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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 ..... urance 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 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed. It 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 2nd January, 1973 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Consumer Education and Research Society 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded in Paragraph 10( d ) that : ". . . the annual 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 ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinction sought to be made on behalf of the insurers on the ground that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of such disease. It was submitted that, if any right to renew the policy is conceded in favour 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 submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of fact in each case whether the cancellation was legitimate or illegitimate (Para 20). As regards the condition 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that the Insurance Company has a right to refuse the issuance of policy at the initial stage and also to refuse to renew 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, ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following their earlier decision, it was held that, an insurance was a contract between two parties and it was neither required and nor was it desirable 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 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewal therein was in the nature of soliciting business and did not preclude the insurer from considering the question of renewal when such premium was 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitute its decision, however, more prudent, commercial or businesslike it may be, for the decision of the Corporation. ( e )The decision of the Supreme Court in Balco Employees Union v. 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned single Judge for their argument that the policies ought to have been renewed on payment of the renewal premium in time, and that diseases could not have been excluded, as was sought to be 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and conditions therein. The appellants or any person or authority in the field of insurance owe a public duty to evolve their policies, subject to such reasonable, just and fair terms and conditions accessible to all the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 22nd November, 1972 under the Companies Act, 1956, as a Private Limited Company. The G.I.C. was formed for the purpose of superintending, controlling and carrying on the business of general insurance. As soon as the G.I.C. was formed, the Government 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exclusive privilege of carrying on general insurance business in India. However, by section 24A of the Act of 1972, which was inserted with effect from 19th April, 2000, the exclusive privilege of the G.I.C. and the acquiring companies, of carrying on general 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act in a reasonable and fair manner. Any action of the Government Insurance Company which is arbitrary, unfair or untenable, or adverse to the interest of the community, would therefore, amount to breach of duties cast upon these Government companies and become subject to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of 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. Under Regulation 7(1), matters to be clearly stated in general insurance policy are enumerated, 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 cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Central Government, on an assumption that this fact could not have been deliberately withheld from the Court, if it was to their knowledge. 17.4 It is therefore, difficult to accept the argument that the directive principles of State policy declared under Articles 39 and 47 of the Constitution would 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 pru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dical services which otherwise might be out of the reach of such persons. The mediclaim scheme is, therefore, not a subject of mere private concern of two contracting parties, but a result of a national concern reflected in the norms of national health policy. 20. The Government intervention for improving health of the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present set up of nationalised insurance sector and recommended, inter alia, the establishment of a strong and effective regulatory authority in form of a statutory autonomous board. (See Statement of Object and Reasons of the Act of 1999 ). 22.1 It will be seen from the Government of India, Citizen s Charter of General Insurance Industries, which 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. Righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries which are pre-existing when the cover incepts for the first time, 4.2 Any disease other than those stated in clause 4.3, contracted by the insured person during the first 30 days from the commencement date of the policy. This exclusion shall not however apply if in the opinion of Panel of Medical Practitioners constituted by the Company for the purpose, the insured 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 subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 4.2 and 4.3). Renewal of insurance cover : A further period of 7 days from the date of expiry will be permissible in exceptional cases subject to Health Certificate from Medical Practitioner. N.B. :- Any disease contracted during the period of seven days extensions will be excluded from the date of renewal in addition to other disease excluded in the expiring policy, whereas other 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 prospect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icy without break as a continuance of cover so long as the premium amount is paid, as held out in the above clauses of the policy and more explicitly in clause 11 of the prospectus, reference to which would immediately avoid the ambiguity that is sought to be introduced by reading the stipulation of renewal by consent in clause 5.9 as giving an absolute right to the insured to refuse renewal which is not in tune 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a view to the issuance of a policy of insurance unless such a prospectus includes: ( a ) a description of the contingency or contingencies to be covered by insurance, and ( b ) a full statement of circumstances, if any, in which, rebates of premiums quoted in the prospectus or table shall be allowed on the effecting or renewal of a policy. As per Rule 3 of the Protection of Policy Holders Interests Regulations, 2002, a prospectus of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tling the insurer to cancel or refuse to renew the cover. Claims based on occurrence of diseases covered by mediclaim insurance can never be considered to be having any bearing on the moral integrity of the insurer when they are genuine, and their cover cannot be treated a "high moral hazard" justifying refusal to renew, or cancellation of the cover, as was sought to be urged. 32. The contention raised on behalf of the insurers that these insurers 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 performanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grounds such as fraud, misrepresentation, non-fulfilment of the obligations by the insured, or where the performance of obligation under the contract to renew the policy as stipulated is dispensed with or excused under the provisions of the Contract Act or of any other law. 33. If the Insurance Company provides continuity of cover under the mediclaim policy on payment of renewal premium in time and simul-taneously in the cancellation clause provides that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the position in case of renewal, if there was a claim under the expiring policy. It was emphasized that the mediclaim policies which are renewed without break in the policy period and without enhancing the "sum insured" may be renewed, including the diseases contracted during the expiry period. The circular was issued by the National Insurance Company Limited, noticing that, in certain instances, the operating offices while renewing the policies, were excluding the illness 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving option to the insured to renew under the mediclaim insurance scheme by paying renewal premium in time, in which renewal could be done only under the mutual consent clause 5.9. Even in cases where there is a stipulation as to renewal at the option of the insured, as is contained in the present mediclaim insurance scheme, the insurer s rights in relation to misrepresentation or non-disclosure are governed by the state of affairs that existed at the inception of the contract and renewal can 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have, at least, a right of renewal subject to reasonable conditions. A policy of health insurance is for insuring against the risk of disease. One is a policy for life while the other for a healthy life. Even in a health policy, though under an annual contract on payment of annual premium, the assured must have a right of renewal subject to reasonable conditions, because, the policy is not intended to be for a term certain, but meant to cover the risk of disease for life so long the renewal premium is paid in 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the renewal of the policy on extraneous considerations thereby deprive the claim of the insured for treatment of diseases which have appeared during the relevant time, and further deprive the insured, for all time to come, to cover those diseases under an insurance policy by virtue of the exclusion clause. It was held that this being the disastrous effect of wrongful refusal of renewal of the insurance policy, the mischief and hard done to the insured must be remedied. The Court held that, once it is found that the act of 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insured has an option under the existing mediclaim insurance policy to continue the cover by payment of renewal premium in time in respect of the sum insured. (2)In case of renewal without break in the period, the mediclaim insurance policy will be renewed without excluding any disease already covered under the existing policy which may have been contracted during the period of the expiring policy. Renewal of mediclaim insurance policy cannot be refused on the ground that the insured had contracted disease during the period of the expiring 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 pol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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