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TMI Blog2003 (12) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... iclaim insurance policy and revolve around the question, whether the insurer has absolute right to cancel the contract of mediclaim insurance or to refuse renewal of the mediclaim policy and have been argued together by the learned Counsel appearing for all the parties. Brief Facts and Pleadings : 3. The Letters Patent Appeal No. 1028 of 2003, which arises from Special Civil Application No. 11844 of 2002, in which a direction was sought for setting aside the action of the insurer (United India Insurance Co. Ltd.) in seeking to exclude certain diseases as per the communication dated 3rd October, 2002 addressed by the Divisional Manager of the Insurance Company to the insured, as illegal, arbitrary, unreasonable and violative of Art. 14 of the Constitution. A direction was sought on the insurer to renew the mediclaim policy with effect from 3rd October, 2002 and to settle all the claims of medical dues covered by the Insurance Company as per the terms of the existing insurance policy. 3.1 In that case, the petitioner had applied for a mediclaim insurance policy for the first time in 1990 for a sum of Rs. 90,000. The sum insured under the policy was thereafter revised to Rs. 3 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was further contended that the mediclaim policy which was issued by the Insurance Company was "not statutorily required, and therefore, there is no legal right and obligation between the company and the petitioner". It was also submitted that there was nothing arbitrary in refusing to renew the policy, and that the decision of the Apex Court in Biman Krishna Bose v. United India Insurance Co. Ltd. [2001] 6 SCC 477 was not applicable to the case, because, the question that the policy could be renewed only by mutual consent did not arise in that case and that the monopoly as regards the general insurance business did not now remain with the companies. It was also contended that the condition of the insured was a chronic condition requiring dialysis at least four times in a month and the suggestion implied in his letter dated 2nd October, 2002 that dialysis would continue till the end of October, 2002 as opined by the doctor, amounted to making of a false statement for getting the policy renewed. It was submitted that the insured was financially very sound and had a roaring business, and therefore, the statement that he was unable to make both ends meet was false. It was also pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 973 and the General Insurance Corporation of India was to carry out its objectives under section 9 of the Act. The Act of 1972 bestowed an exclusive privilege to operate, on the four nationalized Insurance Companies. However, the exclusive privilege was taken away by virtue of the provisions of the Indian Regulatory and Development Authority Act, 1999, which came into force from December 29, 1999, by insertion of section 24A in the Act of 1972. It was submitted that an insurance policy being in the realm of the contact, renewal could not be sought except by mutual consent. Moreover, the term "insurance" as defined in Black's Law Dictionary, indicated that insurance is a type of contingency contract and it was not in the nature of an annuity. It was submitted that the insurer had a legal right to regulate its business and its business wisdom was not justiciable. Reliance was placed on the decision of Division Bench of this Court rendered on 31st July, 1995 in Special Civil Application No. 3628 of 1995 in Paragraph 9 of the affidavit-in-reply, in which it was held that no mandamus can be issued directing the State to frame a policy in a particular way and that the scheme of mediclaim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety and two insured persons for a direction on the respondent No. 1 (New India Assurance Co. Ltd.) not to exclude the diseases contracted by the petitioner No. 2 during the period of the policy which had been renewed from time to time and not to load the premium; and to include the diseases and renew the policy including such diseases, and a direction on the respondent No. 2 (National Insurance Co. Ltd.) to renew the policy of the petitioner No. 3, setting aside the refusal in its letter dated 15-1-2002 made on the ground of "adverse claim ratio". 6.1 The insured-petitioner No. 2 had taken mediclaim insurance for himself, his wife and other family members continuously from the year 1992-93 and was regularly paying the premiums from time to time. In August-September, 1999, he was admitted twice in the hospital for high grade fever and was diagnosed as having acquired Hypogamaglobu-linemia. The mediclaim policy, which was last renewed, was valid upto 13th August 2002. On 26th July 2002, the said insured was informed that this mediclaim policy will be renewed subject to the exclusion of the disease "Septicemia with Hypogamaglobulinemia" and was advised that his next premium will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al contract of renewal is with mutual consent as per the prospectus and also policy." 6.4 In the affidavit-in-reply dated 2nd December, 2002 filed by the respondent No. 2 - insurer also, similar contentions, as were raised by the insurer in the other petitions are raised, and are therefore, not repeated. It is, however, contended that the action of the respondent No. 2 in refusing to renew the mediclaim policy of the petitioner No. 3 was as per its business policy. It was stated that the guidelines in the circular-letter at Annexure "I" was an internal correspondence between the two offices of the respondent No. 2 and the insured cannot claim any relief on the basis of such correspondence. A copy of the mediclaim (individual) insurance policy (revised) is annexed at Annexure "A" with the said affidavit-in-reply. 