Babulal K. Shah vs The New India Assurance Company Ltd.

Abhay Shreeniwas Oka, J.—The issue involved in this PIL concerns Hospitalization and Domiciliary Hospitalisation Benefit Policy (for short the "Mediclaim policy") issued by the first respondent-New India Assurance Company Limited which is a Government of India Undertaking. The second respondent is the Insurance Regulatory and Development Authority constituted under the Insurance Regulatory and Development Authority Act, 1999. While issuing Rule, this Court by order dated 10th March 2010 has noted the issue involved in the petition. The order dated 10th March 2010 reads thus:

"The issue which arises in this petition is whether the Insurance Company could have charged premium based on running age and not completed age. Matter requires consideration. Hence, Rule."

A brief reference to the facts leading to the filing of the PIL will be necessary. The petitioner claims that he is a mediclaim policy holder since the year 1998. A mediclaim policy was issued to the petitioner for the period from 7th October 2006 till 6th October 2007 in which the age of the petitioner was shown as 72 years and the age of his wife was shown as 75 years. On 23rd September 2007, a mediclaim policy was issued to the petitioner for the period from 7th October 2007 till 6th October 2008. In the said policy, the age of the petitioner was shown as 74 years and the age of his wife was shown as 77 years. There were two other errors in the policy. The first was that both of them were shown as patients of pre-existing disease of hypertension and Diabetes and the second was that the date of issue of the first policy was mentioned as 30th September 2003. As far as the entry regarding pre-existing disease is concerned, the same was corrected. A grievance was made by the petitioner by sending e-mails as regards the age on 7th November 2007 and on 13th November 2007. By a letter dated 6th December 2007, the Deputy General Manager and the Chief Public Information Officer of the first respondent provided information sought by the petitioner under the Right to Information Act, 2005 (for short ''the said Act of 2005''). Information supplied was in the form of a letter dated 30th November 2007 addressed by the Divisional Manager of the first respondent to its Regional Manager enclosing therewith a circular dated 20th November 2007. The letter dated 30th November 2007 makes a reference to the paragraph 11 of the said circular. Paragraph 11 of the said circular reads thus:

"11 Age of the proposer/family member is taken as running age of the person and not completed years of age. The genesis is calculating the premium on running age of the person which is correct."

The petitioner made an application dated 16th December 2007 under the said Act of 2005. Information was supplied to the petitioner by letter dated 22nd January 2008. Information supplied was that running age concept was introduced as a corporate decision. It was stated that running age concept was introduced to charge the premium with effect from 16th August 2007. The petitioner was informed that the sanction from the Government for the said change was not required. The petitioner was informed that the first respondent was governed by the Rules and Regulations of the Insurance Regulatory and Development Authority (for short the ''IRDA'')-second respondent set up by the Union of India. In reply to the specific information sought by the petitioner as to whether a permission from IRDA to introduce the running age concept was taken, it was stated by the Chief Manager of the first respondent that the product is approved by the IRDA.

By a further application made by the petitioner under the said Act of 2005 on 28th March 2008, the petitioner called upon the Public Information Officer of the first respondent to provide copies of the proposal submitted to the IRDA for approval of the said change and the approval granted by the IRDA. Information was denied by the Public Relation Officer of the first respondent by invoking clause (d) of sub-section (1) of section 8 of the said Act of 2005. An appeal was preferred by the petitioner against the said order. The appeal was disposed of by holding that the information sought falls under "commercial confidence" and was outside the purview of the said Act of 2005.

