# UNITED INDIA INSURANCE COMPANY LTD. ~ v. MANUBHAI DHARMASINHABHAI GAJERA & ORS

- **Citation:** [2008] 9 S.C.R. 778
- **Court:** Supreme Court of India
- **Decided:** 2008-05-16
- **Case number:** Civil Appeal Nos.4113-4115 of 2008
- **Bench:** S.B. Sinha, V.S. Sirpurkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/united-india-insurance-company-ltd-v-manubhai-dharmasinhabhai-gajera-ors-24891
- **Pages:** 43

## Headnote

Insurance:
A
i
Public sector insurance company - Medic/aim policy -
c Renewal of - If automatic, on payment of premium - Held:
Renewal of medic/air'I policy, subject to just exceptions, should
ordinarily be made - But that does not mean that renewal is
automatic - On facts, the insured, though not entitled to automatic renewal, was entitled to be treated fairly- Only because
D the insured had started suffering from a disease, the same
did not mean that the said disease could be excluded - If the
insured had made some claim in each year, the insurance
company could not refuse to renew insurance policy only for
that reason - Action of the insurance company was highly arE bitrary - Certain directions given to Insurance Regulatory and
Development Authority (/RDA) - Insurance Act, 1938 - Genera/ Insurance Business (Nationalisation) Act, 1972 - ss.10A,
19(2), 19(3) and 24A - Insurance Regulatory and Development Authority (Protection of Policyholders' Interest) RegulaF
tions, 2002 - Regns. 2(1)(e}, 6, 7(1)(n}, 11(4) - Insurance
Regulatory and Development Authority Act, 1999 - Constitu-
..
A
tion of India, 1950 - Art. 12.
Constitution of India, 1950 -Art. 226 - Judicial Review -
Scope of - Held: While determining a tis having public law
G domain, Courts entitled to take a broader view - Even cases
involving contracts may be determined by High Court in exercise of its jurisdiction under Art. 226 - On facts, Appellant insurance company had declined to renew the medic/aim policy
~ -
- Basic facts were admitted - The High Court was concerned
H
778
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 779
DHARMASINHABHAI GAJERA & ORS.
, ...
with the interpretation of statute and interpretation of the conA
tract of insurance - Judicial Review of the impugned action
on part of Appellant was, therefore, permissible.
The business activities of insurance compani.es are
governed by the Insurance Act, 1938. In terms of the said
B
Act, the Insurance Regulatory and Development Author-
.A.
ity (the Authority) was constituted by the Central Government. The Authority made the Insurance Regulatory and
..
Development Authority (Protection of Policyholders' Interest) Regulations, 2002.
c
Appellants are subsidiary insurance companies of
General Insurance Corporation of India, carrying on insurance business in terms of the General Insurance Business (Nationalisation) Act, 1972. By the Insurance Regulatory and Development Authority Act, 1999, s.24A was inD
serted in the 1972 Act directing cessation of the exclusive privilege of the Corporation and the acquiring companies in relation thereto.
Respondents had taken medi-claim policies. Appellant insurance companies declined to renew the same.
E
Respondents filed writ petitions before the High Court
which were allowed.
In appeals to this Court, the Appellants contended
that 1) the High Court erred in holding that the contract of
..
insurance is no longer ~n the realm of contract; 2) that the
F
;..
insurance companies must function having regard to
'commercial expedience' consideration in view of s.24A
of the 1972 Act and 3) that even assuming that Appellant
is a 'State' within meaning of Art. 12 of the Constitution,
the same by itself would not mean that it cannot enter into G
a contract with the policy holder on its own terms, par-
""11r
ticularly when such terms have been approved by the Authority.
Respondents, on the other hand, contended that the
H
780
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A insurance companies having regard to their obligations
not only in terms of the constitutional provisions but also
the provisions of the 1938 Act, the 1972 Act and the 1999
Act and the Regulations framed thereunder and the guidelines issued, are bound to renew mediclaim policies from
s time to time on the same terms and conditions; that Appellants, are bound to act fairly and reasonably in the
matter of renewal of its policies and wrongful refusal on
their part must be remedied; that assuming that the insurance companies must a

## Text

_Characters 0–39,998 of 81,441. This is a partial read: ask again with offset=39998 for what follows._

[2008) 9 S.C.R. 778
A
UNITED INDIA INSURANCE COMPANY LTD.
