TaxTMI 
TaxTMI 
2008 (5) TMI 686
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....e for the acquisition and transfer of shares of Insurance Companies and undertakings of other insurers in order to serve better the need of the economy by securing the development of general insurance business in the best interest of the community and to ensure that the operation of the economic system does not result in the concentration of wealth to the common detriment, for the regulation and control of such business and for other matters connected therewith or incidental thereto. 4. Appellants are the two subsidiary insurance companies of General Insurance Corporation of India, carrying on the insurance business in terms of the 1972 Act. The General Insurance Companies had a monopoly over the business of general insurance whereas Life Insurance Corporation of India constituted under the Life Insurance Corporation Act, 1956 enjoyed the monopoly in respect of the business of life insurance. 5. The business activities of the insurance companies are governed by the Insurance Act, 1938 (for short the 1938 Act). In terms of the provisions of the said Act, an authority known as Insurance Regulatory and Development Authority (the Authority) was constituted by the Central Governme....
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....otice the factual matrix involved in other matters at a later stage. PROCEEDINGS 10. Respondents in each of these matters entered into their respective contracts of insurance with the appellant company. They were not renewed. Contending that the appellant and other subsidiaries of the Corporation being `State' within the meaning of Article 12 of the Constitution of India, they must be fair and reasonable and keeping in view the principles enunciated in the Directive Principle of State policy as contained in Chapter IV of the Constitution of India, writ petitions were filed before the Gujarat High Court. 11. We need not notice the other details of the said proceedings save and except that the conclusions recorded by the Division Bench of the said Gujarat High Court were as under: 39. For the foregoing reasons, we conclude as under: [1] The 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....
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....ediclaim insurance policies of petitioners Nos. 2 and 3 are arbitrary and also against the contractual terms, the Special civil Application No. 9425 of 2002 is partly allowed, by holding that the refusal of renewal of the mediclaim insurance policy of the petitioners No. 2 and 3 was arbitrary and illegal, and it is directed that the respondents insurance companies will renew their respective policies from the date on which they expired, on payment of the renewal premium payable by them under the Scheme, without excluding the diseases that may have been contracted by them during the period of their existing policies for the concerned year. Rule is made absolute accordingly with costs. CONTENTIONS 12. Mr. G.E. Vahanvati, learned Solicitor General of India, appearing on behalf of the appellant, submits: 1) The High Court committed a serious error in holding that the contract of insurance is no longer in the realm of contract. 2) The insurance companies must function having regard to `commercial expedience' consideration in view of Section 24A of the Act. 3) Assuming that the appellant is a `State' within the meaning of Article 12 of the Constit....
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....ued in favour of the insured in view of the maxim - contra proferentem and uberrimae fidei. STATUTORY PROVISIONS, GUIDELINES ETC. 14. Sections 10A, 19(2) and 19(3) of 1972 Act, which are relevant for our purpose, read as under: 10-A. Transfer to Central Government of shares vested in Corporation.- All the shares in the capital of the acquiring companies, being-- (a) the National Insurance Company Limited; (b) the New India Assurance Company Limited; (c) the Oriental Insurance Company Limited; (d) the United India Insurance Company Limited, and vested in the Corporation before the commencement of the General Insurance Business (Nationalisation) Amendment Act, 2002 shall, on such commencement, stand transferred to the Central Government. Section 19 - Functions of acquiring companies (1) ... (2) Each acquiring company shall so function under this Act as to secure that general insurance business is developed to the best advantage of the community. (3) In the discharge of any of its functions, each acquiring company shall act so far as may be on business principles and where any directions have bee....
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.... product of an insurable risk with a real risk transfer. "Alternate risk transfer" or "financial guarantee" business in any form will not be accepted. (iv) The insurance product should comply with all the requirements of the Protection of Policyholders' Interests Regulations 2002. (v) Insurers should use as far as possible, similar wordings for describing the same cover or the same requirement across all their products. For example clauses on renewal of insurance, basis of insurance, due diligence, cancellation, arbitration etc., should have similar wordings across all products. (vi) The pricing of products should be based on appropriate data and with technical justification. (vii) The terms and conditions of cover shall be fair between the insurer and the insured. (viii) Margins built into rates shall be consistent with the experience of the insurer in respect of commission, management expenses, contingencies and profit. (ix) Insurer should take necessary steps in ensuring that competition will not lead to unprincipled rate cutting and other improper underwriting practices. 18. Guidelines 7 and 25 of the Guidelines issue....
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....ed 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 already covered under an insurance policy, say, a group mediclaim, and wants to take an individual policy the same may be issued upto the identical sum insured on the same terms and conditions if there is no break. (4) If a person is insured with another subsidiary and wishes to renew with us, the same should be considered only after ascertaining the claim status and exclusion under the previous policy. In case the claim status revealed is adverse or there is a continuing illness or an impending illness, such cases should be advised to continue with the same subsidiary and should not be accepted. ANALYSIS OF THE HIGH COURT JUDGMENT : 22. The High Court has considered the matter under the following broad headings: a) The insurer ....
