IN THE HIGH COURT OF GUJARAT AT AHMEDABAD LETTERS PATENT APPEAL No 1028 of 2003 with LETTERS PATENT APPEAL No 1003 of 2003 with LETTERS PATENT APPEAL No. 1004 of 2003 with SPECIAL CIVIL APPLICATION NO. 9425 of 2002 For Approval and Signature: HON'BLE MR.JUSTICE R.K.ABICHANDANI and HON'BLE MR.JUSTICE D.A.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- 1. LETTERS PATENT APPEAL No. 1028 of 2003 UNITED INDIA INSURANCE COMPANY LTD. Versus MOHANLAL AGGARWAL Appearance: MR RAJNI H. MEHTA, Advocate for Appellant MR NAVIN K. PAHWA, Advocate for Respondent -------------------------------------------------------- 2. LETTERS PATENT APPEAL No. 1003 of 2003 UNITED INDIA INSURANCE CO. LTD. Versus PRAVIN B. NANAVATI Appearance : MR P.V. NANAVATI, Advocate for Appellant MR B.I. MEHTA FOR MR AMIT C NANAVATI Advocate for the Respondent -------------------------------------------------------- 3. LETTERS PATENT APPEAL NO. 1004 of 2003 UNITED INDIA INSURANCE CO. LTD. Versus MANUBHAI DHARAMSINHBHAI GAJERA Appearance : MR P.V. NANAVATI, Advocate for the Appellant MR B.M. MANGUKIA, Advocate for the Respondent No.1 MR S.N.SHELAT, ADVOCATE GENERAL with MS. MEGHA JANI, Advocate for the Respondent No.2 -------------------------------------------------------- 4. SPECIAL CIVIL APPLICATION NO. 9425 OF 2002 : CONSUMER EDUCATION & RESEARCH SOCIETY & ORS. Versus NEW INDIA ASSURANCE CO. LTD. Appearance : MR.A.J.PATEL, Advocate for the Petitioners MR.P.V.NANAVATI, Advocate for the Respondent No.1 MR.S.N.SHELAT, ADVOCATE GENERAL WITH MS.MEGHA JANI, Advocate for the Respondent No.2 -------------------------------------------------------------- CORAM : HON'BLE MR.JUSTICE R.K.ABICHANDANI and HON'BLE MR.JUSTICE D.A.MEHTA Date of decision: 05/12/2003 ORAL JUDGEMENT Contents * Brief Facts and Pleadings - Paragraphs 3 to 6 * The Decision under Appeal - Paragraphs 7 to 7.1.1 * Contentions and Case Law - Paragraphs 8 to 11 * Reasoning - Paragraphs 12 to 38 * Conclusions - Paragraph 39 * Final Order - Paragraphs 40 to 40.1 (Per : HON'BLE MR.JUSTICE R.K.ABICHANDANI for the Court) 1. These three Letters Patent Appeals have been directed against the judgement and order of the learned Single Judge passed on 8th August 2003, allowing the three petitions from which these appeals arise, while the Special Civil Application No. 9425 of 2002 has been filed for a direction on the respondents - insurance companies not to exclude the diseases contracted by the petitioner No.2 during the period of mediclaim policy, which was renewed from time to time, and not to load the premium, as was sought to be done, and to renew the mediclaim policies of the petitioner No.2 and 3. 2. All the matters relate to mediclaim insurance policy and revolve around the question, whether the insurer has absolute right to cancel the contract of mediclaim insurance or to refuse renewal of the mediclaim policy and have been argued together by the learned counsel appearing for all the parties. Brief Facts and Pleadings : 3. The Letters Patent Appeal No.1028 of 2003, which arises from Special Civil Application No.11844 of 2002, in which a direction was sought for setting aside the action of the insurer (United India Insurance Co. Ltd.) in seeking to exclude certain diseases as per the communication dated 3rd October 2002 addressed by the Divisional Manager of the insurance company to the insured, as illegal, arbitrary, unreasonable and violative of Article 14 of the Constitution. A direction was sought on the insurer to renew the mediclaim policy with effect from 3rd October 2002 and to settle all the claims of medical dues covered by the insurance company as per the terms of the existing insurance policy. 3.1 In that case, the petitioner had applied for a mediclaim insurance policy for the first time in 1990 for a sum of Rs.90,000=00. The sum insured under the policy was thereafter revised to Rs.3 lakhs from 1993-94. The policy was being renewed from time to time on the regular payment of the premium amount by the insured and was lastly renewed on 4th October 2001. The insured requested for a further renewal by his letter dated 9th September 2002 forwarding the banker's cheque of the premium amount to the insurer, which was well ahead of the date of 3rd October 2002 on which the existing policy was to end. A reminder was sent by the insured on 17-9-2002 requesting the insurer to renew the policy, followed by a legal notice dated 27-9-2002. Thereafter, on 30th September 2002, the insurer addressed a letter to the insured that, due to "high claim experience", the policy will be renewed by loading of 300% premium and the insured was accordingly required to issue a cheque for the revised premium. The insured accordingly