Unjustifiable Non-Disclosure By Insurer About Introduction Of Limitation Clause Constitutes Deficiency In Service: Supreme Court
A two-Judge Bench of the Supreme Court comprising Justice K.M. Joseph and Justice S. Ravindra Bhat rendered their separate but concurrent judgements.
Ms. Arundhati Katju appeared on behalf of the appellants while Mr. Amit Kumar Singh, Adv. argued on behalf of the respondent.
Factual Matrix: -
Under challenge before the Supreme Court was the order of the NCDRC, via which, it had upheld the concurrent rejection of appellants' application seeking relief.
The appellants contracted with the respondent/insurer and secured a Mediclaim insurance policy [policy]. This policy was renewed successively by paying renewal. The last renewal was the subject matter of the appeal before the Supreme Court.
The policy was to expire on 27.03.2008 which was renewed by the appellants via a cheque issued on 26.03.2008 and receipt qua the same was received on 30.03.2008.
The second appellant (wife) had to undergo angioplasty at Chennai and a claim was submitted to the insurer amounting to Rs. 3,82,705.27/-. The insurer accepted and paid Rs. 2,00,000/-.
The appellants issued representations to make good the balance amount. Thereafter, they approached District Forum for a direction to pay the balance amount along with costs and interests.
The insurer had argued that the terms and conditions of the policy changed periodically and for the relevant year, in respect of procedures, 70% of the policy limit could be claimed subject to an overall limit of Rs. 2,00,000 for any one surgery.
The District Forum allowed the appellants' complaint. Insurer approached State Consumer Forum which interdicted with the findings of the District Forum. The appellants approached NCDRC with a revision petition. NCDRC upheld the insurer's stand. Hence, the appeal before the Supreme Court.
Analysis of the Court: -
Justice Bhat's analysis:
The Court noted that the cheque was encashed and a policy document was issued by the insurer. However, what was unclear was as to when the policy document was actually dispatched and on which date it was received by the appellants. The policy containing the fresh terms was, according to the Court, issued after receipt of the premium for the year in question.
Renewal of the policy: -
The insurer argued that the policy issued for the period in question was a 'new' one and not a renewal. The appellants contended that the amended terms of the policy were received after three months of the payment of the renewal premium and thus, there was no scope for them to have read and given consent to the cap on angioplasty coverage in the new Gold policy.
The Court, after interpreting the provision of the policy in question, held that there can be said to be no consensus ad idem on the introduction of the cap on coverage as the appellants were not informed that they were paying premium for the new policy. The Court, in this regard, observed as follows:-
"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."
The Court noted that the eventuality contemplated in Biman Krishna Bose vs. United India Insurance, (2001) 6 SCC 477, i.e., inapplicability of old terms, in the case of renewal, when the contracts provide "or otherwise" had to be applied contextually. The Court noted that the fresh terms would not be binding when a new term is introduced unilaterally about which the policy holder is in the dark.
The Court noted that assuming the appellant had received the policy documents in time, and then had misunderstood the terms, the question was, after payment of premium, were they in a position to protest? The Court, then, carved out the question for consideration as follows:
"Irrespective of the answer to the question of whether the renewal of an insurance contract results in a new contract or otherwise, the issue which arises is whether the appellants, as beneficiaries of the policy, could complain about mistake in its terms, and the possible consequences of such mistake."
Section 22 of the Contract Act was relied upon by the Court to say that unilateral mistake of fact does not result in its nullity. The Court held, after considering various authorities on the subject, that unless the unilateral mistake about terms of a contract is so serious to adversely undermine the entire bargain, it does not result in automatic avoidance of a contract.
Duty of insurers: -
The Court invoked the principle of uberrima fide (duty of utmost good faith) that applies both to the insured as well as insurer. The Court relied upon Sherdley v Nordea Life and Pension, (2012) 2 All ER (Comm) 725 to explain the said principle in the context of omission by the insurer to notify the other about a material change in the terms.
The Court held that insurer cannot be now heard to say that insured were under an obligation to satisfy themselves. The Court noted that medical cover becomes crucial with advancing age. The Court noted that one who seeks coverage of a life policy has little choice but to accept the offer of certain standard term contracts.
The Court also relied upon Law Commission's 199th Report wherein it was recommended to enact a law to counter such unfair terms in contracts. The Court held that it has the remedial power to refuse enforcement of such contractual terms. The Court noted that an inference was to be drawn that the agent did not inform, at the time of renewal of policy, about the limits in regard to coverage.
The Court noted that the role of an agent is to be examined and in event of failure to discharge the duties, the vicarious responsibility of the insurer needs to be death with.
The Court noted that no evidence was led that the agent had informed the appellants about the changes and hence, as per the Consumer Protection Act, deficiency of service assumes significance. The Court then also noted that special status of senior citizens.
The Court held that in this case, the obligation of the insurer to provide information to the existing policy holders was breached and hence the order of State Commission as also of NCDRC could not be sustained. The Court restored the order of District Forum with costs quantified at Rs. 50,000/-.
Justice Joseph's analysis: -
The Court noted that renewal of the contract would ordinarily involve the expectation of replication of terms of original contract. The Court noted that actual contract may provide otherwise. The Court noted that terms of renewed contract of insurance may be located in the actual contract and renewed contract may provide terms of the original contract.
The Court, however, held that it was in agreement with Justice Bhat that the claim under CoPRA must be allowed on the ground that there was deficiency on part of the insurer as there was a change in the policy which was kicked in by the insurer. The insured was kept in the dark. The insurer had a duty to inform the appellants that a change regarding limitation on its liability was being introduced.
The Court agreed with Justice Bhat that appeal be allowed on the basis that there was unjustifiable non-disclosure by the Insurer about the introduction of clause of limitation and, in this case, it constituted a deficiency in service. Hence, the appeal was allowed.