Case: JACOB PUNNEN &amp; ANR Vs. UNITED INDIA INSURANCE CO. LTD

nations are seeking viable answers to the question of how to offer health care to their citizens. The World Health Organization (WHO) defines health as a dynamic state of complete physical, mental, spiritual and social well-being and not merely the absence of disease or infirmity. Healthy living conditions and good quality health is not only a necessary requirement it is also recognized as a fundamental right. Article 25 of the Universal Declaration of Human Rights 1948 lays down that everyone has the right to a standard of living, adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care. The International Covenant on Economic, Social and Cultural Rights, 1976, too recognizes the right to health, of citizens of every nation. 37. Part IV of the Indian Constitution which contain the Directive Principles of State Policy imposes duties on the state. Some of its provisions directly or indirectly are associated with public health. These principles direct the state to take measures to improve the condition of health care of the people. Articles 38 imposes duty on state that state secure a social order for the promotion of welfare of the people. Without an overall viable framework of public health, the state cannot achieve this obligation, in a meaningful manner. Article 39(e) relates to workers and enjoins the state to protect their health. Article 41 imposes the duty on the state to public assistance essentially for those who are sick and disabled. Article 42 casts primary responsibility upon the state to protect the health of infants and mother through maternity benefit. Article 47 spells out the duty of the state to raise the level of nutrition and standard of living of its people. Other provisions relating to health fall in this Part of the Constitution. The state is asked in particular, to direct its policies towards securing health of workers. 38. For a long time, state policy in this country was to involve only public sector entities in the insurance sector. All this changed, with the opening up of the economy and entry of private sector insurers. To regulate entities in the insurance business, the Insurance Regulatory and Development Authority Act, 1999 (the IRDA Act) was enacted. Its provisions, together with that of the Insurance Act, 1938, and regulations framed under both enactments, regulate all insurance related activities (except marine and certain kinds of insurance) in India. Section 2 (6C) of the Insurance Act defines health insurance business and defines it as follows: (6C) health insurance business means the effecting of contracts which provide for sickness benefits or medical, surgical or hospital expense benefits, whether in-patient or out-patient travel cover and personal accident cover;]. The IRDA (Health Insurance) Regulations, 2016, (which replaced the previously applicable regulations of 2013- which were preceded by guidelines regulating health insurance products contains regulations which are relevant for the purpose of this case. Chapter III of these regulations contains general provisions relating to Health Insurance. The relevant part of Regulation 11 reads as follows: 11. Designing of Health Insurance Policies a. Subject to Regulation 3 as applicable, Health insurance product may be designed to offer various covers; i. For specific age or gender groups ii. For different age groups iii. For treatment in all hospitals throughout the country, provided the hospitals comply with the definition specified iv. For treatment in specific hospitals only, provided the morbidity rates used are representative v. For treatment in specific geographies only, provided the morbidity rates used are representative Provided, such specifications are disclosed clearly upfront in the product prospectus, documents and during sale process. And provided that no insurer shall offer any benefit or service without any insurance element. ********** ********** ********** c. Insurer shall not compel the insured to migrate to other health insurance products. In case of migration from a withdrawn product, the insurer shall offer the policyholder an alternative available product subject to portability conditions. d. Insurers shall ensure adequate dissemination of product information on all their health insurance products on their websites. This information shall include a description of the product, copies of the prospectus as approved under the Product Filing Guidelines, proposal form, policy document wordings and premium rates inclusive and exclusive of Service Tax as applicable…. Regulation 13 is relevant for the purposes of this appeal; it deals with renewal of policies, and reads as follows: 13. Renewal of Health Policies issued by General Insurers and Health Insurers (not applicable for travel and personal accident policies) i. A health insurance policy shall ordinarily be renewable except on grounds of fraud, moral hazard or misrepresentation or non-cooperation by the insured, provided the policy is not withdrawn. ii. An insurer shall not deny the renewal of a health insurance policy on the ground that the insured had made a claim or claims in the preceding policy years, except for benefit based policies where the policy terminates following payment of the benefit covered under the policy like critical illness policy. iii. The insurer shall provide for a mechanism to condone a delay in renewal up to 30 days from the due date of renewal without deeming such condonation as a break in policy. However, coverage need not be available for such period. 8 [Provided the renewal premium shall not be accepted more than 90 days in advance of the due date of the premium payment.] iv. The promotion material and the policy document shall explicitly state the conditions under which a policy terminates, such as on the payment of the benefit in case of critical illness benefits policies. 39. These regulations only underline expressly what was implicit, i.e., the insurers obligation to inform every policy holder, about any important changes that would affect her or his choice of product. These have been given statutory shape. Yet, the obligation of the insurer to provide information to existing and policy holders, for them to exercise choice, meaningfully, and choose products suited to their needs, existed. In this case, that obligation was breached.