~-
V.
MANUBHAI DHARMASINHABHAI GAJERA & ORS.
(Civil Appeal Nos.4113-4115 of 2008)
B
MAY 16, 2008
[S.B. SINHA AND V.S. SIRPURKAR, JJ]
Insurance:
A
i
Public sector insurance company - Medic/aim policy -
c Renewal of - If automatic, on payment of premium - Held:
Renewal of medic/air'I policy, subject to just exceptions, should
ordinarily be made - But that does not mean that renewal is
automatic - On facts, the insured, though not entitled to automatic renewal, was entitled to be treated fairly- Only because
D the insured had started suffering from a disease, the same
did not mean that the said disease could be excluded - If the
insured had made some claim in each year, the insurance
company could not refuse to renew insurance policy only for
that reason - Action of the insurance company was highly arE bitrary - Certain directions given to Insurance Regulatory and
Development Authority (/RDA) - Insurance Act, 1938 - Genera/ Insurance Business (Nationalisation) Act, 1972 - ss.10A,
19(2), 19(3) and 24A - Insurance Regulatory and Development Authority (Protection of Policyholders' Interest) RegulaF
tions, 2002 - Regns. 2(1)(e}, 6, 7(1)(n}, 11(4) - Insurance
Regulatory and Development Authority Act, 1999 - Constitu-
..
A
tion of India, 1950 - Art. 12.
Constitution of India, 1950 -Art. 226 - Judicial Review -
Scope of - Held: While determining a tis having public law
G domain, Courts entitled to take a broader view - Even cases
involving contracts may be determined by High Court in exercise of its jurisdiction under Art. 226 - On facts, Appellant insurance company had declined to renew the medic/aim policy
~ -
- Basic facts were admitted - The High Court was concerned
H
778
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 779
DHARMASINHABHAI GAJERA & ORS.
, ...
with the interpretation of statute and interpretation of the conA
tract of insurance - Judicial Review of the impugned action
on part of Appellant was, therefore, permissible.
The business activities of insurance compani.es are
governed by the Insurance Act, 1938. In terms of the said
B
Act, the Insurance Regulatory and Development Author-
.A.
ity (the Authority) was constituted by the Central Government. The Authority made the Insurance Regulatory and
..
Development Authority (Protection of Policyholders' Interest) Regulations, 2002.
c
Appellants are subsidiary insurance companies of
General Insurance Corporation of India, carrying on insurance business in terms of the General Insurance Business (Nationalisation) Act, 1972. By the Insurance Regulatory and Development Authority Act, 1999, s.24A was inD
serted in the 1972 Act directing cessation of the exclusive privilege of the Corporation and the acquiring companies in relation thereto.
Respondents had taken medi-claim policies. Appellant insurance companies declined to renew the same.
E
Respondents filed writ petitions before the High Court
which were allowed.
In appeals to this Court, the Appellants contended
that 1) the High Court erred in holding that the contract of
..
insurance is no longer ~n the realm of contract; 2) that the
F
;..
insurance companies must function having regard to
'commercial expedience' consideration in view of s.24A
of the 1972 Act and 3) that even assuming that Appellant
is a 'State' within meaning of Art. 12 of the Constitution,
the same by itself would not mean that it cannot enter into G
a contract with the policy holder on its own terms, par-
""11r
ticularly when such terms have been approved by the Authority.
