A bench of the Supreme Court comprising Justices S B Sinha and V S Sirpurkar has ruled that public sector insurance companies, being included in the definition of ‘State’ under Article 12 of the Indian Constitution, cannot refuse medical insurance to persons suffering from pre-existing diseases.

In its judgment of May 16, 2008, in the cases of (1) United India Insurance Company Limited v. Manubhai Dharmasinhbhai Gajera & Ors, (2) New India Assurance Company Limited v. Consumer Education and Research Society & Ors., and (3) United India Insurance Company Limited v. Mukat Lal Duggal & Anr., the Court, among other things, said:

“Whether renewal of a mediclaim policy on payment of the amount of premium would be automatic, is the question involved herein.

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 it 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.

In each of these cases, the action on the part of the authorities of the insurance companies was highly arbitrary. Respondents though were not entitled to automatic renewal, but indisputably, they were entitled to be treated fairly.

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.

Renewal of a medi-claim policy subject to just exceptions should ordinarily be made. But the same does not mean that the renewal is automatic. Keeping in view the terms and conditions of the prospectus and the insurance policy, the parties are not required to go into all the formalities. The very fact that the policy contemplates terms for renewal, subject of course to payment of requisite premium, the same cannot be placed at par with a case of first contract.

It is essential that the Regulatory Authority must lay down clear guidelines by way of regulations or otherwise. No doubt, the regulations would be applicable to all the players in the field. The duties and functions of the Regulatory Authority, however, are to see that the service provider must render their services keeping in view the nature thereof. It will be appropriate if the Central Government or the General Insurance Companies also issue requisite circulars.

The appellants in this case being subsidiaries to General Insurance Corporation [and therefore public sector companies] cannot ignore the statutory provisions. They are bound by the directions issued by the Central Government.

We would request the IRDA to consider the matter in depth and undertake a scrutiny of such claims so that in the event it is found that the insurance companies are taking recourse to arbitrary methodologies in the matter of entering into contracts of insurance or renewal thereof, appropriate steps in that behalf may be taken.”

Laws

The basic laws involved in this case were:

The General Insurance Business (Nationalisation) Act, 1972
The Parliament enacted the General Insurance Business (Nationalisation) Act, 1972 to provide 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.

The Insurance Act, 1938
The business activities of the insurance companies are governed by the Insurance Act, 1938. In terms of the provisions of that 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 Section 114 (2)(c) of the 1938 Act.

The Insurance Regulatory and Development Authority Act, 1999
The Parliament also enacted the Insurance Regulatory and Development Authority Act, 1999. By the 1999 Act the Parliament inserted Section 24A in the 1972 Act directing cessation of the exclusive privilege of the Corporation and the acquiring companies in relation thereto. In exercise of the powers, the Authority made Regulations known as Insurance Regulatory and Development Authority (Protection of Policyholders’ Interest) Regulations, 2002.

(This post comprises an edited extract of the judgment.)