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....enic environment, the later being an indirect facet of the right to healthy life. {Virinder Gaur and Ors. v. State of Haryana and Ors. (1995)2SCC577 }. {[See also Kirloskar Brothers Ltds. v. Employees' State Insurance Corporation (1996)ILLJ1156SC ]}. 27. Even otherwise the term "health" may be given a wider meaning in the context of insurance. It may mean sound health. Collins English Dictionary defines "health" as: Health: the state of being bodily and mentally vigorous and free from disease, the general condition of body and mind: in poor health, the condition of any unit, society, etc.: the economic health of a nation, a toast to a person, wishing him or her good health, happiness, etc., (modifier) of or relating to food or other goods reputed to be beneficial to the health: health food; a health store., (modifier) of or relating to health, esp. to the administration of health: a health committee; health resort; health service., an exclamation wishing someone good health as part of a toast (in the phrases your health, good health, etc.). 28. The functions of the insurance companies are governed by statute. A contract of insurance, therefore, must subserve the ....
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....ifferent kinds of policies. Broadly we may divide them into two categories - life insurance which is based on an annuity scheme does not require any renewal clause. Policies not involving the life of an insured would, however, stand on a different footing. 32. It has a tariff policy. It is completely under the control of the Regulatory Authority. The tariff has to be fixed by the Authority. What should be the reasonable tariff would again be the subject matter of exercise of jurisdiction by the Authority. So far as non tariff policies are concerned, the insurance companies may charge tariff but the terms and conditions thereof are regulated by the Authority. Indisputably, the Authority intends to grant statutory protection to the policy holders. It is with that end in view the Protection Regulations were framed. It speaks of `prospectus'. It speaks of the mode and manner in which the insurance companies should function. Not only that even the guidelines have been framed on `file and use' requirements. Before the Authority each insurance company has undertaken that they will be fair in their dealing. It is one thing to say that if they breach their terms which would attra....
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....POLICY: 1.1 The policy covers reimbursement of Hospitalisation/ Domiciliary Hospitalisation expenses for illness/diseases or injury sustained. 1.2 In the event of any claim becoming admissible under this scheme, the company/TPA will pay to the Hospital/Nursing Home or the Insured person the amount of such expenses as would fall under different heads mentioned below, and as are reasonable and necessarily incurred thereof by or on behalf of such Insured Person, but not exceeding the Sum Insured aggregate in the schedule hereto. A) Room, Boarding Expenses as provided by the hospital/Nursing home. B) Nursing Expenses. C) Surgeon, Anaesthetist, Medical Practitioner, Consultants, Specialists Fees. D) Anaesthesia, Blood, Oxygen, Operation Theatre Charges, Surgical Appliances, Medicines & Drugs, Diagnostic Materials and X-Ray, Dialysis, Chemotherapy, Radiotherapy, Cost of Pacemaker, Artificial Limbs & Cost of Organs and similar expenses. (N.B. 1. Company's Liability in respect of all claims admitted during the period of insurance shall not exceed the Sum Insured per person mentioned in the schedule.) 38. What would be co....
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....ere below) provided no claim has occurred up to the date of cancellation. Period of Risk - Rate of Premium to be charged Up to one month < of the annual rate Up to three months = of the annual rate Up to six months 3/4th of the annual rate Exceeding six months - Full annual rate " 39. All mediclaim insurance policies, a proforma whereof has been brought to our notice, contain almost identical clauses, some of which are: 4.0 The Company shall not be liable to make any payment under this policy in respect of any expenses whatsoever incurred by any Insured Person in connection with or in respect of: 4.1 All diseases/injuries 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 of any symptoms or complaints thereof at the time of making the p....
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....CT OF INSURANCE : 40. We may, for this purpose, notice a few precedents operating in the field. In New Indian Assurance Co. Ltd. v. Harshadbhai Amrutbhai Modhiya and Anr. (2006)IILLJ782SC , this Court opined that even in respect of a contract of insurance, contracting out may be permissible. In his separate Judgment, P.K. Balasubramanian, J. opined: A contract of insurance is to be construed in the first place from the terms used in it, which terms are themselves to be understood in their primary, natural, ordinary and popular sense. (See Colinvaux's Law of Insurance, 7th Edn., para 2-01). A policy of insurance has therefore, to be construed like any other contract. On a construction of the contract in question it is clear that the insurer had not undertaken the liability for interest and penalty, but had undertaken to indemnify the employer only to reimburse the compensation the employer was liable to pay among other things under the Workmen's Compensation Act. Unless one is in a position to void the exclusion clause concerning liability for interest and penalty imposed on the insured on account of his failure to comply with the requirements of the Workmen'....
