Arbitrary refusal to renew mediclaim policy cannot force a fresh policy; renewal must run from the due date.

General insurance companies acting as State instrumentalities must deal fairly and reasonably, and a refusal to renew a mediclaim policy on the irrelevant ground that the insured had pursued legal remedies for an unpaid claim was arbitrary. The wrongful refusal could not be cured by directing the insured to purchase a fresh policy, because renewal restores the original cover and avoids prejudice from pre-existing disease exclusions under a new policy. The proper relief was renewal of the mediclaim policy from the date it fell due, subject to payment of premium, and the direction to take a fresh policy was set aside.

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Issues: (i) whether the insurer's refusal to renew the mediclaim policy was arbitrary and unfair; (ii) whether, upon setting aside such refusal, the policy had to be renewed from the date it fell due rather than by directing the insured to take a fresh policy.

Issue (i): Whether the insurer's refusal to renew the mediclaim policy was arbitrary and unfair.

Analysis: The acquiring general insurance companies functioned as instrumentalities having the trappings of the State under Article 12 of the Constitution of India. In that capacity, they were bound to act fairly and reasonably and could rely only on relevant considerations. Refusal to renew the policy because the insured had pursued legal remedies for an unpaid claim was held to rest on an irrelevant and extraneous consideration. Such conduct amounted to arbitrariness.

Conclusion: The refusal to renew the mediclaim policy was arbitrary and unfair and could not stand.

Issue (ii): Whether, upon setting aside such refusal, the policy had to be renewed from the date it fell due rather than by directing the insured to take a fresh policy.

Analysis: Renewal of an insurance policy is a continuation or revival of the original cover on the same terms, and a wrongful refusal to renew cannot be allowed to prejudice the insured by forcing a fresh policy. If a fresh policy alone were required, diseases arising during the period of wrongful non-renewal would be treated as pre-existing and excluded. To remove that prejudice, the proper relief was renewal from the due date, subject to payment of premium.

Conclusion: The insured was entitled to renewal of the mediclaim policy with effect from the date it fell due, and not merely to a fresh policy.

Final Conclusion: The appeal succeeded, the direction to take a fresh mediclaim policy was set aside, and the insurer was required to renew the policy from the due date on payment of premium.

Ratio Decidendi: A State instrumentality in the general insurance sector must act fairly and without arbitrariness, and a wrongfully refused insurance renewal must be restored from the date due so that the insured is not prejudiced by exclusion clauses applicable to a fresh policy.

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