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Judgment
A. Kulasekaran, J.—This writ appeal is directed against the order dated 24.07.2007 passed by the learned single Judge allowing W.P.
(MD) NO. 3930 of 2007 (reported in this issue 2008 3 LW 139), which was filed by the respondents herein praying for a Writ of Certiorarified
Mandamus to call for the records relating to the order dated 01.03.2007 of the appellant herein and to quash the same and consequently direct the
appellant to renew the hospitalisation and domiciliary hospitalisation benefit policy (individual Medi-claim Policy) No. 720300/48/05/76191 dated
24.02.2006 from 00.00 hours on 25.02.2007 to midnight of 24.02.2008. The case of the respondents is that the respondents 1 and 2 are father
and mother of the third respondent. The third respondent is the proposer of Hospitalisation and Domicilliary Hospitalisation Benefit Policy
(Individual Medi-claim Policy) NO. 720300/48/05/76191 dated 24.02.2006 held by the first and second respondents. The said policy was
originally issued by the appellant in the year 1999 and the same was renewed every year, which was to expire on 23.02.2007. Prior to the said
date, a cheque for renewal of premium by loading of 40% more than the previous year on account of age and claim factor was sent by the third
respondent through his agent. After receipt of the same, the appellant returned the said cheque on the ground that the appellant have already
informed the insurer to make his own alternative arrangement for renewal and in any event, the request for renewal has come from unconnected
source (agent), for both the reasons, the renewal sought was not considered. Thereafter, the third respondent himself once again sent the cheque
and renewal request along with a covering letter dated 24.02.2007 to the appellant for which, the appellant has sent a reply dated 01.03.2007
refusing to renew the policy for the reasons mentioned therein and the same was challenged by the respondents in the above said writ petition.
The case of the appellant is that the respondents 1 and 2 are aged 77 and 72 years respectively and no insurer would accept such high risk
proposal as there is no statutory compulsion, however, the appellant originally accepted the proposal for the reasons that the third respondent has
taken several insurance policies for his family, employees of industries, inclusive of the policies of the respondents 1 and 2 upto 2006-2007. In the
year 2007, the third respondent transferred all other policies to M/s. Iffco Tokyo General Insurance, except the policies of respondents 1 and 2 as
they refused to take up the same which is evident that the said Insurance company itself while refusing to accept the request of the respondents 1
and 2, has returned their cheques for renewal and forwarded it to the appellant at the instance of the third respondent, instead of returning it to him
or respondents 1 and 2. Under clause 5.9 of the Mediclaim Insurance, the policy can be renewed only by mutual consent and the parties have the
right to even cancel the contract during the currency of the policy by issuing notice, as provided, hence, the cheque and renewal request sent by the
third respondent was returned and ultimately, the impugned order has been passed.
The learned single Judge relied on Clause 5.9 and 11 of Mediclaim Insurance Policy and found that the appellant has retained the standing offer
for renewal subject to the insurer paying the renewal premium in time; that if the policy sought for the first time is acceptable, in the absence of any
other valid reasons, the insurance company cannot refuse the renewal; that clause 11 stipulates that the insurance policy is issued for a period of
one year and subject to review, continuation of insurance cover will be available if the renewal premium is paid in time, in such event, insured is
eligible to the benefits; that a joint reading of clause 5.9 and 11 would make it clear that there is a standing offer from the appellant and the moment
the renewal fee is paid, there is an automatic acceptance from the insurer to offer the services continuously, hence, the order dated 01.03.2007 is
nothing but an arbitrary exercise of discretion, which is deserved to be quashed and quashed it accordingly by allowing the writ petition.
The learned counsel appearing for the appellant confined his argument as mentioned below:-
The word ''mutual consent'' employed in Clause 5.9 of Mediclaim Insurance makes it clear that it gave equal right to the parties to renew the policy
as well as not to renew the policy, thus, renewal is not automatic or without any reservation, hence, the finding of the learned single Judge that the
appellant has made a standing offer and the moment when the renewal premium is paid the policy is renewed automatically is incorrect; that the
ratio laid down in the decision of the Honourable Supreme Court in Biman Kishore hose''s case (2001 (6) sec 477) keeping in view that
Government company having monopoly business with right and privilege to carry on such business to the exclusion of others, now number of
private and multinational companies carry on such business and the appellant has been facing tough competition, expecting the appellant not to
enforce strictly the terms of contract at this period on the ground it is a government instrumentality is an unreasonable condition and prayed for
allowing of the writ appeal. In support of this contention, the learned counsel appearing for the appellant relied on the below mentioned decisions:-
i) General Assurance Society Ltd. Vs. Chandumull Jain and Another, wherein it was held thus:-
In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a
requirement of uberrima fides i.e. good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against
the company in case of ambiguity or doubt. A contract is formed when there is an unqualified acceptance of the proposal. Acceptance may be
expressed in writing or it may even be implied if the insurer accepts the premium and retains it. In the case of the assured, a positive act on his part
by which he recognises or seeks to enforce the policy amounts to an affirmation of it. This position was clearly recognised by the assured himself,
because he wrote, close upon the expiry of the time of the cover notes, that either a policy should be issued to him before that period had expired
or the cover note extended in time. In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in
which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not
made it themselves. Looking at the proposal, the letter of acceptance and the cover notes, it is clear that a contract of insurance under the standard
policy for fire and extended to cover flood, cyclone etc. had come into being.
ii) National Insurance Co. Ltd. Vs. Laxmi Narain Dhut, , wherein in Para No.18, it was held thus:-
It is also to be noted that the terms of the policy have to be construed as they are and there is no scope for adding or subtracting something.