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]12. The previous policy (Effective for 2006-2007) indicated a limit of Rs.3 lakhs each for the appellants, and Rs. 1 lakh cover to Ajay Punnen Jacob (their son). The policy in question, i.e., for 2008-09 covered an overall limit of Rs. 8 lakhs (Rs. 4,25,000/- for the first appellant and Rs. 3,75,000/- for the second appellant, his wife). A copy of the policy which has been produced indicates that the premium (including service tax) paid was Rs.17,705/. The period of insurance was from 00.00 hrs of 28.03.2008 to midnight of 27.03.2009.14. What is apparent from the record is that upon receipt of the renewed notice, sometime in March 2008, the appellants issued a cheque dated 26.03.2008 which was duly received. That the cheque was encashed and a policy document issued by the insurer is not in dispute. Both parties, i.e., the first appellant and the Divisional Manager of the insurer have filed affidavits in evidence. However, the pleadings as well as these affidavits are unclear as to when the policy document was actually despatched and received by the insurer and on which date it was received by the appellants. Clearly, the policy containing the fresh terms was issued after receipt of the premium for the year 2008-09.16. In the facts of the present appeal, the insurer insisted that the 2008-09 Gold policy was in fact a new one, and not a renewal, which was available with the appellants, before the second appellants surgery took place.18. In such a situation, there can be said to be no consensus ad idem on the introduction of the cap on the coverage by the insurer, as the appellants were not informed that they had paid premium for a new policy, but were led to believe that they had in fact renewed a pre-existing policy on the same terms, with only difference being the removal of their son as a beneficiary and a higher coverage (from Rupees 6 lakhs to Rupees 8 lakhs in total) for the appellants, which was accepted by the insurer. The general rule of acceptance of an insurance proposal by the assured involves unconditional acceptance of all the terms [LIC v. Raja Vasireddy Komalavalli Kamba, (1984) 2 SCC 719 (para 15)]. Thus the cap on the coverage placed by the insurer without prior intimation to the assured and without providing an opportunity to the assured to seek alternate insurance policies that were more favourable to their needs was restrictive, and thus not enforceable.19. In these circumstances, this Court is of the opinion that the eventuality contemplated in Biman Krishna Bose (supra), i.e., inapplicability of old terms, in the cases of renewal, when the contracts provide or otherwise, has to be applied contextually. If the renewed contract is agreed, in all respects, by both parties, undoubtedly the fresh terms (with restrictions) would be binding. However, that would not be the case when a new term is introduced unilaterally about which the policy holder is in the dark. Further, the allusion to continuation of the terms of the Gold policy in respect of senior citizens (who were not to be compelled to migrate to another policy) but were to be subject to the same terms, upon payment of a different rate of premia, reinforces the conclusion that there was in fact, a renewal of the existing terms.20. Arguendo, assuming the appellants had received the policy documents on time, i.e., requisite disclosure had been made, and then the appellants had in fact misunderstood the terms and mistaken the new Gold policy for the previous policy, the question is, post payment of premium, were they in a position to protest, or do anything about it.The general law on avoidance of a contract was explained by this court in Canara Bank v. United India Insurance Co. Ltd. (2020) 3 SCC 455  in the following terms:[T]o make a contract void, the non-disclosure should be of some very material fact. No doubt, it would have been better if the Bank and the insured had given at least one tripartite agreement to the Insurance Company but, in our view, in the peculiar facts of this case, not disclosing the tripartite agreement or the names of the owners cannot be said to be such a material fact as to make the policy void or voidable. We are clearly of the view that there is no fraudulent claim made. There is no false declaration made and neither is the loss and damage occasioned by any wilful act or connivance of the insured.[Para. 45, emphasis supplied]22. In Tarsem Singh v. Sukhminder Singh (1998) 3 SCC 471,  this court clarified that a unilateral mistake would not render a contract void under Indian contract law:20. Section 20 of the Act lays down as under:20. Agreement void where both parties are under mistake as to matter of fact.—Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Explanation. —An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement, is not to be deemed a mistake as to a matter of fact.21. This section provides that an agreement would be void if both the parties to the agreement were under a mistake as to a matter of fact essential to the agreement. The mistake has to be mutual and in order that the agreement be treated as void, both the parties must be shown to be suffering from mistake of fact. Unilateral mistake is outside the scope of this section.Therefore, 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. The first point is answered accordingly, in favour of the appellants.24. A striking feature of insurance law, is the principle of uberrima fide (duty of utmost good faith) which applies to both the insured as well as one who seeks indemnity and cover. In United India Insurance Co. Ltd. v. M.K.J. Corpn. 1996 (6) SCC 428  this court underlined the importance of this principle, and its application to the insurer, in the following terms:It is a fundamental principle of Insurance law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Just as the insured has a duty to disclose, similarly, it is the duty of the insurers and their agents to disclose all material facts within their knowledge, since obligation of good faith applies to them equally with the assured. The duty of good faith is of a continuing nature. After the completion of the contract, no material alteration can be made in its terms except by mutual consent. The materiality of a fact is judged by the circumstances existing at the time when the contract is concluded.28. The courts remedial power, to refuse enforcement of such contracts, or contractual terms, finds support in a few decisions of this Court. Recently, while deciding a consumer dispute, this Court applied the principle that unfair terms in a contract, cannot be enforced, if there is absence of free choice, on the part of a consumer, in Pioneer Urban Land & Infrastructure