Respondents, on the other hand, contended that the
H
780
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A insurance companies having regard to their obligations
not only in terms of the constitutional provisions but also
the provisions of the 1938 Act, the 1972 Act and the 1999
Act and the Regulations framed thereunder and the guidelines issued, are bound to renew mediclaim policies from
s time to time on the same terms and conditions; that Appellants, are bound to act fairly and reasonably in the
matter of renewal of its policies and wrongful refusal on
their part must be remedied; that assuming that the insurance companies must address their business concern
c vis-a-vis the competition which they face from the other
companies, the same does not mean that, despite being
the 'State' within the meaning of Art. 12 of the Constitution, they would refuse to carry out their constitutional
and statutory obligations, particularly in view of the fact
0 that the insurance business was acquired by the 1972 Act
to subserve the public purpose; that renewal of insurance
policy, for all intent and purport, should be held to be automatic, subject of course to tender of the amount of premium of insurance in time inasmuch as in terms of the
guidelines issued by the Authority, the policy is to be a
E continuous one; that the right to cancel the policy and
refusal to renew the same must be held to be confined
only to the exclusionary clauses contained in the policy;
that the functions of Appellants being regulated by statutory guidelines and circulars issued from time to time, any
F departure therefrom must be held to be wholly unfair and
mala fide; that the insurance companies being 'State' are
not only bound to comply with the constitutional scheme
contained in the preamble of the Constitution but also the
provisions of s.1 OA of the 1972 Act and other provisions
G of the Act and that in any event the policies must be construed in favour of the insured in view of the maxim - contra proferentum and uberrimae fidei.
Whether renewal of a mediclaim policy on payment
of the amount of premium would be automatic, is thus
H
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 781
DHARMASINHABHAI GAJERA & ORS.
-.4.
the question involved in the present appeals.
A
Dismissing the appeals, the Court
HELD:1.1. Appellant is a 'State' within the meaning
of Art.12 of the Constitution. It has been created under
the General Insurance Business (Nationalisation) Act, B
1972. If it is a 'State' its action must be fair and reasonA
able. Appellants being subsidiaries to General Insurance
....
Corporation cannot ignore the statutory provisions. They
are bound by the directions issued by the Central Government. [Paras 23, 24, 67] [798-C,E, 820-8,C]
c
1.2. The functions of the insurance companies are
governed by statute. A contract of insurance, therefore,
must subserve the statutory provisions. It must be construed having regard to the larger public policy and publie interest guiding nationalization of the insurance comD
-Y
panies. [Para 28] [799-F]
1.3. When the terms and conditions of contract of ins_urance are fixed, the protective umbrella over the interest of the policy holders becomes fully open. The insurE
ance companies cannot either in their prospectus or in
the terms of policy lay down any condition which would
be derogatory to the terms and conditions approved by
the Regulatory Authority. If the contract of insurance itself provides for renewal of an insurance policy the same
F
...
may not mean that the assured has a legal right of auto-
~
matic renewal, but the Courts are required to strike a balance. [Para 34] [801-G, 802-A]
1.4. A distinction in the approach of the Court in this
behalf must also be borne in mind, namely that a Court G
may exercise its power of judicial review at the threshold
of formation of a· contract and the cases where the terms
.'"
and conditions of contract are to be enforced. Whereas
in the former case, the Courts' jurisdiction is wider, in the
latter, it is not. However, it does not mean that the Court H
~
\
782
SUPREME COURT REPORTS
[2008] 9 S.C.R
A shall not interfere even in a case where the term of the
J..-
contract is against the public policy or where in enforcing the same the State acts arbitrarily, unfairly or unreasonably or makes discrimination amongst the persons
similarly situated. [Para 35] [802-B,C,D]
B
1.5. Where a renewal is based on mutual consent,
there may be no automatic renewal but, 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 operatc ing in the field as also constitutional scheme. [Para 46]
1.5. There exists a distinction between a private player
in the field and a public sector insurance company. A private player, as the law stands now, may not be bound to
D comply with the constitutional requirements of the equality clause, but the appellants are. Whereas a private player
in the field is only bound by the statutory regulations aper1-
ating in the field, the public sector insurance companies
are also bound by the directions issued by the General InE
surance Corporation as also the Central Government. They
cannot be ignored. [Paras 51, 52] [814-F-H, 815-A]
1.6. 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 deciF sions of the Central Government, they cannot also be
...
.I,
permitted to act wholly arbitrarily and unreasonably. They
cannot be permitted to create a social condition which
would negate all human rights. [Para 55] [816-B,C]
Peacock Plywood (P) Ltd. v Oriental Insurance Co. Ltd.
G [(2006) 12 SCC 673 and Life Insurance Corporation of India
v. Consumer Education and Research Centre [(1995) 5 SCC
482] - relied on.