deposited the amount of the revised premium by cash on 1-10-2002 being 300% premium for which a receipt was issued by the insurer on 1-10-2002. The regular premium as well as extra premium were thus paid by the insured in time i.e. before the end of the term of the existing policy. However, thereafter, on 3rd October 2002, the insurer issued a letter on the insured to the effect that the policy could be renewed only subject to the exclusion of five diseases. The major diseases against which the insured was covered were sought to be excluded from the policy. According to the insured, he was 65 years of age and needed coverage of mediclaim the most, because of his chronic renal failure, and, the action of the insurer seeking to exclude all major diseases from the coverage was arbitrary and illegal and not befitting a Government of India Company, which was created for the public and social welfare. 3.2 The insurer contested the petition by filing affidavit-in-reply dated 25th December 2002 contending that the insured was not entitled to get the mediclaim insurance policy renewed without the exclusionary clause in view of the stipulation in clause No.5.9 of the policy, as per which, the policy may be renewed by mutual consent and the company may at any time cancel the same by sending the insured a thirty days' notice and refunding the prorata premium for the unexpired period. According to the insurer, the policy cannot be renewed without mutual consent and the extraordinary jurisdiction of the High Court cannot be invoked in getting it renewed. It was further contended that the mediclaim policy which was issued by the insurance company was "not statutorily required and, therefore, there is no legal right and obligation between the Company and the petitioner". It was also submitted that there was nothing arbitrary in refusing to renew the policy, and that the decision of the Apex Court in Biman Krishna Bose v. United India Insurance Company Ltd., reported in 2001 (6) SCC 477, was not applicable to the case, because, the question that the policy could be renewed only by mutual consent did not arise in that case and that the monopoly as regards the general insurance business did not now remain with the companies. It was also contended that the condition of the insured was a chronic condition requiring dialysis at least four times in a month and the suggestion implied in his letter dated 2nd October 2002 that dialysis would continue till the end of October 2002 as opined by the doctor, amounted to making of a false statement for getting the policy renewed. It was submitted that the insured was financially very sound and had a roaring business and therefore, the statement that he was unable to make both ends meet was false. It was also pointed out that, in the past, the claims of the insured for Rs.80,000=00 for heart surgery in the year 1994, for Rs.60,000=00 for T.B. treatment in the year 2000 and for Rs.2,05,000=00 for kidney failure treatment in the year 2002, were paid by the insurer. It was further contended that now the diseases contracted by the insured were undisputedly known and in such circumstances, the element of "unforeseen event or occurrence" had ceased to exist and therefore, the insurance being essentially an agreement whereby the insurer agrees to indemnify the person insured against an unforeseen event, the insured was not entitled to get the insurance of such diseases which were by now known. 4. In Letters Patent Appeal No.1003 of 2003, which arises from Special Civil Application No.8516 of 2003, the insured sought a direction on the insurer (United India Insurance Company Ltd.) to renew his mediclaim policy challenging its refusal to renew the same. The insured had obtained a mediclaim insurance which was renewed continuously for a period of eight years, lastly for the period from 15-12-2001 to 14-12-2002, as stated in paragraph 3 of the petition. The insured was required to undergo heart surgery and had put up the claim under the policy which was paid. However, thereafter, when the insured requested for renewal of the mediclaim policy for a further period of one year and also sent a cheque of the due amount of premium, the insurer, by letter dated 2nd December 2002, cancelled the policy. The insurer again by letter dated 13th December 2002 took up a stand that renewal of the policy was dependent upon the discretion of the company, and that it did not want to renew the policy. By letter dated 21st February 2003, the insurer informed the insured that, his request was refused and that he should not address further letters to the company which will not be replied. 