Ltd v Govindan Raghavan 2019 (5) SCC 525. It was held that a term introduced in a standard form contract can be unfair, as to constitute an unfair trade practice under the Consumer Protection Act, 1986, and observed as follows:A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder. The contractual terms of the Agreement dated 08.05.2012 are ex-facie one-sided, unfair, and unreasonable. The incorporation of such one- sided clauses in an agreement constitutes an unfair trade practice as per Section 2 (r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practices for the purpose of selling the flats by the Builder.In the present case, the standard form contract, renewed year after year, left the appellants only with the choice of raising the insurance cover. The last renewal, of course, resulted in the deletion of their son as a beneficiary. However, even with this little choice, the result of their being kept in the dark about the new terms which placed limits on individual surgical procedures meant that had any other information with respect to the increased coverage which could have resulted in the higher individual limits (for surgical procedures) from they might have benefitted was denied to them. For that reason, the informational blackout, so to say, on the part of the insurer, was a crucial omission.30. During the hearings, it was urged on behalf of the insurer that the agent would have ordinarily informed the policy holder as she or he was in touch with them. The insurer did not lead evidence in this regard. Its agent was not asked to affirm any affidavit. In these circumstances, the inference to be drawn is that the agent did not inform – at the time of renewal of the policy, in 2008, about the limits in regard to coverage of individual procedures but also omitted them any information that there could have been possibility of higher coverage by payment of higher premium which might have resulted in a higher limit for the various surgeries or procedures covered by the policy.31. 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.32. In Delhi Electric Supply Undertaking v. Basanti Devi (1999) 8 SCC 229  the insurer, Life Insurance Corporation, had floated a Salary Savings Scheme in which the employer deducted premium from its employees salaries and paid them to LIC on the employees behalf. The premium for a period of time was not deducted from an employees salary. On the death of the employee, his legal representatives claimed the insured amount. LIC rejected the claim on the grounds of lapse of the policy due to non-payment of premium, and that the actions of the employer did not bind LIC given that it was not an agent of LIC. This Court turned down the argument, and held that11. In the present case we are not concerned with the insurance agent. It is not the case of LIC that DESU could be permitted as an insurance agent within the meaning of the Insurance Act and the regulations. DESU is not procuring or soliciting any business for LIC. DESU is certainly not an insurance agent within the meaning of the aforesaid Insurance Act and the regulations but DESU is certainly an agent as defined in Section 182 of the Contract Act. The mode of collection of premium has been indicated in the Scheme itself and the employer has been assigned the role of collecting premium and remitting the same to LIC. As far as the employee as such is concerned, the employer will be an agent of LIC. It is a matter of common knowledge that insurance companies employ agents. When there is no insurance agent as defined in the regulations and the Insurance Act, the general principles of the law of agency as contained in the Contract Act are to be applied.12. Agent in Section 182 means a person employed to do any act for another, or to represent another in dealings with third persons and the person for whom such act is done, or who is so represented, is called the principal. Under Section 185 no consideration is necessary to create an agency. As far as Bhim Singh is concerned, there was no obligation cast on him to pay premium direct to LIC. Under the agreement between LIC and DESU, premium was payable to DESU who was to deduct every month from the salary of Bhim Singh and to transmit the same to LIC. DESU had, therefore, implied authority to collect premium from Bhim Singh on behalf of LIC. There was, thus, valid payment of premium by Bhim Singh. The authority of DESU to collect premium on behalf of LIC is implied. In any case, DESU had ostensible authority to collect premium from Bhim Singh on behalf of LIC. So far as Bhim Singh is concerned DESU was an agent of LIC to collect premium on its behalf.In the present case, even if, for arguments sake, one was to accept the submissions of the insurer which is that their agent should have informed the appellant policy holders, the absence of any evidence that he did or any evidence adduced by the insurer that despite information the appellants chose to accept the policy in the terms which they eventually were furnished, the only consequence would be that as principal the insurer is liable.35. The special status of senior citizens in general was taken cognizance of by the insurer as well, when it relied on guidelines (applicable for new insurance products, with effect from 28.1.2017) which inter alia, stated thatIn respect of Senior Citizens who are our existing policyholders, they will be allowed to renew the policy on existing terms and conditions but at revised rates of premium under Gold Policy. They should not be compelled to migrate to the new Scheme. If they so desire to enter the new Scheme, the same may be allowed on collection of fresh proposal.The insurers argument here was that no existing senior citizen policy holder could be compelled to migrate to a new Scheme. However, in the present case, the Mediclaim holders were kept in the dark, and asked to renew a policy, the terms of which had undergone a significant change in that its cover was radically different, and imposed limitations on the insurers liability. The argument of the insurer has no merit and is not acceptable.39. These regulations only underline expressly what was implicit, i.e., the insurers obligation to inform every policy holder, about any important changes that would affect her or his choice of product. These have been given statutory shape. Yet, the obligation of the insurer to provide information to existing and policy holders, for them to exercise choice, meaningfully, and choose products suited to their needs, existed. In this case, that obligation was breached.