2003 (12) TMI 319 - HC - Companies Law

Summary

Issues Involved:
1. Whether the insurer has the absolute right to cancel or refuse renewal of a mediclaim insurance policy.
2. Whether the exclusion of diseases contracted during the policy period upon renewal is valid.
3. Whether the insurer can load the premium or refuse renewal based on high claim experience.
4. Whether the insurer's actions are arbitrary and violative of Articles 14 and 21 of the Constitution.

Issue-wise Detailed Analysis:

1. Absolute Right to Cancel or Refuse Renewal:
The core issue revolves around whether the insurer can unilaterally cancel or refuse to renew a mediclaim policy. The judgment clarifies that the insured has an option to continue the cover by timely payment of the renewal premium. The insurer cannot arbitrarily refuse renewal or cancel the policy, especially when the insured adheres to the renewal terms. The court emphasized that these government insurance companies, being 'State' under Article 12, must act fairly and reasonably, and cannot arbitrarily refuse renewal based on the occurrence of a disease during the policy period.

2. Exclusion of Diseases Contracted During Policy Period:
The court held that diseases contracted during the policy period cannot be excluded upon renewal if the renewal premium is paid on time. The policy's exclusion clauses (4.1, 4.2, and 4.3) were interpreted to mean that only pre-existing diseases at the inception of the policy can be excluded. The insurer's attempt to exclude diseases contracted during the policy period at the time of renewal was deemed arbitrary and against the terms of the policy.

3. Loading Premium or Refusing Renewal Based on High Claim Experience:
The insurer's practice of loading the premium or refusing renewal due to high claim experience was scrutinized. The court found that while insurers can adjust premiums, they cannot refuse renewal solely on the grounds that the insured has made significant claims. The insurer must honor the renewal if the premium is paid in time, and any such refusal would be arbitrary and unjust.

4. Arbitrariness and Violation of Constitutional Rights:
The judgment extensively discussed the arbitrariness of the insurer's actions and their violation of Articles 14 and 21 of the Constitution. The court reiterated that these insurance companies, being instrumentalities of the State, must act in a manner that is just, fair, and reasonable. Arbitrary refusal to renew policies or exclusion of diseases contracted during the policy period was found to be violative of the insured's fundamental rights.

Final Order:
The court upheld the learned single Judge's decision directing the insurers to renew the mediclaim policies without excluding diseases contracted during the policy period and without arbitrary refusal. The appeals were dismissed with costs, and the insurers were directed to renew the policies from the expiration date, ensuring continuity of cover for the insured.