4.1 In the affidavit-in-reply dated 7th July 2003 filed on behalf of the insurer, the insurer contended that it had fulfilled its obligations under the existing policy, which ended on 14-12-2002, and that each mediclaim policy provides that policy can be renewed by mutual consent of all the parties. It was contended that one cannot insist for underwriting for medical insurance till the insured remains alive. It was also contended that the general insurance business was nationalized in the year 1972 from 2nd January 1973 and the General Insurance Corporation of India was to carry out its objectives under Section 9 of the Act. The Act of 1972 bestowed an exclusive privilege to operate, on the four nationalized insurance companies. However, the exclusive privilege was taken away by virtue of the provisions of the Indian Regulatory and Development Authority Act, 1999, which came into force from December 29, 1999, by insertion of Section 24A in the Act of 1972. It was submitted that an insurance policy being in the realm of the contract, renewal could not be sought except by mutual consent. Moreover, the term "insurance" as defined in Black's Law Dictionary, indicated that insurance is a type of contingency contract and it was not in the nature of an annuity. It was submitted that the insurer had a legal right to regulate its business and its business wisdom was not justiciable. Reliance was placed on the decision of a Division Bench of this Court rendered on 31st July 1995 in Special Civil Application No.3628 of 1995 in paragraph 9 of the affidavit-in-reply, in which it was held that no mandamus can be issued directing the State to frame a policy in a particular way and that the scheme of mediclaim did not expressly include the case of a mentally retarded person. The decision of the Apex Court in General Assurance Society v. Chandmull Jain, reported in AIR 1966 SC 1644 was referred in paragraph 11 of the affidavit-in-reply, for contending that the condition in the insurance policy giving mutual rights to the parties to terminate the insurance at any time cannot be read as a right to terminate for a reasonable cause. The Supreme Court held that, where the party agrees upon certain terms which were to regulate their relationship, it was not for the court to make a new contract, however reasonable, if the parties have not made it for themselves. 5. In Letters Patent Appeal No.1004 of 2003, which arises from Special Civil Application No.1128 of 2002, the insured had challenged refusal to renew the mediclaim insurance policy by the communication dated January 16, 2002 sent by the insurer. The insurer had refused to renew the mediclaim policy stating in its letter dated 16-1-2002, at Annexure "D" to the petition: "We have to inform you that we are not interested to renew your above policy". According to the insured, the action of the insurer, which was "State" within the meaning of Article 12 of the Constitution, is arbitrary and violative of the fundamental rights of the insured guaranteed by Articles 14 and 21 of the Constitution. 5.1 In the affidavit-in-reply dated 26-4-2002 filed by the insurer (United India Insurance Company Ltd.), it was contended that the decision to refuse renewal taken by the insurer was in the course of the business of the company and therefore, not amenable to the writ jurisdiction of this Court. Reliance was placed on condition No.5.9 of the policy, as per which, the policy may be renewed by mutual consent, contending that there was no obligation on the insurer to renew the policy. It was contended in paragraph 6 of the reply that since the general insurance business was no longer a monopoly of the General Insurance Corporation and its subsidiary Companies, the cases decided earlier on the footing that the four insurance companies were the only statutory bodies who could undertake the business of general insurance now no longer apply, and that the decision of the Supreme Court in General Assurance Company Ltd. v. Chandmull Jain (supra) was applicable. 6. In Special Civil Application NO. 9425 of 2002, which was filed by the Consumer Education and Research society and two insured persons for a direction on the respondent No.1 (New India Assurance Co. Ltd.) not to exclude the diseases contracted by the petitioner No.2 during the period of the policy which had been renewed from time to time and not to load the premium; and to include the diseases and renew the policy including such diseases, and, a direction on the respondent No.2 (National Insurance Co. Ltd.) to renew the policy of the petitioner No.3, setting aside the refusal in its letter dated 15-1-2002 made on the ground of "adverse claim ratio". 