Supreme Court Rules in Favor of Policyholder Over Mediclaim Policy Dispute

The Supreme Court of India delivered a crucial judgment in the case of Jacob Punnen & Anr. v. United India Insurance Co. Ltd., where the appellants challenged the National Consumer Disputes Redressal Commission’s (NCDRC) order, which upheld the insurer’s decision to reject part of their claim under a renewed medical insurance policy. The Supreme Court ruled that the insurer failed to adequately disclose material changes in policy terms upon renewal, thereby constituting a deficiency in service.

Background of the Case

The appellants had taken a Mediclaim policy from United India Insurance Co. Ltd. in 1982, which they had consistently renewed over the years. The policy was renewed again on 28 March 2008 for the period until 27 March 2009. However, when the second appellant underwent an angioplasty in June 2008 and filed a claim of ₹3,82,705.27, the insurer reimbursed only ₹2,00,000, citing new policy conditions limiting the maximum payout for certain medical procedures.

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The appellants argued that they were unaware of these changes and had renewed their policy believing that the existing terms would continue. The insurer, on the other hand, maintained that the renewed policy was a fresh contract, and the appellants were bound by its revised terms.

Arguments by the Appellants

The appellants contended that:

• Their renewal of the insurance policy was based on the assumption that the existing terms would continue, as they had been policyholders for several years.
• The insurer never explicitly informed them of any changes limiting claims for specific medical procedures.
• They were deprived of an opportunity to opt for alternative coverage because the new policy conditions were not communicated in advance.
• The insurer’s failure to disclose material changes constituted a deficiency in service, as per consumer protection laws.

Arguments by the Respondent (United India Insurance Co. Ltd.)

The insurer defended its decision on the following grounds:

• The renewed policy was a new contract, and any changes in terms were binding on the appellants.
• The policy document was issued to the appellants, and they were expected to review its terms.
• The revised policy had a monetary cap of ₹2,00,000 for angioplasty procedures, as per the company’s administrative guidelines.
• The insurer had complied with all regulatory requirements and was not obligated to individually inform policyholders about every change.

Supreme Court’s Observations and Ruling

The Supreme Court overturned the NCDRC’s decision, ruling that:

• Renewal of an insurance policy implies continuity of existing terms, unless changes are clearly disclosed to policyholders.
• The insurer had a duty to notify the appellants of material alterations in policy coverage before renewal.
• The insurer’s failure to do so constituted deficiency in service under consumer protection laws.
• The doctrine of uberrima fides (utmost good faith) applies equally to insurers, who must act transparently and in good faith.
• The insurer’s unilateral modification of policy terms without prior notice was unfair and unenforceable.

The Court also cited key legal precedents, including:

• Biman Krishna Bose v. United India Insurance Co. Ltd. – Held that renewal of an insurance policy implies continuation of the original terms unless otherwise specified.
• United India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera – Stressed the principle of utmost good faith in insurance contracts.
• LIC v. Consumer Education and Research Centre – Emphasized that insurers must clearly communicate policy terms and cannot impose unfair conditions post facto.

Final Verdict

The Supreme Court restored the order of the District Consumer Forum, which had originally ruled in favor of the appellants. It directed the insurer to pay the appellants the balance claim amount of ₹1,75,000, along with ₹50,000 as compensation for deficiency in service.

Read also: https://judgmentlibrary.com/supreme-court-upholds-policyholders-rights-in-overseas-mediclaim-dispute-against-insurer/

This judgment reinforces the rights of policyholders, ensuring that insurers cannot arbitrarily alter policy terms without adequate disclosure. The ruling also highlights the importance of transparency in the insurance sector, particularly in consumer contracts involving long-term policyholders.

Petitioner Name: Jacob Punnen & Anr..
Respondent Name: United India Insurance Co. Ltd..
Judgment By: Justice S. Ravindra Bhat, Justice K.M. Joseph.
Place Of Incident: India.
Judgment Date: 09-12-2021.

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