The petitioner is relying upon the information obtained by him from the United India Assurance Company Limited, the National Insurance Company Limited and the Oriental Insurance Company Limited which are Government of India Undertakings. The said information revealed that completed age is taken by the said companies for computing the premium chargeable on mediclaim policies. A reference is made to the correspondence exchanged between the petitioner and the second respondent. On the basis of the various legal contentions raised, following prayers have been made in this petition:

(a) that this Hon''ble Court be pleased to issue a writ of certiorari or in the nature of certiorari or any other writ, direction or order under Articles 226 and 227 of the Constitution of India calling for the records of the Respondent No. 1 relating to the decision to charge the premium on mediclaim policy on the basis of running age instead of completed age and after examining the legality, validity and reasonable thereof, be pleased to quash and set aside the same;

(b) this Hon''ble Court be pleased to direct the Respondent No. 1 to refund to the petitioner and all other mediclaim policyholders the excess premium collected by the Respondent No. 1 by reason of the illegal change of charging the premium on mediclaim policies on the basis of running age instead of the completed years of age;

(c) that this Hon''ble Court be pleased to direct the Respondent No. 1 not to charge 2.5% or any other amount extra on the policyholders attaining the age of 70 years of age and to give reasonable discount in the premium to the policyholders attaining the age of 70 years;

(d) that this Hon''ble Court may be pleased to issue necessary directions to the Respondent No. 2 to regulate the affairs of the Respondent No. 1 in the matter of mediclaim policies in accordance with the principles of fairness and justice;

(e) this Hon''ble Court be pleased to direct the Respondent No. 2 to act for protection of the interest of the policyholders and to ensure compliance by the insurance companies of the Regulations framed by the Respondent No. 2 for the protection of policyholders;"

There are affidavits filed on record by the first and second respondents for contesting this petition.

The learned counsel for the petitioner in support of the petition invited our attention to the documents annexed to the petition and the affidavits filed on record. He pointed out that the letter dated 21st January 2008 addressed by the Chief Manager of the first respondent in response to the application made by the petitioner under the said Act of 2005 specifically records that the first respondent is governed by the Rules and regulations of the second respondent-IRDA. He pointed out that in response to the specific query whether the first respondent had obtained a permission from the second respondent-IRDA to change from actual age to running age concept, the said communication dated 21st January 2008 records that the product has been approved by the second respondent. He pointed out that further application was made under the said Act of 2005 by the petitioner to the Public Information Officer of the first respondent demanding copies of the proposal submitted by the first respondent to the second respondent for granting approval to the said change and a copy of permission granted by the second respondent. He urged that the said information was erroneously denied by invoking clause (d) of sub-section (1) of section 8. Relying upon the communications at Exhibits K-1 to Exhibit K-3, he pointed out that every other public sector insurance company has stated that for the purpose of calculating premium payable on the mediclaim policy, the completed age as on the date of commencement of the policy is considered. He pointed out that even the second respondent did not furnish proper information under the said Act of 2005. He pointed out that in response to the application made by the daughter-in-law of the petitioner under the said Act of 2005, the Information Officer of the second respondent by letter dated 26th May 2008 informed the daughter-in-law of the petitioner that four public sector insurance companies including the first respondent had filed their mediclaim policies with the second respondent and the same have been cleared. It is stated that the premium charts filed by the said companies show age and sum assured.

He invited our attention to the proposal submitted by the first respondent to the second respondent for approval of the second respondent which is placed on record along with an affidavit. He also pointed out the communication dated 30th April 2007 addressed by the Executive Director of the second respondent to the Chairman and Managing Director of the first respondent which records that filing of the products such as revised mediclaim policy 2006 and rates of premium are being cleared subject to certain advice. The advice was in the form of a direction that existing senior citizens holding policies shall not be compelled to migrate to the revised product on renewal if it is to their disadvantage. He also pointed out the direction issued by the second respondent on 14th July 2008 in exercise of power under clause (1) of sub-section (2) of section 14 of the said Act. It directs the Insurance Companies to calculate the premium of Insurance on the completed age of the insured on the date of commencement of the insurance. He pointed out the stand taken by the second respondent in the communication dated 17th July 2009 which relies upon the approval granted by the second respondent on 30th April 2007. He submitted that the approval was granted by the second respondent subject to condition that the senior citizens who were existing policy holders should not be compelled to accept the terms which were prejudicial to them.

