The Insurer had a duty to inform the appellants that a change regarding the limitation on its liability was being introduced

Case Title: Jacob Punnen and another versus United India Insurance Co Ltd

Decided on 9 Dec 2021

“The Insurer had a duty to inform the appellants that a change regarding the limitation on its liability was being introduced”

In this case Jacob Punnen and another versus United India Insurance Co Ltd, a bench comprising Justices S Ravindra Bhat and KM Joseph was considering an appeal against an order of the National Consumer Disputes Redressal Commission, which denied relief to the appellants.

The appellants, two senior citizens, had availed a mediclaim policy from United India Insurance in 1982, which was renewed on yearly basis. In 2008, the second appellant had to undergo angioplasty surgery. A claim of Rupees 3.82 lakhs was submitted by the appellants to the insurer with respect to the angioplasty surgery. The coverage at the relevant time was Rs 8 lakhs. However, the insurer accepted the claim for only Rupees 2 lakhs, saying that the renewed agreement had a clause which limited the liability with respect to surgeries like angioplasty to an amount of Rs.2 lakhs.

• The policy holder is under the impression that the existing conditions are being renewed.
• “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”.

Duty of insurers

• The Court noted that a striking feature of the insurance contract is the principle of uberrima fide (duty of utmost good faith). In this backdrop, the insurer cannot plead that it is the duty of the policyholders to satisfy themselves about the terms and conditions. The Court took note of two particular facts – (1) the appellants are in need of health insurance due to advanced age; (2) the insurance policies are in standard form which offers no space for bargain or negotiation.
• “In the present case, the standard form contract, renewed year after year, left the appellants only with the choice of raising the insurance cover”. That being the situation, the “informational blackout” by the insurer was a crucial omission, held the Court.
• Justice Joseph held :

“‘The Insurer had a duty to inform the appellants that a change regarding the limitation on its liability was being introduced. there was unjustifiable non-disclosure by the Insurer about the introduction of clause of limitation and, in this case, it constituted a deficiency in service and resultantly the appellants are entitled to relief”.