6.1 The insured - petitioner No.2 had taken mediclaim insurance for himself, his wife and other family members continuously from the year 1992-93 and was regularly paying the premiums from time to time. In August September 1999, he was admitted twice in the hospital for high grade fever and was diagnosed as having acquired Hypogamaglobulinemia. The mediclaim policy, which was last renewed, was valid upto 13th August 2002. On 26th July 2002, the said insured was informed that his mediclaim policy will be renewed subject to the exclusion of the disease "Septicemia with Hypogamaglobulinemia" and was advised that his next premium will be accepted with loading of 100% with 5% excess for each and every claim. 6.2 The insured (petitioner No.3) was having mediclaim and accident policies since 1988 with the insurer and had renewed the same from time to time. His mediclaim policy was expiring on 6-2-2002 and he therefore paid renewal premium by cheque on 7-1-2002 which was debited from his account on 9-1-2002. However, by letter dated 15-1-2002, he was informed by the respondent No.2 that, after going through the record, it had decided not to renew his policy, advising him to renew his policy with some other insurance company. It was contended that the respondents were `State' within the meaning of Article 12 of the Constitution and that, their action of excluding the diseases acquired during the period of the cover while renewing the policy, was arbitrary, unfair and violative of Article 14 of the Constitution. It was also contended that the refusal to renew the mediclaim policy on the ground of high claim ratio after having accepted the premium was also arbitrary, unfair and unjustifiable at law. Reference was made to Section 9 of the Health Insurance Act, 1994 of Ireland to illustrate that a registered undertaking was restrained thereunder from terminating or refusing to renew a health insurance contract without consent of the other party. Reliance was also placed on a circular-letter dated 18-12-1998, at Annexure "I" to that petition, of the National Insurance Company Ltd., showing the directions issued on the basis of the General Insurance Corporation Circular dated 13th June 1988, which required that in case of renewal without a break in the period, the policy was to be renewed by including the diseases contracted during the period of expiring policy. 6.3 In the affidavit-in-reply dated 25th November 2002 filed on behalf of the respondent No.1 insurer, a stand similar to the one taken in the affidavit-in-reply filed in the other petitions, which are referred to hereinabove, has been taken, and it was contended that the policy decision was taken not to renew the cover, which was in the realm of business and was, therefore, not a justiciable issue. A copy of the prospectus of the mediclaim insurance scheme and a mediclaim policy was produced with the said affidavit-in-reply, at Annexure "J" to the petition and it was contended in paragraph 10(d) that : " ....... the annual contract of renewal is with mutual consent as per the prospectus and also policy." 6.4 In the affidavit-in-reply dated 2nd December 2002 filed by the respondent No.2 - insurer also, similar contentions, as were raised by the insurer in the other petitions, are raised and are, therefore, not repeated. It is, however, contended that the action of the respondent No.2 in refusing to renew the mediclaim policy of the petitioner No.3 was as per its business policy. It was stated that the guidelines in the circular-letter at Annexure "I" was an internal correspondence between the two offices of the respondent No.2 and the insured cannot claim any relief on the basis of such correspondence. A copy of the mediclaim (individual) insurance policy (revised) is annexed at Annexure "A" with the said affidavit-in-reply. 6.5 In the rejoinder filed by the petitioner No.1, it is reiterated that the insurers cannot act arbitrarily and unreasonably like individuals carrying on business in open market, and that they cannot discriminate among the insured persons in the matter of renewal of policies. It was contended that if the insurers refuse to renew the policy on the ground that the insured had acquired a disease, the very object of the mediclaim insurance policy would be frustrated. It was also contended that the action of the respondents in increasing the premium was arbitrary and violative of the fundamental rights of the insured guaranteed by Article 14 of the Constitution. The decision under appeal : 7. The learned Single Judge, by a common judgement in the matters from which the Letters Patent Appeals arise, held that the action of the insurance company of declining to renew the mediclaim policy on the ground that the insured had suffered sickness when the policy was subsisting, would