2008 (5) TMI 686 - SC - Indian Laws

Renewal of a Mediclaim Policy - entitled to automatic renewal - Cheque towards payment of the premium for the purpose of renewal of the policy refused on the purported ground of high claim ratio - State within the meaning of Article 12 of the Constitution - contract of insurance is no longer in the realm of contract?. HELD THAT - If it is a State its action must be fair and reasonable. It has been so held in a catena of decisions of the Court as for example Life Insurance Corporation of India v. Consumer Education and Research Centre 1995 (5) TMI 247 - SUPREME COURT . There cannot be any doubt that Directive Principles of State policy by themselves per se are not enforceable in a court of law. See Kesavananda Bharati v. State of Kerala 1973 (4) TMI 114 - SUPREME COURT . The action on the part of the authorities of the appellant was highly arbitrary. Respondents though were not entitled to automatic renewal but indisputably they were entitled to be treated fairly. We have noticed hereinbefore some of the clauses contained in the prospectus as also the insurance policy. When a policy is cancelled the conditions precedents therefor must be fulfilled. Some reasons therefor must be assigned. When an exclusion clause is resorted to the terms thereof must be given effect to. 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 that the said 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 words incepts for the first time as contained in clause 4.1 as also the words continuous and without break if the renewal premium is paid in time must be kept in mind as also the reasons for cancellation as contained in clause 7(1)(n) thereof. Renewal of a mediclaim policy subject to just exceptions should ordinarily be made. But the same does not mean that the renewal is automatic. Keeping in view the terms and conditions of the prospectus and the insurance policy the parties are not required to go into all the formalities. The very fact that the policy contemplates terms for renewal subject of course to payment of requisite premium the same cannot be placed at par with a case of first contract. It is essential that the Regulatory Authority must lay down clear guidelines by way of regulations or otherwise. No doubt the regulations would be applicable to all the players in the field. The duties and functions of the Regulatory Authority however are to see that the service provider must render their services keeping in view the nature thereof. It will be appropriate if the Central Government or the General Insurance Companies also issue requisite circulars. Appellants before us being subsidiaries to General Insurance Corporation cannot ignore the statutory provisions. They are bound by the directions issued by the Central Government. We would request the IRDA to consider the matter in depth and undertake a scrutiny of such claims so that in the event it is found that the insurance companies are taking recourse to arbitrary methodologies in the matter of entering into contracts of insurance or renewal thereof appropriate steps in that behalf may be taken. These appeals are dismissed with costs.

Summary

Issues Involved:
1. Whether renewal of a mediclaim policy on payment of the amount of premium would be automatic.
2. The obligations and rights of insurance companies as "State" under Article 12 of the Constitution of India.
3. Interpretation of statutory provisions, guidelines, and regulations governing insurance policies.
4. The fairness and reasonableness of the insurance companies' actions in refusing policy renewals.
5. Judicial review of the insurance companies' actions in the context of public law litigation.

Detailed Analysis:

1. Automatic Renewal of Mediclaim Policy:
The core issue was whether the renewal of a mediclaim policy on payment of the premium is automatic. The court held that while renewal should ordinarily be made subject to just exceptions, it is not automatic. The terms and conditions of the insurance policy and prospectus must be adhered to, and the renewal is subject to mutual consent and payment of the requisite premium. The court emphasized that the policy cannot be placed at par with a first contract and that the insured must be treated fairly.

2. Obligations and Rights of Insurance Companies as "State":
The court affirmed that insurance companies, being "State" within the meaning of Article 12 of the Constitution, must act fairly and reasonably. The companies are bound by constitutional and statutory norms and cannot act arbitrarily. The court noted that the insurance sector is regulated, and public sector insurance companies have a different role compared to private players, emphasizing the need for fairness and transparency in their dealings.

3. Interpretation of Statutory Provisions, Guidelines, and Regulations:
The court analyzed various statutory provisions, including the General Insurance Business (Nationalisation) Act, 1972, the Insurance Act, 1938, and the Insurance Regulatory and Development Authority Act, 1999. It also considered the guidelines issued by the Insurance Regulatory and Development Authority (IRDA). The court highlighted that the insurance companies must comply with these regulations and guidelines, which aim to protect policyholders' interests and ensure fair practices in the insurance sector.

4. Fairness and Reasonableness of Insurance Companies' Actions:
The court examined the actions of the insurance companies in refusing to renew mediclaim policies. It found the actions to be arbitrary and contrary to the terms and conditions of the policies. The court emphasized that reasons must be assigned for canceling a policy or excluding certain diseases, and the insured should not be penalized for making claims. The court underscored the importance of fair treatment and adherence to the contractual terms and statutory guidelines.

5. Judicial Review in Public Law Litigation:
The court held that judicial review of the insurance companies' actions was permissible, considering the broader public interest. It noted that the writ petitions had wider ramifications affecting other similarly situated individuals. The court emphasized that such cases should be treated as public law litigation, allowing the courts to take a broader view and ensure that the actions of the insurance companies comply with constitutional and statutory requirements.

Conclusion:
The Supreme Court dismissed the appeals, upholding the High Court's decision that the refusal to renew mediclaim policies was arbitrary and illegal. The court directed the insurance companies to renew the policies and emphasized the need for the IRDA and the Central Government to issue clear guidelines to prevent arbitrary actions by insurance companies. The court also awarded costs to the respondents, assessing counsel's fee at Rs. 25,000 in each case.