,.~
Asstt. Excise Commissioner. v. Issac Peter [(1994 (4)
H sec 104] - held inapplicable.
'
{
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 783
DHARMASINHABHAI GAJERA & ORS.
•...4
Biman K. Bose v. United India Insurance Co. Ltd. [(2001) A
6 SCC 477]; Kesavananda Bharati v. State of Kerala [(1974)
3 SCC 225} ; Virinder Gaur and others v. State of Haryana
and others [(1995) 2 SCC 577]; Kirloskar Brothers Ltd. v. Employees' Stte Insurance Corporation [(1996) 2 SCC 682]; State
of Kerala & Ors. v. Kurian Abraham (P) Ltd. & Anr. [(2008) 3
B
S.C.C. 582]; D. Nataraja Mudaliar v. The State Transport Au-
-"
thority of India, Madras [AIR 1979 SC 114]; Ramana Dayaram
-
Shetty v. The International Airport Authority and others [AIR
1979 SC 1628]; New Indian Assurance Co. Ltd. v.
Harshadbhai Amrutbhai Modhiya & Anr. [(2006) 5 SCC 192]; c
Mahabir Auto Stores & Ors. v. Indian Oil Corporation & Ors.
[(1990) 3 SCC 752]; Kumari Shrilekha Vidyarthi & Ors. v. State
of UP & Ors. [(1991) 1 SCC 212]; Pradeep Kumar Jain v.
Citi Bank [(1999) 6 SCC 361J; Depot Supdt., H.P Corporation Ltd. v. Kolhapur Agricultural Market Committee [(2007) 6 D
SCC 159]; Hardesh Ores (P) Ltd. v. Hede & Co. [(2007) 5
---:f'
SCC 614 and Divisional Forest Officer v. Bistiwanath Tea Co.
Ltd. [(1981) 3 sec 246]- referred to.
Gama Foods Ltd. v. Eagle Star Insurance Company
[1997 (2) ILRM 193] and A (FC) & Ors. (FC) v. Secetary of E
State for the Home Department [2004 UKHL 56] - referred
to.
2. In each of the present cases, the action was
...
brought by private individuals. The writ petitions, how-
)>
ever, had wider ramification. They not only would affect F
the writ petitioners, 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 ir:iterest litigation. Even if it is not so
regarded, the High Court· may consider the same to be G
'Public Law Litigation'. While determ·ining 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 H
784
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A in exercise of its jurisdiction under Article 226 of the ConJ...•
stitution. In the present cases, basic facts are admitted.
The High Court was concerned with the interpretation of
statute and interpretation of the contract. Judicial Review
of the impugned action on the part of the Appellants was,
B therefore, permissible. [Para 56] [816-E-H, 817-A-D]
UC of India & Anr. v. Consumer Education & Research
Centre & Ors. [(1995) 5 SCC 482]; Sanjana M. Wig (Ms) v.
,,_
Hindustan Petroleum Corpn. Ltd. [(2005) 8 SCC 242]; ABL
.....
International Ltd & Anr. v. Export Credit Guarantee Corporac tion of India Ltd & Ors. [(2004) 3 SCC 553]; The D.FO, South
Kheri & ors. v. Ram Sanehi Singh [(1971) 3 SCC 864 and
Noble Resources Ltd. v. State of Orissa & Anr. [(2006) 10 SCC
236] - relied on.
D
3. Each of the cases in question clearly shows that
the action on the part of the authorities of the Appellants
was highly arbitrary. Respondents though were not en-
..,._
titled to automatic renewal, but indisputably, they were
entitled to be treated fairly. When an insurance policy is
E cancelled, the conditions precedent 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 was a pre-existing disease when the cover was inspected for the first time. Only
F
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. [Para 64] [819-A-D]
G
4. 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 in-
•
-<
surance policy, the parties are not required to go into all
H the formalities. The very fact that the pol ;v contemplate~
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 785
DHARMASINHABHAI GAJERA & ORS.
•..4
terms for renewal, subject of course to payment of requiA
site premium, the same cannot be placed at par with a
case of first contract. [Para 65] [819-E,F]
5.1. Having regard to the fact situation obtaining in
each case, this Court is not inclined to exercise discreB
tionary jurisdiction under Art. 136 of the Constitution.