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.... our notice any decision laying down such a proposition. Doctrine of fairness of the duty to act fairly and reasonably is a doctrine developed in the administrative law field to ensure the Rule of Law and to prevent failure of justice where the action is administrative in nature. Just as principles of natural justice ensure fair decision where the function is quasi- judicial, the doctrine of fairness is evolved to ensure fair action where the function is administrative. But it can certainly not be invoked to amend, alter or vary the express terms of the contract between the parties. This is so, even if the contract is governed by statutory provisions, i.e., where it is a statutory contract - or rather more so. It is one thing to say that a contract - every contract - must be construed reasonably having regard to its language. But this is not what the licencees say. They seek to create an obligation on the other party to the contract, just because it happens to be the State. They are not prepared to apply the very same rule in a converse case, i.e., where the State has abundant supplies and wants the licencees to lift all that stocks. The licencees will undertake no obligation to li....
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....f insurance. In Pradeep Kumar Jain v. Citi Bank AIR1999SC3119 , this Court distinguished a case of general insurance from that of life insurance, stating: 6. In the case of life insurance policy certain sum agreed to be paid by the insurance company in the event of the death of the insured or a contingency arising as indicated in the policy. The obligation is then on the insured to pay the premiums periodically. There is no other obligation upon him. In the case of a motor vehicle, the risk to be covered is not only in respect of a vehicle but also towards the injury to others or damage caused to the property arising out of an accident. In such an event, when the policy is renewed or a fresh policy is applied for, an application has to be given and it is to be indicated whether any claim had been made in the previous year or not and to furnish appropriate material as regards the valuation of the vehicle. It can also be made clear as to the nature and extent of the risk covered whether it is only third party or comprehensive or otherwise. The obligation under the Act is only at least to cover third party risk. Thus mere payment of premium could not result in an automatic re....
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....h of course!'. Here the evidence before the learned trial judge is quite clearly to the effect that if such a term were sought to be included in the insurance policies at the time when the plaintiffs were seeking insurance the defendant would not have contracted with the plaintiffs at all. If the officious bystander had interrupted in relation to condition 13 of the policies and had asked the defendant "If you do cancel, will you give your reasons for cancelling". The defendant's answer would have been an emphatic "No" whereas to imply such a term into the policies the answer would have to be by both parties "Yes, of course" expressed rather testily to discourage the officious bystander from further interrupting. It is also helpful to quote what Pearson LJ. Said in 1973 in Trollope and Colls Ltd. v. North West Metropolitan Regional Hospital Board [1973] 1 DPP 601 at p.609 : An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been sugges....
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....of a civil suit. The question which arose therein was as to whether exercise of option by company was for renewal itself sufficient where the execution of a fresh document is necessary. Section 24A, introduced in 1972 Act, has invited a comment by learned Solicitor General that the situation has completely changed. The High Court might have made broad statement that by reason thereof, a State within the meaning Article 12 of the Constitution of India, does not cease to be one but, in our opinion, that is not the point. The point is what would be the effect. Would it mean that two concepts, namely, Article 12 of the Constitution and Section 24A of the 1972 Act are different? If they are not, in a given case, it may be possible to hold that even while the State shall have more liberty to enter into a contract or fix the terms and conditions thereof having regard to the field of competition opened by reason of taking away of its the monopoly status, but there exists a distinction between the acts of a private player and the State. 51. We, however, do not mean to say that even in the field of contract qua contract, the State is not free to negotiate its terms; what we mean to say....
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.... to the service recipient, the insurance companies having regard to the new policy of the Central Government, in general and under Section 24A of the 1972 Act in particular should not be allowed to make all attempts to frustrate the same. Whereas on the one hand we cannot forget the new market economy and the Foreign Direct Investment, we also cannot shut our eyes to the ground realities. There is a huge gap between the high-sounding wants of the Government and the realities on the ground. It is essential that while on the one hand, the insurance companies are not put to undue burden keeping in view the changes in the statute as also the policy decisions of the Central Government, they cannot also be permitted to act wholly arbitrarily and unreasonably. They cannot be permitted to create a social condition which would negate all human rights. We although would not place medicare and old age being the facets of human rights with abject poverty, but then the gap between the object on the statutes and the action on the part of the players on the field must be taken care of. JUDICIAL REVIEW 56. The action was brought by private individuals. The writ petition, however, had wide....
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....cepted by the Divisional Manager. In response thereto, only on 30.9.2002, the appellant stated that the policy would be renewed by loading of 300% premium. A sum of Rs.18,982 was deposited. A receipt acknowledging the sum of Rs.6,377/- was also issued. Despite issuance of the said sum, the policy was not renewed. Strangely enough, only on October 3, 2002, the appellant stated that the said policy could be renewed subject to exclusion of the diseases specified therein. It was in the aforementioned situation, the writ petition was filed. 60. In SLP (C) No. 10205 of 2004, the second respondent, who is a practicing consultant neurologist and physician since 1961, had taken mediclaim insurance for himself his wife and his family members since 1992-1993. He was diagnosed with Hypogammaglobulinemias in August- September 1999. Despite the same, the policy was renewed. By a letter dated 26.7.2002, appellant informed him that his mediclaim policy which was to expire on 13.8.2002 would be renewed subject to the exclusion of the disease Septioemia with Hypogammaglobulinemia's and was advised that the next premium will be accepted after loading of 100% with 5% excess for each and every claim....