2021 (12) TMI 1371 - SC - Indian Laws

Insurer's Unilateral Policy Changes Deemed Unenforceable; Court Orders Payment to Policyholders

The court held that the insurer's unilateral introduction of new terms without informing the policyholders was restrictive and unenforceable. The ... Renewal of an existing insurance policy - duties of an insurer - HELD THAT:- The law in India is that unless the unilateral mistake about the terms of a contract is so serious as to adversely undermine the entire bargain, it does not result in automatic avoidance of a contract. Applied to the facts of this case, it is evident that the appellants could insist on the old insurance policy, on the premise that it renewed the pre-existing policy. The other conclusion would be cold comfort to the party seeking insurance cover, as the choice would be to avoid it altogether- too drastic as to constitute a choice - issue decided in favour of the appellants. What are the duties of an insurer, when a policy holder seeks renewal of an existing policy? - HELD THAT:- In view of the state of law, which is, that the insurer was under a duty to disclose any alteration in the terms of the contract of insurance, at the formation stage (or as in this case, at the stage of renewal), the respondent cannot be heard to now say that the insured were under an obligation to satisfy themselves, if a new term had been introduced. If one considers the facts of this case, it is evident that the insurer had caused a renewal reminder, which was acted upon and the renewal cheque, issued by the appellant - The courts’ remedial power, to refuse enforcement of such contracts, or contractual terms, finds support in a few decisions of this Court. There is no doubt that insurance business is run through brokers and agents. The role of an agent in this regard is to be examined. This Court has spelt out, in the context of insurance business the role of insurance agents and the liability or responsibility of insurance companies in the event of failure to discharge the duties cast upon agents, and the likely vicarious responsibility or liability of the insurer. This Court is of the opinion that the findings of the State Commission and the NCDRC cannot be sustained. The insurer was clearly under a duty to inform the appellant policy holders about the limitations which it was imposing in the policy renewed for 2008-2009. Its failure to inform the policy holders resulted in deficiency of service. The impugned order of the NCDRC as well as the order of the State Commission are hereby set aside. The order of the District Forum is accordingly restored. Consequently, the appeal is allowed; in the circumstances of this case, the respondent shall bear additional costs, quantified at Rs.50,000/-. Issues Involved:1. Renewal of Insurance Policy2. Duty of Insurers3. Deficiency in Service4. Applicability of Contractual Terms5. Consumer ProtectionDetailed Analysis:Renewal of Insurance Policy:The appellants argued that they had renewed an existing policy, not obtained a fresh one. They emphasized that the renewal should imply the continuation of existing terms. The insurer contended that the 2008-09 policy was a new contract with different terms, including a cap on angioplasty coverage. The court found that the insurer did not adequately inform the appellants about the new terms, leading to a lack of consensus ad idem. The court held that the insurer's unilateral introduction of new terms without informing the policyholders was restrictive and unenforceable.Duty of Insurers:The principle of uberrima fides (utmost good faith) applies to both the insured and the insurer. The court highlighted that the insurer had a duty to disclose any material changes in the policy terms at the renewal stage. The insurer's failure to inform the appellants about the new terms, which included a cap on angioplasty coverage, constituted a breach of this duty. The court emphasized that the insurer should have alerted the appellants about the changes to enable them to make an informed decision.Deficiency in Service:The court found that the insurer's failure to inform the appellants about the changes in the policy terms resulted in a deficiency of service. The Consumer Protection Act, 1986 defines deficiency as any fault, imperfection, shortcoming, or inadequacy in the quality, nature, and manner of performance required by law or undertaken to be performed. The court held that the insurer's omission to inform the appellants about the new terms amounted to a deficiency in service, especially considering the appellants were senior citizens.Applicability of Contractual Terms:The court examined the terms of the previous policy and the new policy. It found that the new policy introduced a restrictive condition limiting the coverage for angioplasty to 70% of the sum insured or a maximum of Rs. 2 lakhs. The court held that the appellants were not informed about this new term and thus could not be bound by it. The court emphasized that any new term introduced unilaterally by the insurer without informing the policyholder is not enforceable.Consumer Protection:The court underscored the importance of consumer protection, particularly for senior citizens. It noted that the insurer's argument that the appellants should have inquired about the new terms was not tenable. The court emphasized that the insurer had a duty to inform the appellants about any significant changes in the policy terms, especially those affecting coverage. The court restored the order of the District Forum, which had directed the insurer to pay the balance amount claimed by the appellants and awarded compensation.Conclusion:The court concluded that the insurer was under a duty to inform the appellants about the limitations imposed in the renewed policy for 2008-2009. The insurer's failure to do so resulted in a deficiency of service. The court set aside the orders of the State Commission and the NCDRC and restored the order of the District Forum. The insurer was directed to pay the balance amount claimed by the appellants and additional costs of Rs. 50,000.