6.5 In the rejoinder filed by the petitioner No. 1, it is reiterated that the insurers cannot act arbitrarily and unreasonably like individuals carrying on business in open market, and that they cannot discriminate among the insured persons in the matter of renewal of policies. It was contended that if the insurers refuse to renew the policy on the ground that the insured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the monopoly of insurance business which was with them was now removed since 1999, was ill-founded. It was held that these instrumentalities of the State were duty bound to act in a just and fair manner as mandated by article 14 of the Constitution. 7.1 The learned single Judge, in Special Civil Application No. 11844 of 2002, directed the insurer to renew the mediclaim policy of the petitioner with effect from 4th October, 2002 after collecting necessary premium including the rise in the premium as decided by the Insurance Company, without excluding the diseases of Heart, T.B. and Kidney failure. 7.1.1 In Special Civil Application No. 1128 of 2002, the learned single Judge directed the Insurance Company to renew the mediclaim policy of the petitioner from 15-12-2002 after collecting the necessary premium without excluding the sickness of heart. Contentions and Case Law : 8. It was contended by the learned Counsel for the Appellant appearing in Letters Patent Appeal No. 1028 of 2003 that there was no duty on the part of the Insurance Company to provide mediclaim insurance unlike insurance of motor vehicles which was statutorily required. It was argued that, in view of the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the insured, the policy would no longer remain an annual contract, but would become a permanent policy, which was not intended under the mediclaim insurance scheme. 8.2 In support of his contentions, the learned Counsel relied upon the following decisions : (a)The decision of the Supreme Court in Chandmull Jain's case (supra), was cited for the proposition that, in interpreting documents relating to a contract of insurance, the duty of the Court is to interpret the words in which the contract is expressed by the parties. It was held that where the parties agree upon certain terms which are to regulate their relationship, it is not for the Court to make a new contract, however reasonable, if the parties have not made it for themselves. A condition in an insurance policy giving mutual rights to parties to terminate the insurance at any time is a common condition in policies and must be accepted as reasonable and the right to terminate at will, cannot by reason of the circumstances be read as a right to terminate for a reasonable cause. In that case, a proposal was submitted with a view to insure certain houses against fire, including loss or damage by cyclone, flood or change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition No. 10, it was held that the said condition was intended to cancel the risk but not to avoid liability for loss which had taken place or to avoid risk which was already turning into loss. On the facts, it was held that it could not be said that the loss had commenced or that it had become so certain as to be inevitable or that the cancellation was done in anticipation and with knowledge of inevitable loss. The cancellation was done at a time when no one could say with any degree of certainty that the houses were in such danger, that the loss had commenced or had become inevitable. It was held that there was no evidence to establish this. It would be clear from the judgment that no question of any renewal option being exercised by the insured, as in the case of mediclaim policy, was involved in that decision. (b)The decision of the Supreme Court in Biman Krishna Bose's case (supra) was referred for the purpose of distinguishing it on the ground that the refusal to renew in that case was on irrelevant considerations and further that the decision was rendered at the time when there was monopoly with the Insurance Companies in respect of general insurance business in India. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the policy without any reason. It was submitted that, under a mediclaim policy, the insurer is bound to cover the disease suffered during the currency of the policy, but the insurer has a right to refuse to underwrite business for that disease or refuse renewal, having regard to the nature of the disease. It was submitted that the Insurance Company was required to reduce its losses and in order to render better services to the common men, they are required to draw a line which is a matter that enters into the business sagacity and convenience of the Insurance Company. The Courts, therefore, cannot regulate such decisions of the Insurance Companies. It was submitted that, on the facts of the case, the Insurance Company was justified and within its contractual rights to refuse renewal in both the cases. 