\
"
However, keeping in view the role played by the insur-
...._
ance companies, 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 c
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. [Para 66] [819-G]
D
-""T
5.2. The IRDA is requested 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 enterE
ing into contracts of insurance or renewal thereof, appropriate steps in that behalf may be taken. [Para 68] [820-C,D]
CIVIL APPELLATE JURISDICTION : Civil Appeal No . . .
..
41134115 of 2008
;..
F,
From the final Judgment and Order dated 5/12/2003 of
the High Court of Gujarat at Ahmedabad in LP.A. Nos. 1028,
1003 and 1004 of 2003
WITH
C.A .. Nos. 4116 and 3633 of 2008
G
~
G. Vahanvati, S.G., B.B. Sawhney, Atul Nanda, Rameeza
)
Hakeem, Sandeep Bajaj, Rajesh Kumar (for Mis. Law Associates & Co.), Vishnu Mehra, Vikram Singh, Sakshi Miittal (for
S.N. Bhat), Sameer Parekh, Sumeet Lall, Rukhmini Bobde (for H
786
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
Mis. Pare~h & Co.), Indra Sawhney, Sadhana Sandhu and
~·
B
Hemantika Wahi for the Appearing Parties.
The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Leave granted in all the matters.
INTRODUCTION
2. Whether renewal of a mediclaim policy on payment of
the amount of premium would be automatic, is the question involved herein.
C
BACKGROUND FACTS
3. The Parliament enacted the General Insurance Business (Nationalisation) Act 1972 (for short 1972 Act) to provide
for the acquisition and transfer of shares of Insurance Compa0
nies 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
r·
and to ensure that the operation of the economic system does
not result in the concentration of wealth to the common detriE
ment, 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 lnsurF
ance 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
G 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
H 1938 Act.
.. • .
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 787
DHARMASINHABHAI GAJERA & ORS. [S.B. SINHA, J.]
..........
The Parliament also enacted the Insurance Regulatory and
A
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 conferred by clause 2(c) of sub-section (2) of Section 114A of the
B
1938 Act read with sections 14 and 26 of the 1999 Act, the
~
Authority made Regulations known as Insurance Regulatory and
,
Development Authority (Protection of Policyholders' Interest)
Regulations, 2002 (for short the 2002 Regulations).
FACTUAL MATRIX
c
6. We may at the outset, briefly notice the facts involved in
one of the matters
Facts of Civil Appeal @ SLP (C) 153412006
7. Respondents No.1 obtained the mediclaim policy from
D
... ,.,
the appellant in April, 1995 and renewed annually upon payment of the requisite amount of premium. After over three years
namely, in July, 1998, Respondent No.1 suffered a coronary disease and was admitted in the Escorts Heart Institute and ReE
search Centre where he underwent 'Angioplasty'. A claim made
by him was paid by the appellant. In January, 2001 he was once
again admitted to the Escorts Heart Institute and Research
Centre and once again underwent 'Angioplasty'. The amount
"' >
claimed was duly reimbursed by the appellant to the responF
dent. In May, 2002 he was hospitalized in Holy Family Hospital
for a minor operation and the medical expenses claimed to that
effect were reimbursed by the appellant. In April, 2002 he underwent a bye-pass surgery. Respondent No.1 submitted his
claim which, however, was not paid.
8. On 3rc1 April, 2003, the respondent approached the apG
>
pellant for renewal of the policy and issued a cheque towards
>
payment of the premium for the purpose of renewal of the policy
w.e.f. 6th April, 2003, which was refused on the purported ground
of 'high claim ratio'. After serving notice, the said respondents
H
788
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A filed a writ petition which was allowed by the learned Single
......
Judge of the Delhi High Court by his order dated 7th January,
2005 directing the appellant to renew his mediclaim insurance
policy.
B
9. An intra court appeal filed by the appellant was dismissed by reason of the impugned judgment and order dated
151h July, 2005.
~
We would notice the factual matrix involved in other mat-
'
ters at a later stage.
c
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
D 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 enun-
.....
ciated in the Directive Principle of State policy as contained in
Chapter IV of the Constitution of India, writ petitions were filed
E 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 :
..
