TMI Blog2008 (5) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... n a court of law. [See Kesavananda Bharati v. State of Kerala[ 1973 (4) TMI 114 - SUPREME COURT] . The action on the part of the authorities of the appellant was highly arbitrary. Respondents though were not entitled to automatic renewal, but indisputably, they were entitled to be treated fairly. We have noticed hereinbefore some of the clauses contained in the prospectus as also the insurance policy. When a policy is cancelled, the conditions precedents therefor must be fulfilled. Some reasons therefor must be assigned. When an exclusion clause is resorted to, the terms thereof must be given effect to. What was necessary is a pre-existing disease when the cover was inspected for the first time. Only because the insured had started suffering from a disease, the same would not mean that the said disease shall be excluded. If the insured had made some claim in each year, the insurance company should not refuse to renew insurance policies only for that reason. The words `incepts for the first time' as contained in clause 4.1 as also the words `continuous and without break' if the renewal premium is paid in time, must be kept in mind as also the reasons for cancellation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Government in exercise of its power conferred upon it by Clause 2(c) of Section 114 of the 1938 Act. The Parliament also enacted the Insurance Regulatory and Development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive 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 the existing policy which may have been contracted during the period of the expiring policy. Renewal of mediclaim insurance policy cannot be refused on the ground that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Constitution of India, the same by itself would not mean that it cannot enter into a contract with the policy holder on its own terms, particularly when such terms have been approved by the Authority. 13. Mr. Sameer Parekh, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment 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 been issued by the Central Government or the Insurance Regulatory and Development Authority established under Sub-section (1) of Section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) shall be guided by such directions. (4) ... 15. `Prospects' has been defined in the Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 issued by the IRDA on File and Use: requirements for general insurance products read as under: 7. Till the tariffs are in force, it will not be necessary for any insurer to file information on any product that complies with tariff rates, terms and conditions. In respect of products that package insurance covers that are governed by tariffs, with those that are not, the insurer should file such produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im, 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 have a public duty having regard to Article 47 of the Constitution of India. b) In view of the regulatory framework operating in the field it has a limited power to contract. c) The terms and conditions of the insurance policies provide for an automatic renewal, the pre-condition whereof is only timely payment of premium. d) The construction of a contract of insurance must be made having regard to the nature and principles underpinning a contract of health insurance. e) For the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy 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 statutory provisions. It must indisputably be construed having regard to the larger public policy and public interest guiding nationalization of the insurance companies. 29. Insurance Sector is regulated. The provisions of the Insurance Act are applicable to all insurance companies irrespective of the fact as to whether they are in public sector or private sector. When a business is regulated, all concerned would be governed thereby. 30. It is one thing to say that the terms and conditions of a contract are statutory in nature but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 attract the penal clause as contained in Sub-clause (4) of Clause 11 of the Regulations, the Authority may take action against the Insurance Company but it is another thing to say that the Authority would also be entitled to redress the individual grievances. Matter may be different if it is to be held that the policies are automatically renewable or for that matter all insured had a legal right of renewal as was the case in D. Nataraja Mudaliar v. The State Transport Authority of India, Madras [1979]1SCR551 , but it is another thing to say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 covered under the policy and what would not are matters governed by the Acts, Regulations and Guidelines. The limited liability of the insurance provides for a third party administrator, who is engaged for the purpose of health services and may not only oversee the claim but may also disburse it. In order to appreciate the rival contentions the question as regards whether the policy is continuous or otherwise statutorily renewable we may notice the following clauses. 4.1 Any diseases/injuries which are pre-existing when the cover incepts for the first time. For the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proposal for insurance to the Company. This condition 4.2 shall not however apply in case, of the insured person having been covered under this scheme or group insurance scheme with any of the Indian Insurance companies for a continuous period of preceding 12 months without any break. 4.3 During the first year of the operation of the policy, the expenses on treatment of diseases such as Cataract, Benign Prostatic Hypertrophy, Hysterectomy for Menorrhagia or, Fibromyoma, Fistula anus, Piles, Sinusitis and related disorders are not payable. If these diseases are Pre-existing at the time of proposal they will not be covered during subsequent period of renewal too. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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's Compensation Act of 1923, the insurer cannot be made liable to the insured for those amounts. 41. One important facet of the matter which must also be taken note of is duty on the part of a State to act fairly. Such a fair dealing is expected at the hands of a State within the meaning of Article 12 of the Constitution of India. Strong reliance has been placed by Mr. Parekh on the decision of this Court in Mahabir Auto Stores and Ors. v. Indian Oil Corporation and Ors. [1990]1SCR818 and Kumari Shrilekha Vidyarthi and Ors. v. State of U.P. and Ors. AIR1991SC537 . There cannot be any doubt whatsoever that Article 14 of the Constitution of India which encompasses within its fold, obligations on the part of the State to act fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 lift all those stocks even if the State suffers- loss. This one- sided obligation, in modification of express terms of the contract, in the name of duty to act fairly, is what we are unable to appreciate. 42. A bare perusal of the said decision would show that the same was rendered in the context of contracts entered into between the State and its citizens pursuant to public auction of tenders or by negotiation. Respondents therein sought to get new term incorporated in the Contract on the specious plea of fairness. The said place was rightly rejected. The fact, however, remains that the ratio in Issac is not applicable to the fact of the present case not because the duty to act fairly on the part of a State has no application in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 renewal of the policy. In the circumstances, we find that the appellant also had certain duties to discharge in the matter of obtaining insurance policy and cannot merely put the blame on the first respondent. 46. As a proposition of law, where a renewal is based on mutual consent, there may be no automatic renewal as has also been held by this Court in Depot Supdt., H.P. Corporation Ltd. v. Kolhapur Agricultural Market Committee (2007)6SCC159 but as would be discussed hereinafter, a mediclaim policy where a senior citizen is involved would stand somewhat on a different footing. It will depend upon the contract entered into between the parties and the statutes operating in the field as also constitutional scheme. We do not agree with the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 suggested to them it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves. These basic principles of law preclude the implication of a term into the policies to the effect that in the event of a declinature or cancellation the defendant must state its reasons therefore. 48. The said decision, therefore, does not rule out the effect of an implied contract. We must, however, place on record that the United Kingdom and Ireland do not have a written constitution. Doctrine of fairness would not be radiant in a contract in those courts. Decisions rendered in other jurisdictions merely have a persuasive and not a binding nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 is that its action cannot be arbitrary. Role of both are different. A private player, as the law stands now, may not be bound to comply with the constitutional requirements of the equality clause, the appellants are. 52. There exists a distinction between a private player in the field and a public sector insurance company. Whereas a private player in the field is only bound by the statutory regulations operating in the field, the public sector insurance companies are also bound by the directions issued by the General Insurance Corporation as also the Central Government. They cannot be ignored. The said directions are not said to be in derogation of the statutory provisions. Their validity is not under challenge. 53. We may also notice that the Universal Declaration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 wider ramification. They not only would affect the writ petitions, but also others who would be similarly situated. Such cases may not be dealt with as individual cases. In appropriate case, such litigation may be regarded as public interest litigation. Even if it not so regarded, the High Court may consider the same to be `Public Law Litigation' While determining a lis having public law domain, the courts would be entitled to take a broader view. It would not consider to be case involving contract-qua-contract question only. Even cases involving contracts may be determined by the High Court in exercise of its jurisdiction under Article 226 of the Constitution of India. (see LIC of India and Anr. v. Consumer Education Research Centre and Ors. AIR1995SC1811 , Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It is at that juncture, the writ petition was filed. 61. Respondent No. 3 in SLP (C) No. 10205 of 2004 had taken a mediclaim policy and accident insurance policy in 1988. By a letter dated 15.1.2002, the mediclaim policy for the year 2002-2003 was refused to be renewed and he was asked to renew his policy in another company. The policy was cancelled. 62. We have noticed the judgment of the Gujarat High Court in each of these cases. 63. First Respondent in SLP (C) No. 1534 of 2006 approached the Delhi High Court when the joint mediclaim policy was refused to be renewed. His claim of Rs. 2,19,660/- which he had incurred for undergoing a bye-pass surgery in January 2003 was refused to be paid. He had obtained mediclaim policy in April, 1995. The same had been renewe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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