Consumer Protection Act, 1986 – s.2(g) – Insurance policy – Renewal of – Limitations imposed on Insurer’s liability – Nondisclosure by Insurer – Deficiency in service – Appellants had an annual medical insurance policy with the respondent-insurer – Policy was renewed successively by paying appropriate premium — Policy containing fresh terms was issued after receipt of the premium for the year 2008-09 – Introduction of the cap on the coverage by the insurer on certain types of surgical procedures – Second appellant underwent angioplasty in June 2008 – Appellants submitted claim to the insurer who accepted the claim but, paid the partial amount – District Forum allowed the appellants’ complaint – Findings upset by State Commission – Order upheld by NCDRC – On appeal, held: Per S. Ravindra Bhat, J. Appellants were kept in the dark and asked to renew a policy, the terms of which had undergone a significant change as its cover was radically different and imposed limitations on the insurer’s liability – 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 – Insurer was under a duty to inform the appellant about the limitations which it was imposing in the renewed policy — Failure to inform the policy holders resulted in deficiency of service – Per K.M. Joseph, J. (Supplementing) There was unjustifiable nondisclosure by the Insurer about the introduction of limitation clause which constituted a deficiency in service – Orders of NCDRC and State Commission set aside and that of the District Forum restored – Contract Act, 1872 – s.22 – Principle of uberrima fides – Constitution of India – Part IV – Arts.38, 39, 42, 47 – Insurance Regulatory and Development Authority, 1999 – Insurance Act, 1938 – IRDA (Health Insurance) Regulations, 2016 – Chapter III – Regulations 11, 13 787 Universal Declaration of Human Rights 1948 – Article 25 – International Covenant on Economic, Social and Cultural Rights, 1976.
Insurance – Renewed contract – Held: A renewed contract of insurance may provide terms which are different from the terms of the original contract of insurance – If the renewed contract is agreed in all respects by both parties, the fresh terms (with restrictions) would be binding.
Insurance – Renewal of existing policy – Duty of insurers – Discussed.
Consumer Protection Act, 1986 – s.2(g) – Deficiency in service – Held: In order to demonstrate deficiency, it is not necessary that the same emanates only from a law or a contract – The term “or otherwise” in s.2(g) clearly provides for circumstances where a certain level of service is expected from a provider.
Doctrines/Principles – Insurance – Principle of uberrima fides – Applicability of – Discussed.
Insurance – Standard Form Contracts – Unfair contractual terms – Refusal for enforcement of – Power of Courts – Discussed.
Insurance – Role of insurance agents – Failure to discharge the duties – Vicarious liability of the insurer – Discussed. Words & Expressions – Contracts d’ adhesion – Held: Most policies- health and medical insurance policies being no exception, are in standard form – 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 termed as contracts d’ adhesion, a French legal term.
Allowing the appeal, the Court
HELD: Per S. RAVINDRA BHAT, J.
1.1 Renewal: The insurer insisted that the 2008-09 ‘Gold’ policy was in fact a ‘new’ one, and not a renewal, which was available with the appellants, before the second appellant’s surgery took place. There can be said to be no consensus ad idem on the introduction of the cap on the coverage by the insurer, 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 general rule of acceptance of an insurance proposal by the assured involves unconditional acceptance of all the terms. Thus the cap on the coverage placed by the insurer without prior intimation to the assured and without providing an opportunity to the assured to seek alternate insurance policies that were more favourable to their needs was restrictive, and thus not enforceable. [Paras 16, 18][802-B-C, F-H]
LIC v. Raja Vasireddy Komalavalli Kamba, (1984) 2 SCC
719 : [1984] 3 SCR 350 – relied on.
Biman Krishna Bose v. United India Insurance Co. Ltd. (2001) 6 SCC 477 : [2001] 1 Suppl. SCR 255 – referred to.
1.2 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. 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. If parties are not agreed on the terms, one of the likely results would be its avoidance. “Mistake” is not defined, under the Contracts Act, 1872; however, Section 22 of the Act enacts that a unilateral mistake of fact, does not result in its nullity. The law in India is that unless the unilateral mistake about the terms of a contract is so serious as to adversely undermine the entire bargain, it does not result in automatic avoidance of a contract. 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. [Paras 19, 21, 22][803-A-C, E; 805-B-C]
Canara Bank v. United India Insurance Co. Ltd (2020)
3 SCC 455 : 2020 (3 ) SCALE 228; Satwant Kaur Sandhu v. New India Assurance Co. Ltd. (2009) 8 SCC
316 : [2009] 10 SCR 560; Tarsem Singh v. Sukhminder Singh (1998) 3 SCC 471 : [1998] 1 SCR 456 – relied on.