be wholly unreasonable and arbitrary. It was held that, in a given case, insured may be healthy at the time when the policy is taken for the first time, but thereafter he may suffer a disease for the reasons beyond his control and the treatment of such disease may continue for a period exceeding the expiry of the period of insurance, and in such circumstances, the stand taken by the insurance company to deny the renewal of the policy for such disease can be said to be unjust, unfair and arbitrary. Relying upon the decision of the Supreme Court in Biman Krishna Bose (supra), the learned single Judge held that, in view of the said decision, it cannot be said that, in the matter of mediclaim policy, the Court, while exercising its jurisdiction under Article 226 of the Constitution, cannot direct the insurance company to renew the mediclaim policy if it finds that the action of refusal or denial to renew the policy was arbitrary and unfair. Relying upon the decision of the Supreme Court in L.I.C. of India v. Consumer Education & Research Centre, reported in (1999)5 SCC 487, the learned Single Judge rejected the contention raised on behalf of the insurance companies that they cannot be compelled to renew the policy and to continue with their insurance since the subject falls within the realm of contract. It was further held that the attempt on behalf of the insurance companies to dilute the effect of the judgement of the Apex Court in Biman Krishna Bose (supra) was misconceived, because, the Apex Court had examined the matter and the action of the insurance company of refusing to renew the mediclaim policy on the touch-stone of Article 14 of the Constitution of India. It was held that the distinction sought to be made on behalf of the insurers on the ground that the monopoly of insurance business which was with them was now removed since 1999, was ill-founded. It was held that these instrumentalities of the State were duty bound to act in a just and fair manner as mandated by Article 14 of the Constitution. 7.1 The learned Single Judge, in Special Civil Application No.11844 of 2002, directed the insurer to renew the mediclaim policy of the petitioner with effect from 4th October 2002 after collecting necessary premium including the rise in the premium as decided by the insurance company, without excluding the diseases of Heart, T.B. and Kidney failure. 7.1.1 In Special Civil Application NO.1128 of 2002, the learned Single Judge directed the insurance company to renew the mediclaim policy of the petitioner from 15-12-2002 after collecting the necessary premium without excluding the sickness of heart. Contentions and Case Law : 8. It was contended by the learned counsel for the Appellant appearing in Letters Patent Appeal No.1028 of 2003 that there was no duty on the part of the insurance company to provide mediclaim insurance unlike insurance of motor vehicles which was statutorily required. It was argued that, in view of the stipulation contained in Clause 5.9 of the policy, the mediclaim policy could be renewed only by mutual consent and such a policy could be cancelled by giving a thirty days' notice. There was, therefore, no right to get the policy renewed, vested in the insured. It was contended that the mediclaim policy was not a statutory policy and there was no legal or statutory right in the insured to seek continuance of such policy, nor any statutory obligation on the part of the insurer to issue or to renew such policy. Therefore, the insurance company can refuse to issue or renew such policy depending on its volition. It was submitted that the decision of the Supreme Court in Biman Krishna Bose (supra) was not applicable to the present case, because, it was held therein that renewal cannot be refused on extraneous or irrelevant consideration. The said ratio of that decision was laid down in the context of the monopoly of general insurance business with the nationalized companies that existed at that time, on the basis of which, it was held that they were having trappings of "State". It was contended that since the monopoly of these insurance companies and general insurance business statutorily ceased in 1999, in view of the amendment in the Act of 1972 by insertion of Section 24A, they ceased to have trappings of State, and that the decision in Biman Krishna Bose (supra) would no longer apply to such companies. 8.1 It was submitted that the decision of the Supreme Court in General Assurance Society Ltd. v. Chandmull Jain (supra), which was rendered by a Larger Bench, was applicable and therefore, as per the ratio of that decision, right to terminate the policy at will cannot by reason of the circumstances be read as a right to