9.1 The learned counsel relied upon the following decisions in support of his contentions : (a)The decision of a Division Bench of this Court in Life Insurance Corpn. of India v. Asha Goel 2001 (3) GLR 1990 was cited for the proposition that, ordinarily the High Court should not entertain a writ petition filed under article 226 of the Constitution for mere enforcement of a claim und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irable for a Court to direct the State or any other authority to enter into a contract against their interests unless by law they are required to do so. The Court held that the terms of policy of insurance and its conditions are "the contractual prerogatives of an Insurance Company" and there is no legal provision which can compel or make it obligatory for an Insurance Company to make mediclaim insurance coverage to the person suffering from a particular disease. In that case, a direction was prayed for to evolve a scheme for benefit of senior citizens and against the refusal to cover persons above the age of 75 years under the mediclaim policy, and in that context, it was held that it was a prerogative of the insurer to contract, undertake the risk and fix the terms and conditions of the policy. The same High Court, had in writ petition No. 32804 of 1996, by its judgment and order dated 21st November, 2000, dealing with a prayer where mediclaim insurance cover was sought for epilepsy held that such a course was not discriminatory and relied upon the decision of this Court in Special Civil Application No. 3628 of 1995 decided on 31st July, 1995, the ratio of which is re-produced he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tendered. The Insurance Company can keep on renewing the cover until the policy becomes a burden. It was submitted that Clause 11 of the prospectus being intended to attract more business, there was no conflict between that clause and clause 5.9 of the insurance policy under which renewal depended on mutual consent of the parties. It was also submitted that renewal was a fresh contract, and therefore, if any disease occurred during the period of existing policy, renewal could be refused on the ground that the disease was pre-existing in the context of the renewal of the policy. It was finally contended that the right to terminate the policy or refuse renewal was an absolute right under the Cancellation Clause No. 14 of the prospectus, which corresponded to Clause 5.9 of the policy. 10.1 In support of his submissions, the learned Counsel relied upon the following decisions : (a)The decision of the Supreme Court in State of Tamil Nadu v. Hind Stone AIR 1981 SC 711, was cited for the proposition, laid down in the context of renewal of a lease, that, an application for renewal was in essence an application for the grant of a lease for a fresh period, and therefore, Rule 8C of the Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union of India [2002] 2 SCC 333, was cited for the proposition that wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. It was held that it is not for the Courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved. (f)The decision of the Supreme Court in National Insurance Co. Ltd. v. Seema Malhotra [2001] 3 SCC 151, was cited for the proposition, that the only profit, if at all the Insurance Company makes, out of the insurance business is the premium paid when no accident or damage occurs. But to ask the Insurance Company to bear the entire loss or damages of somebody else without the company receiving a pie towards premium is contrary to the principles of equity, though the Insurance Companies are made liable to third parties on account of statutory compulsions due to the initial agreement, entered between the insured and the company concerned. It was held that the essence of the insurance business is the coverage of the risk by undertaking to indemnify the insured again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done by the insurers at the time of renewing the policy. 11.1 In support of their contentions, the learned Counsel for the insured persons relied upon the following decisions : (a)Decision of the Supreme Court in Som Prakash Rekhi v. Union of India AIR 1981 SC 212 was cited for the proposition that if a statutory corporation body or other authority is an instrumentality or agency of the Government it would be an authority, and therefore, State within the meaning of the expression in Art. 12 and be subject to the same constitutional limitations as Government. (b)The decision of the Supreme Court in L.I.C. of India's case (supra), was cited to point out that the Supreme Court has held that when public element is involved in the activities of the Government, then there should be fairness and equality. If the State does enter into a contract, it must do so fairly without discrimination and without unfair procedure. In Paragraph 20 of the judgment, the Supreme Court held that the insurance being a social security measure, it should be consistent with the constitutional animation and conscience of socio-economic justice adumbrated in the Constitution as elucidated in the earlier part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segments of the society for insuring the lives of eligible persons." [Emphasis supplied] (c)The decision of the Supreme Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly AIR 1986 SC 1571 was cited for the proposition that if there is an instrumentality or agency of the State which has assumed the garb of a Government Company as defined in section 617 of the Companies Act, it does not follow that it thereby ceases to be an instrumentality or agency of the State. It was held that The Central Inland Water Transport Corporation Ltd. was nothing but the Government operating behind a corporate veil, carrying out a Governmental activity and Governmental functions of vital public importance. There can thus be no doubt that the Corporation is "the State" within the meaning of Art. 12 of the Constitution. Reasoning : 12. Improvement of public health is one of the primary duties of the State under Art. 47 of the Constitution