SUPREME COURT HOLDS INSURANCE COMPANY DUTY BOUND TO DISCLOSE CHANGED POLICY TERMS AT RENEWAL STAGE

A Two -Judge Bench of the #SupremeCourt comprising of Justice S. Ravindra Bhat and Justice K.M. Joseph has in the matter of Jacob Punnen & Anr vs United India Insurance Co. Ltd. Civil Appeal No. 6778 of 2013, passed a Judgment dated 09-12-2021 and directed #insurance companies to disclose changed #policy terms at the time of #renewal.

In this case, the Appellants bought a Mediclaim Policy (Policy) from United India Insurance Co. Ltd, the Respondent (Insurer) in the year 1982. The Policy was being renewed by the Appellants with appropriate premium on a yearly basis. The last renewal was done on 28-03-2007, which was valid till 27-03-2008. Before the expiry of the Policy, the Insurer sent a reminder to the Appellant for renewal, which was accordingly paid on 26-03-2008. So, the Policy was renewed till 27-03-2009.

In 2008, the second Appellant underwent Angioplasty in June, i.e. from 09.06.2008 to 12.06.2008, at Chennai. The Appellants submitted a claim for Rs 3,82,705.27 to the Insurer. The Insurer accepted the claim only for Rs 2,00,000/- and made the said payment to Appellant.

Aggrieved, the Appellants filed a Complaint in the District Consumer Forum and sought for directions to the Insurer to pay Rs. 2,07,705/- along with costs and interests on the compensation. The Insurer claimed that as per the Policy of 2008-09, in respect of procedures (such as Angioplasty), 70% of the Policy limit could be claimed subject to an overall limit of Rs. 2,00,000/-.

The District Forum observed that an insurance contract evidences a commercial transaction, which has to be performed with utmost good faith by the parties and secondly that the Insurer was under a duty to intimate to be Appellant-Insured with respect to change in terms before the renewal of the Policy. Hence, the District Forum directed the Insurer to pay the balance amount Rs. 1,75,000/- and compensation of Rs. 5000/- to the Appellants.

Aggrieved, the Insurer approached the State Consumer Redressal Commission, which reversed the Order of the District Forum on the ground that the Appellants had knowledge about the renewed Policy.

Thereafter, aggrieved, the Appellants filed a Revision Petition before the National Commission, which upheld the findings of the State Commission.

Aggrieved, the Appellants filed an Appeal before the Supreme Court. The Apex Court passed a Judgment dated 09-12-2021 and made the following observations:

1) That in order to make a contract void, the non-disclosure should be of some very material fact.

2) That the principle of uberrima fide (duty of utmost good faith) in Insurance Law, applies to both the insured as well as one who seeks indemnity and cover. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Just as the insured has a duty to disclose, similarly, it is the duty of the insurers and their agents to disclose all material facts within their knowledge, since obligation of good faith applies to them equally with the assured.

3) Hence, it is the duty of the Insurer to notify the Insured about a material change in the terms of the Policy, at the formation / renewal stage.

4) Moreover, the Insurance contracts are standard form of contracts prepared by one party, to be signed by the party in a weaker position, usually a consumer, who has little choice about the terms. In such cases, the policy holders are left with no room to bargain and negotiate.

5) Hence, the new terms in the renewed Policy which placed limits on individual surgical procedures and Angioplasty should have been disclosed to the Appellants, failing which, the “informational blackout”, on the part of the Insurer, amounts to crucial omission and deficiency of services under Section 2 (g) of Consumer Protection Act 2019. The relevant provision is reproduced below for easy reference:

Section 2(g): deficiency means “Any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service”.

Thus, based on the aforesaid grounds, the Supreme Court held that the Appellants were entitled to relief and thus, restored the District Forum’s Order.

Durga

Legal Associate

The Indian Lawyer