Dealing with the preliminary objections raised by the first respondent, he submitted that though the petitioner may be affected personally by the gross illegality committed by the first respondent, by the acts done contrary to the directions of the second respondent, a large number of senior citizens who were policyholders of mediclaim policies prior to the year 2007 will be affected and most of them are not in a position to approach the Court. He urged that a statutory regulatory authority in the form of the second respondent has been created to regulate the activities of the public sector insurance companies like the first respondent and therefore, notwithstanding the fact that the petitioner may be himself affected by the illegality, he can maintain a PIL. As far as the scope of interference in the writ jurisdiction is concerned, he placed reliance on the decision of the Apex Court in the case of Clarence Brandenburg Vs. State of Ohio, 395 U.S. 444 (1969) . He urged that the senior citizens in the class of the petitioner have no bargaining power, as far as the terms and conditions of the policy of medical insurance are concerned.

The learned counsel for the first respondent raised several preliminary objections. The first objection is that the dispute raised is nothing but a private dispute between the petitioner and the first respondent. He relied upon various decisions of the Apex Court on this aspect. He urged that the contractual dispute between the petitioner insured and the first respondent-insurer cannot be resolved by adopting a shortcut method of filing a PIL. The second contention is that the issue of interpretation of a policy of insurance can be decided only by a Civil Court. His third submission is that the petitioner has bye-passed the other remedies available and has taken a recourse of filing this PIL. His submission is that a writ Court cannot go into the question of rates of the premium fixed under the policy of the first respondent. He submitted that fixing the rates of premium is a matter of fiscal planning. He urged that in any event, this petition involves several disputed questions of fact and therefore, this Court should decline to entertain this petition which is a petition under Article 226 of the Constitution of India. He submitted that the second respondent had approved the product of the first respondent on the basis of the proposal and an objection was never raised by the second respondent for calculating the premium on the basis of the running age of the insured on the date on which policy is issued. He, therefore, submitted that no interference is called for in writ jurisdiction.

The learned counsel for the second respondent relied upon the circular dated 14th July 2008 as well as the communication dated 30th April 2007. We must note here that on 26th September 2014, we had granted time to the learned counsel for the second respondent to take instructions on the issue as to whether the decision of the second respondent binds the first respondent. On the adjourned date, the learned counsel for the second respondent stated that the stand of the second respondent is that the first respondent is bound by the decision of the second respondent.

We have given careful consideration to the submissions. Before we deal with the preliminary objection raised by the first respondent, certain undisputed facts will have to be taken into consideration. It is not in dispute that the petitioner was the policy holder of a mediclaim policy of the first respondent at least from September 2003. Under the said policy, the petitioner and his wife have been shown as insured. In the renewed policy for the period from 7th October 2006 to 6th October 2007, the completed age of the petitioner and his wife has been shown. It is not in dispute that the premium paid under the said policy was calculated on the basis of the completed age of the petitioner and his wife. In the subsequent policy issued to the petitioner with effect from 7th October 2007, the running age of the petitioner and his wife has been shown and the premium was calculated on the basis of the running age. It is also an admitted position that the concept of calculating the premium on the basis of the running age was introduced by the first respondent for the first time on 16th August 2007. It is not in dispute that in the case of mediclaim policies issued by way of renewal from 16th August 2007, the running age of the insured was mentioned and the premium was calculated on the basis of the running age on the date of issue of the policy. Prior to the said date, the completed age of the insured used to be incorporated in the policy and the premium was calculated on the basis of the completed age on the date of issue of policy.