of India. Protecting health of the citizens against infectious diseases, promoting better standards of healthcare and ensuring that there are adequate safeguards against financial risks connected with severe ailments would constitute key objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment of India transferred all the shares it held of the general Insurance Companies to the G.I.C. Simultaneously, the nationalised undertakings were transferred to the Indian Insurance Companies. After a process of mergers among Indian Insurance Companies, four companies were left as fully owned subsidiary companies of the G.I.C. : (1) National Insurance Company Limited, (2) The New India Assurance Company Limited, (3) The Oriental Insurance Company Limited, and (4) United India Insurance Company Limited. The next landmark happened on 19th April, 2000, when the Insurance Regulatory and Development Authority Act, 1999 (I.R.D.A.A.) came into force. This Act also introduced amendments to Act of 1972 and the Insurance Act of 1938. By insertion of section 24A in the Act of 1972, the exclusive privilege of the G.I.C. and its subsidiaries carrying on general insurance in India was removed. By section 10A inserted in the Act of 1972, by General Insurance Business (Nationalisation) Amendment Act, 2002, all the shares in the capital of these Government Insurance Companies that vested in the G.I.C. before the commencement of the said Amendment Act stood transferred to the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l insurance business in India ceased on and from the commencement of the Insurance Regulatory and Development Authority Act, 1999 (I.R.D.A.A.) and the G.I.C. and the acquiring companies, were thereafter, to carry on general insurance business in India in accordance with the provisions of the Insurance Act, 1938. As per the proviso added in section 24A, with effect from 7th August, 2002, the General Insurance Corporation, on and from the commencement of the General Insurance Business (Nationalisa-tion) Amendment Act, 2002 ceased to carry on general insurance business, as noted above. 14.3 In this context, it was urged before us on behalf of the Insurance Companies by their learned Counsel that these Insurance Companies should now be treated on the same footing as the private companies, in the realm of the general insurance business, including health insurance contracts, with a freedom to decide whether they should or should not renew a mediclaim policy. This contention has no merit for the simple reason that despite entry of private companies in the field, these Insurance Companies over which the Governmental control is all pervasive and are owned by the Government of India, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial review. The contention that these Government Insurance Companies, which are 'State' under Art. 12 should now be treated at par with the private Insurance Companies which are not 'State' for the purpose of considering whether there is breach of constitutional obligations imposed on 'State', cannot, therefore, be countenanced. We, however, make it clear that these observations should not be construed to mean that the private companies doing statutorily regulated business of general insurance, particularly healthcare, have no similar obligations arising by virtue of regulatory control and the Code of Conduct/Practice that may apply to them for a fair and reasonable conduct in the field of healthcare, which predominantly involves public interest. After all, public health cannot be thrown to the mercy of any arbitrary freedom of private contract, because the very nature of contracts involving health insurance is not a matter of mere private concerns of two contracting parties, but operates in a public field where concerns of community interest have to be read in such transactions, in the regulatory field. The law in India has addressed this concern and the Tariff Advisory Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and they include, "policy terms, conditions and warranties", under clause (i ), and, "provision for cancellation of the policy on grounds of misrepresentation, fraud, non-disclosure of material facts or non-cooperation of the insured", under clause (m ). The provisions of the Act of 1999 and the nature of regulation and control exercised thereunder show that the general insurance business is not left to the exclusive domain of purely a private contract of two individuals not involving any public interest. The constitutional and statutory provisions regulate these insurance contracts and the interest of the community is kept paramount in consonance with the Directive Principles of State Policy. 17.3 The Mediclaim Insurance Scheme, which was framed by the G.I.C., was a Scheme approved by the Central Government. It was not a Scheme floated by some private party. This is evident from circular No. 464 dated 18th July, 1986 issued by the C.B.D.T. under section 119 of the Income-tax Act, 1961, in which, there is a reference to the budget speech in the year 1986-87 of the Finance Minister in which a proposal to provide relief to self-employed persons and salary earners other than those wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be germane in the context of the insurance business in healthcare carried out by these Government Companies when their exclusive privilege was given a go-bye, as was sought to be contended on behalf of the insurer companies. 