F
....
[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.
G
[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
H
policy. Renewal of mediclaim insurance policy
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 789
DHARMASINHABHAI GAJERA & ORS. [S.B. SINHA, J.]
cannot be refused on the ground that the insured
A
had contracted disease during the period of
the expiring policy so far as the basic sum
insured under the existing policy is concerned.
(3] In cases where the insured seeks an
enhancement of the amount of sum insured at 8
the time of renewal, the option to renew will not
extend to the amount of such enhancement and
renewal in respect thereof will depend upon the
mutual conse.nt of the contracting parties.
c
[4] Renewal of a medical claim insurance policy
cannot be refused, despite timely payment of
the renewal premium, on the ground that
continuance of the cover would become more
onerous or burdensome for the insurer due to
D
the insured contracting a covered disease
during the period of the existing policy.
[5] The insurer may refuse renewal, even in
cases where the insured has an option to renew
· the policy on payment of the renewal premium
E
in time,
on the grounds, such
as,
misrepresentation, fraud or non-disclosure of
material facts that existed at the inception of
the contract and would have vitiated the
insurance of the cover at its inception or nonF
fulfillment of obligations on the part of the insured
or any other ground on which the performance
of the promise under the contract is dispensed
with or excused under the provisions of the
Indian Contract Act or any other law or when the G
insurer has stopped doing business.
[6] The government insurance companies
continue to be "State" within the meaning of
Article 12 of the Constitution notwithstanding
the entry of private companies in the field of H
790
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
general insurance, ending their monopoly by
.......
virtue of insertion of Section 24A in the Act of
1972, and they cannot arbitrarily cancel or refuse
to renew an existing mediclaim policy."
It was directed :
B
"40. For the foregoing reasons, we find
ourselves in agreement with the reasoning and • ..-
conclusions of the learned Single Judge in the -
impugned order from which the Letters Patent
c
Appeals No.1028 of 2003, No.1003 of 2003
and 1004 of 2003 arise, and there being no
warrant for interference with the same, all the
three appeals are, therefore, dismissed with
costs.
D
40.1 For the foregoing reasons, since the
grounds given for refusing to renew the
10' 4
mediclairr1 insurance policies of petitioners Nos.
2 and 3 are arbitrary and also agains~ the
contractual terms, the Special Civil Applicati ·'·
E
No.9425 of 2002 is partly allowed, by holding
that the refusal of renewal of the medicfaim
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
..
F
...
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
G
period of their existing policies for the
concerned year. Rule is made absolute
accordingly with costs."
..
~
CONTENTIONS
H
12. Mr. G.E. Vahanvati, learned Solicitor General of India,
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI
791
DHARMASINHABHAI GAJERA & ORS. [S.B. SINHA, J.]
~..>
appearing on behalf of the appellant, submits :-
A
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
B
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 c
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, and Mr. Sawhney, learned counD
.... -,,.
sel, appearing on behalf of the respondents, on the other hand,
contends:-
1)
The insurance companies having regard to their
·n-·
obligations .not only in terms of the constitutional·
provisions but also the provisions of the 1938 Act,
E
1972 Act and 1999 Act; the Regulations framed
thereunder and the guidelines issued, are bound to
renew mediclaim policies from time to time on the
same terms and conditions .
...
~
F
2)
Appellants, in view of the decision of this Court, in
Biman K. Bose v. United India Insurance Co. Ltd.
[(2001) 6 sec 477] are bound to act fairly and
reasonably in the matter of renewal of its policies
and wrongful refusal on their part must be to be an
act of mischief resorted to cause harm to the insured G
which must be remedied .
....
~
3)
Assuming that the insurance companies must
address their business concern vis-a-vis the
competition which they face from the other H
792
SUPREME COURT REPORTS
[2008] 9 S.C.R.
....... ~
A
companies, the same does not mean that, despite
being the 'State' within the meaning of Article 12 of
the Constitution of India, they would refuse to carry
out their constitutional and statutory obligations,
particularly in view of the fact that the insurance
B
business was acquired by the 1972 Act to subserve
the public purpose.