Certain information was supplied to the petitioner on 22nd January 2008 by the Chief Public Information Officer of the first respondent. The information was in the form of a letter dated 21st August 2008 addressed by the Chief Manager of the first respondent which is Exh. H to the petition. It categorically records that the first respondent is bound by the rules and regulations of the second respondent-IRDA. In response to the query whether a permission was taken by the first respondent from the second respondent to change the policy of taking the actual age and for adopting the policy of taking the running age, the reply was that the product was approved by the second respondent. In response to the application made by the petitioner under the said Act of 2005, information was supplied to the petitioner along with letter dated 6th December 2007. The information was in the form of a letter dated 30th November 2007 addressed by the Divisional Manager of the first respondent to the Regional Manager of the second respondent. A reliance was placed on the clarification issued by the first respondent by the circular dated 20th November 2007. It is stated therein that clause 11 of the circular provides that age of the proposer/family member is taken as his or her running age and not the completed age. Clause 11 of the said circular which was forwarded to the petitioner records that the premium is to be calculated on the basis of the running age. The circular dated 20th November 2007 specifically records that the clarifications have been issued under the newly introduced health cover. The letter dated 30th November 2007 specifically records that the circular was in relation to the mediclaim policy 2007. It is not disputed by the first respondent that prior to 16th August 2007, the completed age on the date of issue of the policy was taken into consideration for the purpose of computing the premium. There is no dispute that in case of the similarly placed insured, who are holding mediclaim policies issued by other three public sector insurance companies issued after 16th August 2007, the premium is calculated on the basis of the completed age on the date of policy. Such premium is less than the premium calculated on the basis of the running age on the date of issuing the policy.

Going by the affidavit of Shri Inderjeet Singh, the Regional Manager of the first respondent dated 25th August 2009, an application in prescribed form was submitted by the first respondent to the second respondent on 26th February 2007 in relation to the mediclaim policy (2007 and other policies). The application specifically provides that same is as regards the revision in the terms, conditions and exclusions and premium rates in respect of the mediclaim policies. It is also not in dispute that the said proposal/application was approved by the first respondent by letter dated 30th April 2007. The material part of the said letter reads thus:

"We have noted the filing of the products and rates of premium, which are being cleared by this letter subject to the following advice:

(a) due to numerous complaints from the senior citizens for non availability of the health cover especially problems they face for renewal of their health covers and high increase in the premium, the Authority is in the process of appointing a committee to go into the issues relating to availability of health insurance to the senior citizens. In the meantime, you are advised to effect a modest increase (if it is absolutely essential) up to 50-75% of the expiry rates at the time of renewal of existing mediclaim insurance policies of senior citizens (age 60 years and above). It is also clarified that existing Senior Citizens being the policyholders, shall not be compelled to migrate to the revised product on renewal if it is to their disadvantage.

(b) You may, however, offer the proposed rates of increased premium to all fresh cases.

(c) We will review the position, in consultation with the insurers, after the recommendations of the proposed committee are available on subject of health insurance cover to senior citizens. Kindly acknowledge receipt and confirm."

(underlines supplied)

The approval sought by the first respondent to the revised mediclaim policy was granted by the second respondent by the aforesaid letter dated 30th April 2007. The letter specifically records that filing of products and rates of premium are being cleared subject to advice contained therein. It is specifically stated that the senior citizens who are existing policyholders shall not be compelled to migrate to the revised product on renewal if it is to their disadvantage. It is further stated that the proposed rates of increased premium should be offered to all fresh cases. The filing of the product by the first respondent to the second respondent for approval was in terms of the guidelines issued by the second respondent known as the "Guidelines on the ''File and Use'' requirement for General Insurance Products". The guidelines provide that no general insurance products can be sold to any person unless the requirements of the guidelines have been complied with.

Thus, it is clear that the second respondent which is the Regulatory Authority did not permit the first respondent to charge the premium at the revised rates to senior citizens who were existing mediclaim policyholders. As stated earlier, the learned counsel for the second respondent has reiterated the aforesaid position on the adjourned date. Section 14 of the Insurance Regulatory and Development Authority Act, 1999 reads thus:

"14. Duties, powers and functions of Authority.--(1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.