18. The principal contention canvassed on behalf of the Insurance Companies is that, under Clause 5.9 of the insurance policy, which was a term of the contract of insurance, it was made clear that the mediclaim policy can be cancelled at the option of the insurer without any reason whatsoever, and that it may not be renewed if one of the parties to the contract did not agree to the renewal. Therefore, renewal of mediclaim policy cannot be claimed as a matter of right by the insured. It was also argued that the Insurance Companies have to function on sound business principles and if from the experience gained, the insurer finds that it is not prudent to continue the policy of a particular insured, the insurer can stop it. It was contended that the insurers are justified in taking a prudent commercial decision and refusing to insurer a person in respect of the diseases developed by him during the operative period of the existing policy and are also justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... people is a constitutional obligation as reflected from the Directive Principles of State Policy under Articles 38, 39 and 47 of the Constitution. It becomes more imperative for the Government to intervene where illnesses are very expensive to treat. Equity in healthcare would mean equity in the burden of health spending. By providing subsidized health services or health insurance, the Government can militate the inequity in such cases to achieve an equitable distribution of the financial burden of ill-health and morbidity. "The Societies are concerned not just about improvements in "average health", but also, especially, about the health and economic welfare of the socially and economically marginal groups in the society" - Health Policy Challenges for India : "Private Health Insurance & Lessons from the International Experience", by Ajay Mahal. 20.1 Any tendency to undertake risk selection so as to insure low risk individuals and exclude the high risk ones from insurance via exclusion conditions would impose a heavy financial burden on the people who are prone to get sick and most in need of risk protection, and obviously work against the above constitutional perspectives. Publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was required to be given wide publicity by the G.I.C. and its subsidiaries that the mission declared therein was to develop the general insurance business "in the best interests of the community". The progress on implementation of the Charter upto quarter ending September 1999 showed that the G.I.C. and the Government Companies had introduced several covers "for the weaker sections of the society at the affordable rates". (Source : http://goicharters.nic.in/gic.htm). 22.2 The throwing open of the insurance sector to competition from private Indian Companies, by insertion of section 24A in the Act of 1972, which was done by section 32 read with the Third Schedule of the Act of 1999, did not, however, mean that the G.I.C. or the acquiring companies ceased to be "State" within the meaning of Article 12 of the Constitution. Rightly, therefore, the learned Advocate General, with his usual fairness, did not raise the contention, which was raised by the other Counsel for the insurers that these Government Insurance Companies are not "State" within the meaning of Article 12 of the Constitution. 23. It is, therefore, clear to us that the nationalized insurance sector remains in the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsured person could not have known of the existence of the disease or any symptoms or complaints thereof at the time of making the proposal for insurance to the Company. This condition 4.2 shall not however apply in case of the insured person having been covered under this scheme or group insurance scheme with any of the Indian Insurance Companies for a continuous period of preceding 12 months without any break. 4.3 During the first year of the operation of the policy, the expenses on treatment of diseases such as Cataract, benign, Prostatic, Hypertrophy, Hysterectomy for Menorrhagia or Fibromyema, Hernia, Hydrocele, Congential Internal Diseases, Fistula anus, Piles, Sisusitis and related disorders are not payable. If these diseases are pre-existing at the time of proposal, they will not be covered even during subsequent period of renewal too." 23.2 A bare reading of the above exclusionary provisions in the policy shows that only in respect of the diseases/injuries which are pre-existing "when the cover incepts for the first time", the liability of the company will be excluded. This would mean that the liability in respect of the disease/injury occurring during the continuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er benefits mentioned above in item 11(a), (b ), (c ) will be permissible." 24.1 The words "continuance of cover will be available if the renewal is paid in time" and the provision to the effect that the benefits on the continuance of cover will accrue from the first day after renewal, are clearly indicative of the fact that the only pre-condition to continuance of cover was timely payment of the renewal. The rider below this clause that "any disease contracted during the period of 7 days extensions will be excluded from the date of renewal", would mean that if the disease is already covered under the policy and renewal premium is paid in time, such disease will continue to be covered as it was already under the existing policy. 24.2 The terms and conditions referred in the prospectus would throw light on the intention of the parties to the contract of insurance. The mediclaim insurance scheme reflected in the prospectus, as noted above, was floated by the G.I.C. and its subsidiaries which are "State" and the renewal provision in clause 5.9, on which much reliance was placed, is required to be read in the light of the option of renewal given to the insured as implied in the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the said clauses 1.1, 4.1, 4.2, 4.3, 7.0 and 7.1 of the mediclaim insurance policy. 