4)
Renewal of insurance policy, for all intent and purport,
should be held to be automatic, subject of course to
tender of the amount of premium of insurance in time
c
inasmuch as in terms of the guidelines issued by the
Authority, the policy is to be a continuous one.
5)
The right to cancel the policy and refusal to renew
the same must be held to be confined only to the
D
exclusionary clauses contained in the policy.
6)
The functions of the appellant being regulated by
..,. ..
statutory guidelines and circulars issued from time
to time, any departure therefrom must be held to be
wholly unfair and mala fide.
E
7)
The insurance companies being 'State' are not only
bound to comply with the constitutional scheme
contained in the preamble of the Constitution of India
but also the provisions of Section 1 OA and other
provisions of the Act.
•
...
F
8)
In any event the policies must be construed in favour
of the insured in view of the maxim -
contra
proferentum and uberrimae fidei.
STATUTORY PROVISIONS, GUIDELINES ETC.
G
14. Sections 10-A, 19(2) and 19(3) of 1972 Act, which are
relevant for our purpose, read as under:-
A.
1
"10-A. Transfer to Central Government of shares vested in
Corporation.-All the shares in the capital of the acquiring
H
companies, being-
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 793
DHARMASINHABHAI GAJERA & ORS. [S.B. SINHA, J.]
•>
(a)
the National Insurance Company Limited;
A
(b)
the New India Assurance Company Limited;
(c)
the Oriental Insurance Company Limited;
(d)
the United India Insurance Company Limited,
B
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
c
(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.
D
·-ii:
(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
E
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 2(1 )(e)
F
>
of the 2002 Regulations to mean a document issued by the insurer or in its behalf to the prospective buyers of insurance, and
should contain such particulars as are mentioned in Rule 11 of
Insurance Rules, 1939 and includes a brochure or leaflet serving the purpose. Such a document should also specify the type G
and character of riders on the main product indicating the na-
>).
ture of benefits flowing therefrom.
16. Regulation 6 provides for the matters to be stated in
the insurance policy.
H
794
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
Regulation 7(1 )(n) of 2002 Regulations read thus :-
..... 1
"7. Matters to be stated In general insurance policy.- (1)
A general insurance policy shall clearly state:
(n) provision for cancellation of the policy on grounds of
B
misrepresentation, fraud, non-disclosure of material facts
or non-cooperation of the insured;"
Regulation 11(4) reads as under:-
11. General.-
c
(4) Any breaches of the ~(>ligations cast on an insurer or
insurance agent or insurance intermediary in terms of these
regulations may enable the Authority to initiate action
against each or all of them, jointly or severally, under the
Act and/or the insurance Regulatory and Development
D
Authority Act, 1999."
17. Indisputably the Authority also issued guidelines on "File
.._. ...
and Use" requirements for general insurance products; clause
3 whereof relate to IRDA requirements for consideration and
E review of products meaning thereby the insurance policies. The
requirements specified by the Authority are:-
"(i)
Design and rating of products must always be on
sound and prudent underwriting basis. The
contingencies insured under the product should be
F
clear and provide transparent cover which is of value
..
_....
to the insured.
(ii)
All literature relating to the product should be in simple
language and easily understandable to the public at
large. As far as possible, a similar sequence of
G
presentation may be followed. All technical terms
should be clarified in simple language for the benefit
of the insured.
....
...
(iii) The product should be a genuine insurance product
H
of an insurable risk with a real risk transfer. "Alternate
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 795
DHARMASINHABHAI GAJERA & ORS. [S.B. SINHA, J.]
........
risk transfer" or "financial guarantee" business in any A
form will not be accepted.
(iv) The insurance product should comply with all the
requirements of the Protection of Policyholders'
Interests Regulations 2002.
B
(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 c
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 D
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
E
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
F
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,
G
with those that are not, the insurer should file such products
>- ~
and confirm that the section governed by tariffs complies
with tariff rates, terms and conditions for the portion that
is governed by tariffs, as long as tariffs remain in force.
