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Court frowns on arbitrary denial of Mediclaim policy renewal

Legal Correspondent

Two-member Bench asks IRDA to lay down clear guidelines

All dealings of insurance firms must be fair and reasonable
Wrongful refusal is an act of mischief resorted to cause harm

New Delhi: Renewal of a Mediclaim policy, particularly by senior citizens, could not ordinarily be refused on the ground that the insured contracted a disease during the period of the existing policy and that they made claims for that ailment, the Supreme Court has held.

A Bench consisting of Justices S.B. Sinha and V.S. Sirpurkar said a policy should ordinarily be renewed subject to just exceptions, though it was not an automatic process. It pulled up the United India Insurance Company and the New India Assurance Company for arbitrary denial of renewal (in the present petitions), on the only ground that claims were made in the existing policy.

“Arbitrary action”

The Bench dismissed appeals by the two companies challenging the judgments of the Delhi and Gujarat High Courts, which quashed orders refusing renewal of Mediclaim policies. It awarded Rs. 25,000 each to the two respondents.

“Each of the [present] cases [in which renewal was refused] clearly shows that the action on the part of the authorities was highly arbitrary. When a policy is cancelled, the conditions precedent must therefore be fulfilled. Some reasons must be assigned. When an exclusion clause is resorted to, the terms thereof must be given effect to.”

The Bench said: “What was necessary is a pre-existing disease when the cover was inspected for the first time. Only because the insured had started suffering from a disease, the same would not mean the disease shall be excluded. If the insured had made some claim in each year, the insurance company should not refuse to renew insurance policies only for that reason.”

The Bench said: “The appellants are bound to act fairly and reasonably in the matter of renewal of policies and wrongful refusal on their part must be an act of mischief resorted to cause harm which must be remedied.”

Public service

Assuming that insurance companies must address their business concern vis-À-vis competition from other firms, “the same does not mean that, despite being the ‘State’ within the meaning of Article 12 of the Constitution, they would refuse to carry out their constitutional and statutory obligations, particularly in view of the fact that the insurance business was acquired [in 1972] to sub-serve a public purpose.”

Writing the judgment, Mr. Justice Sinha said: “We have, despite the new economic policy of the Centre, no option but to proceed on the assumption that the public sector insurance companies being a State have a different rule to play. It is not to say that as a matter of policy, statutory or otherwise, the companies are bound to regulate all contracts of insurance having the statement of Directive Principles [as enshrined in the Constitution] in mind but there cannot be any doubt whatsoever that fairness or reasonableness on the part of the companies must appear in all of their dealings.”

The Bench said: “There should not be any hidden agenda and the insurance companies should not take recourse to ‘ticketing contract’.”

It asked the Insurance Regulatory and Development Authority (IRDA) to lay down clear guidelines on renewal of policies which would be applicable to all players.

Scrutinise claims

The Bench asked the IRDA to consider the matter in depth and undertake a scrutiny of such claims so that if it was found that the companies were taking recourse to arbitrary methodologies in entering into contracts of insurance or renewal, appropriate steps might be taken.

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