27. Following aspects clearly emerge from the above clauses 1.1, 4.1, 4.2, 4.3 and 7 of the mediclaim insurance policy and clause 11 of the prospectus of the mediclaim insurance policy that : (i) the cover for the diseases which are not excluded from the first year of the cover would continue even in the renewal years if the renewal premium was paid in time; (ii) even if the insured contracts any disease which is not excluded from the existing cover, it will be continued to be covered in the subsequent year, if the renewal premium is paid in time; (iii) the disease covered under the policy will not be excluded during the continuance of the cover. A fortiori, the renewal could not be refused if insured paid the renewal premium in time. 28. The expression "policy may be renewed by mutual consent" and "the company may at any time cancel this policy" occurring in clause 5.9 of the policy and clause 14 of its prospectus cannot be resorted to by these Government companies for urging that they can arbitrarily put an end to the mediclaim policy or arbitrarily refuse to accept renewal premium which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any insurance product shall clearly state the scope of benefits, the extent of insurance cover and in an explicit manner, explain the warranties, exceptions and conditions of the insurance cover. Thus, prospectus for an insurance policy is statutorily required to reflect the terms on which the insurance is offered. Therefore, the renewal clause in the prospectus of a policy under this mediclaim insurance scheme which provided that continuance of insurance cover will be available if renewal premium is paid in time, is required to be kept in mind to ascertain the intention of the parties including the Insurance Company and such promise is to be read while construing the aspects of renewal under clause 5.9 of the policy since it is also borne out from the other clauses namely, clauses 1.1, 1.2, 4.1, 4.2, 4.3, 7.0 and 7.1 of the policy itself, which all indicate that cover would continue on renewal premium being paid in time; and the effect of those clauses will have to be understood in light of clause 11 of the prospectus at Annexure "J" in order avoid any ambiguity over the aspect of renewal of the policy. 30. No excuse of "prudent insurer" or "business sagacity" can be put forth f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers can refuse to renew if the continuance of the cover becomes more burdensome is against the basic rule, that the parties to a contract must either perform or offer to perform their respective promises, unless such performance is dispensed with or excused under the provisions of the Contract Act or any other law. (See section 37 of the Contract Act). 32.1 There was neither express nor implied term in the contract of mediclaim insurance, that on the contract becoming more onerous or burdensome, the insurer can refuse renewal of policy despite timely tender of renewal premium by the insured. Parties to a contract are bound to perform their obligations undertaken by them and cannot claim to be excused by the mere fact that performance has subsequently become more burdensome. A party cannot be absolved from liability to perform a contract merely because the performance becomes more onerous Alopi Parshad & Sons Ltd. v. Union of India AIR 1960 SC 588. 32.2 Therefore, option of renewal given to the insured being an agreed term of the mediclaim policy, if denied by any arbitrary refusal or on the ground that the contract has become more onerous or burdensome, would amount to breach of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... renewal will be by mutual consent, then on a harmonious construction of the two seemingly oppo- site provisions, the mutual consent provision will apply only to such renewals which are not consequential upon the timely payment of premium that would entail continuity of the cover. This can be illustrated by reference to the cases where the insured may want to continue their cover, but with enhancement of the sum insured. In such cases, the question of consenting to renew the cover for the extent of enhancement of the sum insured would arise and it is in the context of such enhanced sum that the company may become justified to consider exclusion of the disease so far the enhanced sum is considered though it would be liable to continue the cover for the basic sum insured. If the renewal premium was paid in time, without seeking such enhancement. If, however, a conflict is to be read between these two provisions, namely, clause 11 of the Standard Prospectus and clause 5.9 of the policy, same as clause 14 of the Prospectus, the policy will have to be construed strongly against the insurer by giving due weight to the standing offer to renew contained in the clause 11 of the prospectus wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which a claim was made by the insured under the existing policy. The circular summarises how to deal with different situations which may arise during renewal of insurance in the following terms : "Different situations which may arise during the renewal of insurance and how to deal with them are summarised below : (1) In case of renewal without a break in the period the policy will be renewed including the disease contracted during the expiring policy period. (2) If there is a break, the fresh policy must specifically exclude the disease contracted during the expiring policy