(2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include,--

(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;

(b) protection of the interests of the policyholders in matters concerning assigning of policy, nomination by policyholders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance;

(c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;

(d) specifying the code of conduct for surveyors and loss assessors;

(e) promoting efficiency in the conduct of insurance business;

(f) promoting and regulating professional organisations connected with the insurance and re-insurance business;

(g) levying fees and other charges for carrying out the purposes of this Act;

(h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business;

(i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under Section 64-U of the Insurance Act, 1938 (4 of 1938);

(j) specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries;

(k) regulating investment of funds by insurance companies;

(l) regulating maintenance of margin of solvency;

(m) adjudication of disputes between insurers and intermediaries or insurance intermediaries;

(n) supervising the functioning of the Tariff Advisory Committee;

(o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f);

(p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and

(q) exercising such other powers as may be prescribed.

(emphasis added)

The second respondent IRDA is the Authority under the Insurance Regulatory and Development Authority Act, 1999. Hence, the directions issued by the second respondent for the protection of investors bind the first respondent. As stated earlier, three other insurance companies which are the Government of India Undertakings continued to charge the premium on mediclaim policies on the basis of the completed age of the insured. In the new/revised mediclaim policy, the first respondent proposed to calculate premium on the basis of the running age of the insured on the date of issue of the policy. The second respondent declined to grant approval to apply revised rates at the time of the renewal of the existing mediclaim policies held by the senior citizens. This is crystal clear from the communication dated 30th April 2007. The first respondent is bound by what is stated in the communication dated 30th April 2007. The approval to the products and rates of premium as proposed by the first respondent granted by the second respondent was specifically subject to advice which we have quoted above. The advice was not to apply revised rates to the existing senior citizen policy holders.

Therefore, the petitioner and similarly placed senior citizens who were already holding mediclaim policies of the first respondent as on 16th August 2007 were entitled to renewal thereof by charging the premium on the basis of the completed age on the date on which the renewed policy was issued. Hence, gross illegality had been committed by the first respondent by charging the premium on the basis of the running age of the insured on the date of issue of policy.

We may now proceed to decide the preliminary objections raised by the first respondent. We must note here that the issue raised in this petition is not merely a contractual issue. The first respondent is bound by the directions of the Regulatory Authority (second respondent) which is constituted under a statute. The issue is whether the first respondent could have charged the premium by applying a method or a rate which is not approved by the second respondent. At this stage, it will be necessary to make a reference to the decision of the Apex Court in the case of LIC of India and another vs. Consumer Education And Research Centre and others. The Apex Court held that in issuing general life insurance policy by the LIC of India of any type, public element is inherent in prescription of the terms and conditions therein. What is held by the Apex Court reads thus:

"We have, therefore, no hesitation to hold that in issuing a general life insurance policy of any type, public element is inherent in prescription of terms and conditions therein. The appellants or any person or authority in the field of insurance owe a public duty to evolve their policies subject to such reasonable, just and fair terms and conditions accessible to all the segments of the society for insuring the lives of eligible persons..."

(underline supplied)

In the same decision, the Apex Court observed thus:

"It is, therefore, the settled law that if a contract or a clause in a contract is found unreasonable or unfair or irrational one must look to the relative bargaining power of the contracting parties. In dotted line contracts there would be no occasion for a weaker party to bargain or to assume to have equal bargaining power. He has either to accept or leave the services or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms of forego the service forever. With a view to have the services of the goods, the party enters into a contract with unreasonable or unfair terms contained therein and he would be left with no option but to sign the contract."

