applies to both the insured as well as one who seeks indemnity and cover (United India Insurance vs M.K.J. Corpn).
In view of this principle, the insurer cannot plead that it is the duty of the policyholders to satisfy themselves about the terms and conditions on introduction of new terms upon renewal.
"If one considers the facts of this case, it is evident that the insurer had caused a renewal reminder, which was acted upon and the renewal cheque, issued by the appellant. At that stage, or just before the renewal premium was furnished the insurer, or its agent was under a duty to alert the appellants that the change in terms, was likely to impact their decision, and if so required, offer a better or fuller coverage. One cannot be oblivious to two circumstances here."
The Court stated took note of two particular facts -
(1) the appellants are in need of health insurance due to advanced age;
(2) the insurance policies are in standard form which offers no space for bargain or negotiation.
It said that unfair terms in a contract, cannot be enforced, if there is absence of free choice, on the part of a consumer. A term introduced in a standard form contract can be unfair, as to constitute an unfair trade practice19 under the Consumer Protection Act, 1986 ( Pioneer Urban Land & Infrastructure Ltd v Govindan)
It stated that under Contracts of adhesion, at this stage that one who seeks coverage of a life policy/a personal risk, such as accident or health policy has little choice but to accept the offer of certain standard term contracts and thus observed that the "informational blackout" by the insurer was a crucial omission.
"However, even with this little choice, the result of their being kept in the dark about the new terms which placed limits on individual surgical procedures meant that had any other information with respect to the increased coverage which could have resulted in the higher individual limits (for surgical procedures) from they might have
The Court noted that the insurer has not produced any evidence to show that the agent had disclosed the material changes to the appellants. The judgment also referred to IRDA(Health Insurance) Regulations 2016, particularly Regulation 11 and 13, which had restricted insurers from compelling an insured to migrate to other schemes and imposed a duty on the insurers to ensure adequate dissemination of product information.
"These regulations only underline expressly what was implicit, i.e., the insurer's obligation to inform every policy holder, about any important changes that would affect her or his choice of product. These have been given statutory shape. Yet, the obligation of the insurer to provide information to existing and policy holders, for them to exercise choice, meaningfully, and choose products suited to their needs, existed. In this case, that obligation was breached".
The insurer was clearly under a duty to inform the appellant policy holders about the limitations which it was imposing in the policy renewed for 2008-2009. Its failure to inform the policy holders resulted in deficiency of service".
The Court concluded that there was 'defeciency in service' on part of insurer and it assumed even more significance here, as it pertains to senior citizens.
"in the present case, the Mediclaim holders were kept in the dark, and asked to renew a policy, the terms of which had undergone a significant change in that its cover was radically different, and imposed limitations on the insurer’s liability. The argument of the insurer has no merit and is not acceptable."
He thus rendered the case in favour of appellants.
[Justice KM Joseph Judgement]
Drawing same conclusions as his co-bencher, Justice Joseph held that a renewed contract of insurance may provide terms which are different from the terms of the original contract of insurance, however, if a cumbersome limitation is introduced, the insurer is duty-bound to inform the policyholder.
He held :
Accordingly, the Court allowed appeals and restored the District Forum order directing the insurer to reimburse the balance amount of mediclaim.
Read Judgements Here:
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