period and during the break period, and it should be mentioned in the schedule of the policy specifically. (3) If an insured is already covered under an insurance policy, say, a group mediclaim, and wants to take an individual policy, the same may be issued upto the identical sum insured on the same terms and conditions if there is no break. (4) If a person is insured with another subsidiary and wishes to renew with us, the same should be considered only after ascertaining the claim status and exclusion under the previous policy. In case the claim status revealed is adverse or there is a continuing il ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be refused, if there are detected vitiating elements in the original contract, such as, misrepresentation, fraud or non-disclosure of material facts. Despite the grounds, which would enable the insurer to repudiate the contract being detected, the insurer may waive them and, by mutual consent, renew the policy. Thus, renewal at the option of the insured by accepting the standing offer for renewal stipulated under the scheme by payment of renewal premium in time and the renewal by mutual consent under clause 5.9 of the policy, would ordinarily operate in different fields and the option to renew the mediclaim policy given to the insured cannot be rendered meaningless by subjecting it to the consent of the insurer, except on the grounds vitiating the contract when the cover first incepts. 34.3 A policy may be issued to cover a certain risk for a definite period at a stated premium without any provisions for renewal, but more usually the policy is expressed to cover first a definite period, say a year, for which the premium is acknowledged to have been received, and second, an indefinite period thereafter, so long as annual or other periodic payment shall be paid in accordance with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n time, as per the renewal clause. The contract of health insurance, like that of life insurance made in consideration of an annual premium, is an insurance for a year with an irrevocable offer to renew upon payment of the agreed renewal premium. 35. In an existing contract where it is specifically provided that the insurer is not bound to give notice when the policy is due for renewal and the insured remits the renewal premium in time, the insurer cannot invoke the cancellation clause for refusing renewal, unless any one of the contingencies permitting cancellation has occurred. There is already a standing offer seeking renewal and that is why clause 5.9 stipulates that notice of renewal need not be given by the insurer. The moment insured pays premium in time the acceptance of that offer is complete and there would be no option with the insurer to deny renewal. 35.1 When offer of renewal comes from the insurer by a renewal notice or it is there is from of standing offer contained in the existing insurance cover or under the scheme itself as declared in the prospectus, enabling the insured to get the cover continued by paying renewal premium in time, payment of the appropriate p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Insurance Company was arbitrary in refusing to renew the policy, the policy is required to be renewed with effect from the date when it fell due for its renewal. Earlier, in Paragraph 3 of the judgment, the Court held that, even in an area of contractual relations, the State of its instrumentalities are enjoined with the obligations to act with fairness and in doing so, can take into consideration only the relevant materials. They must not take any irrelevant and extraneous consideration while arriving at a decision. Arbitrariness should not appear in their actions or decisions. The Court agreed with the view taken by the High Court that the order of the Insurance Company refusing to renew the mediclaim policy of the appellant was unfair and arbitrary. It is clear from the judgment that its ratio is directed against all arbitrary of unfair refusals to renew the mediclaim policy. The fact that, in the case before the Supreme Court, the ground for refusal was extraneous, will not reduce the impact of the decision from the level of setting aside any arbitrary and unfair order to merely applying it to a particular instance where refusal is on some extraneous consideration, such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpiring policy so far as the basic sum insured under the existing policy is concerned. (3)In cases where the insurer seeks an enhancement of the amount of sum insured at the time of renewal, the option to renew will not extend to the amount of such enhancement and renewal in respect thereof will depend upon the mutual consent of the contracting parties. (4)Renewal of a medical claim insurance policy cannot be refused, despite timely payment of the renewal premium, on the ground that continuance of the cover would become more onerous or burdensome for the insurer due to the insured contracting a covered disease during the period of the existing policy. (5)The insurer may refuse renewal, even in cases where the insured has an option to renew the policy on payment of the renewal premium in time, on the grounds, such as, misrepresentation, fraud or non-disclosure of material facts that existed at the inception of the contract and would have vitiated the insurance of the cover at its inception or non-fulfilment of obligations on the part of the insured or any other ground on which the performance of the promise under the contract is dispensed with or excused under the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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