H
796
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
25. The documents to be filed in respect of every new
~_..
product or revision of an existing product in respect of
products classified under categories (i) and (ii) of para 19
above shall be as follows:
B
i)
Statement filing particulars of the product in Form A;
ii)
Certificate by the Chief Executive Officer in Form B;
iii)
Certificate by Appointed Actuary in Form C;
iv)
Certificate by the company's lawyer in Form D;
c
v)
Copies of Prospectus and other sales literature
relating to the product;
vi)
Copy of Proposal Form;
n
vii)
Copy of Policy Form and copies of the standard
~
D
endorsements to be used with the policy; and
viii) Copy of the Underwriter's Manual in respect of the
'I ...
product along with the list of declined risks, if any.
Important: While issuing the certificates under paras (ii),
E
(iii) and (iv) above, persons responsible for issuing such
certificates should carefully go through all the required
aspects and apply due diligence. Serious view may be
taken in case of any deficiencies."
F
19. Clauses 16 to 18 provide for the responsibility for compliance.
..
~
20. For the purpose of obtaining approval of the terms and
conditions of the policy, the insurance companies are required
to file the following documents before the authority in respect of
G a new product or any revision of an existing product, which ineludes a certificate by the company's lawyer as specified in
Form D appended _thereto.
...
21. The National Insurance Company being one of the sub-
~
sidiary companies of the General Insurance Company issued a
H letter dated 181h December, 1998, inter alia, in the following
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 797
DHARMASINHABHAI GAJERA & ORS. [S.B. SINHA, J.]
"~
terms:-
A
"Different situations which may arise-during the renewal of
insurance and how to deal with them are summarized
below:-
(1) In case of renewal without a break in the period
B
....
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 c
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 D
·~
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 E
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 F
and should not be accepted."
ANALYSIS OF THE HIGH COURT JUDGMENT :
22. The High Court has considered the matter under the
following broad headings :-
G
'.>- ..
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.
H
•
798
SUPREME COURT REPORTS
(2008) 9 S.C.R.
A
c)
The terms and conditions of the insurance policies
-l ..
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
B
made having regard to the nature and principles
underpinning a contract of health insurance.
e)
For the purpose of effective implementation of a
..
contract of insurance as regards mediclaim policy,
-
business considerations are wholly immaterial.
c
~
Different kinds of policies would attract different
.principles.
23. There is no escape from the fact that the appellant is a
'State' within the meaning of Article 12 of the Constitution. It has
D been created under the 1972 Act. The said Act, as the preamble
shows, was enacted for achieving certain purposes, economic
benefit of the people and/or group of people, being one of it. At
T
~
the point of time when the 1972 Act was enacted the insurance
companies enjoyed a monopoly status. But would it mean that
E only because it ceases to enjoy the same by itself is sufficient
to hold that it is not required to follow the constitutional or statutory norms?
24. If it is a 'State' its action must be fair and reasonabl~. It
has been so held in a catena of decisions of the Court as for
example Peacock Plywood Plywood (P) Ltd. v. Oriental Insur-
..
F
~
ance Co. Ltd. [(2006) 12 sec 673 paragraphs 57 at page 691)
~
and Life Insurance Corporation of India v. Consumer Education and Research Centre [(1995) 5 SCC 482).
25. There cannot be any doubt that Directive Principles of
G State policy by themselves per se are not enforceable in a court
of law. [See Kesavananda Bharati v. State of Kera/a [(1974) 3
sec 225J.
...
~
)
26. We would assume that it is one thing to say that the
H State is to make all endeavours to improve the puolic health but
...
UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 799
DHARMASINHABHAI GAJERA & ORS. [S.8. SINHA, J.]
"~
the same by itself would not mean that a contract of insurance A
governed by statute must receive construction in terms of the
said provision or otherwise, the endeavour of the State should
have been to direct compulsory insurance for all its citizens.
Improvement of public health has been held to mean an obligation on the part of the State to put forth its policy to ecological
8
~
balance and hygienic environment, the later being an indirect
-~
facet of the right to healthy life. {Virinder Gaur and others v.
State of Haryana and others [(1995) 2 SCC 577]}. {[See also
Kirloskar Brothers Ltds. v. Employees' Stte Insurance Corporation [(1996) 2 sec 682]}.
c
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 D
~ -.
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) ofor
relating to food or other goods reputed to be beneficial to
E
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
fl>. ),.
toast (in the phrases your health, good health, etc.)."
F
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.
G
~;. ~
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.