(underline supplied)

The learned counsel representing the first respondent has relied upon several decisions. The decision in case of Clarence Brandenburg Vs. State of Ohio, 395 U.S. 444 (1969) will not apply as it cannot be said that the present petition has been filed for settling a purely a private or a contractual dispute. As far as the decision of the Division Bench of this Court in case of MTZ Industries and another vs. New India Assurance Company Limited and others dated 25th April 2006 in Writ Petition No. 3050 of 2004 is concerned, the issue was regarding the repudiation of the insurance claim of the petitioner by the respondents-Insurance Companies. As there were disputed questions of fact, the Court observed that the remedy of the petitioner is to file a suit. Similar view is taken by this Court in the decision dated 7th July 2006 in the case of Girishkumar Sheth Vs. New India Assurance Company Limited in Writ Petition No. 1214 of 2006. Reliance placed by the learned counsel for the first respondent on the decision of the Apex Court in the case of Clarence Brandenburg Vs. State of Ohio, 395 U.S. 444 (1969) will not help the petitioner as this was a case where writ jurisdiction was invoked by the petitioner for challenging the repudiation of the claim on the ground of fraudulent act. The learned counsel for the first respondent relied upon the decision of the Apex Court in the case of Clarence Brandenburg Vs. State of Ohio, 395 U.S. 444 (1969) which holds that a remedy under Article 226 of the Constitution of India is not available for enforcing a contract. We have already held that this petition is not filed merely for enforcing a contract. The decision of the Apex Court in the case of Clarence Brandenburg Vs. State of Ohio, 395 U.S. 444 (1969) will have no application which holds that the Court cannot rewrite the terms of the contract. Moreover, there are no disputed questions of fact. There is no issue regarding interpretation of the terms of a contract in this petition.

As far as the locus of the petitioner is concerned, it is true that the success of the petition will result into the petitioner getting a small amount by way of refund, but the issue raised is of a public importance. The petition invites attention of this Court to the illegal action of a public sector insurance company of acting contrary to the directions of the statutory Regulatory Authority. This action frustrates the very object of the statute of providing a regulatory authority. The petition discloses the prejudice caused to the public at large and in particular the senior citizens. An oblique reason or motive for filing this PIL cannot be attributed to the petitioner. The personal gain to the petitioner is incidental which will be of a very small amount. Therefore, we overrule the technical objection raised by the first respondent.

In case of senior citizens who were holding mediclaim policies as of 16th August 2007, the first respondent could not have charged premium on the basis of running age while renewing the policy. The first respondent could have charged premium only on the completed age of insured on the date of policy. Resultantly, the premium has been recovered by the first respondent contrary to the decision/direction of the Regulatory Authority (second respondent). Therefore, the first respondent will have to refund the excess amount of the premium recovered from the petitioner with interest thereon at the rate of 6% per annum from 7th October 2007 till the date of payment. There are senior citizens who are similarly placed as the petitioner from whom excess premium has been recovered. On applications being made by the such persons, the first respondent will have to issue refund in terms of this order. The petitioner will be entitled to costs quantified at Rs. 10,000/-.

23 Hence, we pass the following order:

(I) We hold that the senior citizens who were holding mediclaim policies issued by the first respondent as on 16th August 2007 were not liable to pay premium on the renewed policy calculated on the basis of the running age of the insured on the date of the policy and their liability was to pay the premium calculated on the basis of the completed age of the insured;

(II) We direct the first respondent to refund excess premium recovered from the petitioner together with interest at the rate of 6% per annum from 7th October 2007 till the date of payment. The amount shall be paid within a period of two months from today;

(III) We direct the first respondent to give publicity to this Judgment and Order on its website. If senior citizens who are similarly placed as the petitioner make applications for refund of excess premium within a period of six months from the date of the publication on the Judgment of this Court on the website of the first respondent, such citizens shall be entitled to refund on par with refund ordered to be paid to the petitioner. The amount of refund and interest shall be paid to such applicants within a period of two months from the date of making application;

(IV) Rule is made partly absolute on above terms;

(V) We direct the first respondent to pay costs of this petition quantified at Rs. 10,000/-to the petitioner within a period of two months from today.