2.1 Duty of Insurers: 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. 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. 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. Most policies- health and medical insurance policies being no exception, are in standard form. 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 – which are termed as contracts d’ adhesion, a French legal term. A term introduced in a standard form contract can be unfair, as to constitute an unfair trade practice under the Consumer Protection Act, 1986. Contracts of adhesion (as contracts d’ adhesion are also called) leave little or no choice to the customer; in this case, the policy holders were left with no room to bargain and negotiate. In the present case, the standard form contract, renewed year after year, left the appellants only with the choice of raising the insurance cover. For that reason, the “informational blackout”, on the part of the insurer, was a crucial omission. [Paras 24, 26, 28 and 29][805-E; 808-B-C, D-E; 809-C; 810-B-C, D]
United India Insurance Co. Ltd. v. M.K.J. Corpn 1996
(6) SCC 428; [1996] 5 Suppl. SCR 20; Pioneer Urban Land & Infrastructure Ltd v Govindan Raghavan 2019
(5) SCC 525; Modern Insulators Ltd.v Oriental Insurance Co. Ltd 2000 (2) SCC 734: [2000 ] 1 SCR 1076 – relied on.
Sherdley v Nordea Life and Pension [2012] 2 All ER (Comm) 725; SA [2012] EWCA Civ 88 - referred to.
Law Commission’s Report- ‘Unfair (Procedural & Substantive) Terms in Contract’ - referred to.
2.2 In the present case, even if, for arguments’ sake, one was to accept the submissions of the insurer which is that their agent should have informed the appellant policy holders, the absence of any evidence that he did or any evidence adduced by the insurer that despite information the appellants chose to accept the policy in the terms which they eventually were furnished, the only consequence would be that as principal the insurer is liable. Such a failure assumes importance even from the perspective of consumer protection law. The Consumer Protection Act, 1986 states the definition of ‘deficiency’ in service under Section 2(g) as “[A]ny 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”. In order to demonstrate deficiency, it is not necessary that the same emanates only from a law or a contract. The term “or otherwise” clearly provides for circumstances where a certain level of service is expected from a provider. The principle of uberrima fides involves prior intimation of change in terms in insurance contracts. The deficiency of service assumes even more significance in the present case, as it pertains to senior citizens. The special status of senior citizens in general was taken cognizance of by the insurer as well, when it relied on guidelines (applicable for new insurance products, with effect from 28.1.2017). The insurer’s argument here was that no existing senior citizen policy holder could be compelled to migrate to a new Scheme. However, 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. [Paras 33-35][812-E-H; 813-A-B, D-E]
Delhi Electric Supply Undertaking v. Basanti Devi (1999) 8 SCC 229 : [1999] 3 Suppl. SCR 219; Life Insurance Corporation of India v Rajiv Kumar Bhaskar 2005 (6) SCC 188 : [2005] 1 Suppl. SCR 867 – relied on.
2.3 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 impugned order of the NCDRC as well as the order of the State Commission are set aside. The order of the District Forum is restored. [Para 40][817-D-E]
United India Insurance Co. Ltd. v. Manubhai
Dharmasinhbhai Gajera (2008) 10 SCC 404 : [2008]
9 SCR 778; Reliance Life Insurance Co. Ltd. vs Rekhaben Nareshbhai Rathod 2019 (6) SCC 175 : [2019] 6 SCR 733; Life Insurance Corporation of India vs Asha Goel 2001 (2) SCC 160 : [ 2000] 5 Suppl. SCR 646; P.C. Chacko vs Chairman, Life Insurance Corporation of India 2008 (1) SCC 321 : [2007] 12 SCR 352; Central Inland Water v Brojo Nath
Ganguly&Anr 1986 (3) SCC 156 : [1986] 2 SCR 278; Life Insurance Corporation of India v Consumer Education and Research Centre & Ors 1995 (5) SCC
482 – referred to.
Per K.M. JOSEPH, J. (Supplementing)
1. A renewal of the contract would ordinarily, undoubtedly involve the expectation of replication of the terms of the original contract and what is more, the actual continuation of the terms. However, the actual contract may provide otherwise. The terms of the renewed contract of insurance may be located in the actual contract of insurance. A renewed contract of insurance may provide terms which are different from the terms of the original contract of insurance. However, the claim under the Consumer Protection Act, 1986 must be allowed on the ground that there has been a deficiency on the part of the Insurer. The Insurer brought about a change in the policy. This change introduced a cumbersome limitation. It kept the Insured in the dark about the limitation at the time when the renewal notice was issued, and what is more, the premium was accepted. The Insurer had a duty to inform the appellants that a change regarding the limitation on its liability was being introduced. There was unjustifiable nondisclosure by the Insurer about the introduction of clause of limitation and, in this case, it constituted a deficiency in service. [Paras 5, 6][819-C-F; 820-A]
Biman Krishna Bose v. United India Insurance Co.Ltd. (2001) 6 SCC 477: [2001] 1 Suppl. SCR 255 –
referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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