However liberally the policy may be construed, such liberalism cannot be extended to permit substitution of words which are not intended. [See
United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal and Polymat India (P) Ltd. v. National Insurance Co. Ltd.]
iii) Polymat India P. Ltd. and Another Vs. National Insurance Co. Ltd. and Others, , it was held thus:-
In this connection, a reference may be made to a series of decisions of this Court wherein it has been held that it is the duty of the court to
interpret the document of contract as was understood between the parties. In the case of General Assurance Society Ltd. v. Chandumull Jain,
SCR 510 AB it was observed as under:
In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the
parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves.
Similarly, in the case of Oriental Insurance Co. Ltd. v. Samayanalhtr Primary Agricultural Coop. Bank, SCC 3 546 it was observed as under:
The insurance policy has to be construed having reference only to the stipulations contained in it and no artificial far-fetched meaning could be given
to the words appearing in it.
Therefore, the terms of the contract have to be construed strictly without altering the nature of the contract as it may affect the interest of
parties adversely.
In this connection, our attention was invited to decision of this Court in the case of United India Insurance Co. Ltd. v. M.K.j. Corpn. wherein it
was observed as under: (SCC p. 431, para 7)
After the completion of the contract, no material alteration can be made in its terms except by mutual consent.
iv) ( Ashok Leyland Ltd. Vs. State of Tamil Nadu and Another, , it was held thus:-
.... Section 9(2) of the Act is subject to the other provisions of the Act which would include sub-section (2) of Section 6-A of the Act. ""Subject to
is an expression whereby limitation is expressed. The order is conclusive for all purposes. It can only be reopened on a small set of grounds such
as fraud, misrepresentation, collusion etc.
v) State of Karnataka and Another Vs. All India Manufacturers Organization and Others, wherein in Para No.60, it was held thus:-
Shrilekha Vidyarthi v. State of U.P. is another authority for the proposition that the State Government has to act reasonably and without
arbitrariness even with regard to the exercise of its contractual rights. In Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of
Bombay the situation was one in which a lease between the Bombay Port Trust and certain parties was terminated in exercise of contractual rights
and the lease rent was abnormally increased. It was held that there was always an obligation on the part of public authorities in their acts of
omission and commission to be reasonable. In Biman Krishna Bose v. United India Insurance Co. Ltd. the question was whether an insurance
company could arbitrarily and unreasonably refuse the renewal of a policy. Considering that the insurance company, as a result of State monopoly
in the insurance sector, had become ""State"" under Article 12 of the Constitution, this Court held that:
... it [the insurance company] requires (sic) to satisfy the requirement of reasonableness and fairness while dealing with the customers. Even in an
area of contractual relations, the State and its instrumentalities are enjoined with the obligations to act with fairness and in doing so, can take into
consideration only the relevant materials. They must not take any irrelevant and extraneous consideration while arriving at a decision. Arbitrariness
should not appear in their actions or decisions.
The learned counsel appearing for the respondents submitted that the impugned order of the appellant refusing to renew the policy of the
respondents 1 and 2 despite the renewal premium is paid in time is illegal; that the State and its instrumentalities have to act with fairness and take
into account only relevant materials when reaching decisions even with regard to contractual relations with public and the reasons assigned in the
impugned order refusing renewal of the policy of respondents 1 and 2 is arbitrary and illegal and prayed for dismissal of the writ appeal. In support
of his contention, the learned counsel for the respondents relied on the below mentioned decisions:-
i) United India Insurance Company Ltd. Vs. Mohanlal Aggarwal, wherein a Division Bench of Gujarat High Court in Para No.32.2, held thus:-
32.2 Therefore, the option of renewal given to the insured being an agreed term of the Mediclaim policy, if denied by any arbitrary refusal or on the
ground that the contract has become more onerous or burdensome, would amount to breach of term of the contract which enabled the insured to
get the policy renewed by accepting the standing offer to get it renewed contained in Clause 11 of the prospectus. If the offer to get the policy
renewed by timely payment of insurance can be sent by a reminder-notice by the insurer and could be accepted by tendering the premium, there is
no reason why the insured should not be in the same position to accept the offer to renew whkh was incorporated in Clause 11 of the prospectus
of the Mediclaim insurance policy and also implied in the contract of insurance under which the insurance cover was stipulated to be continued on
payment of the annual premium in time and it was provided that bonus benefits would be given where the continuance of cover was claim free and
without break from year to year. Hardship or inconvenience or material loss by itself would not justify repudiation of the contract on the ground
that there is thereby a change in the contractual obligation to renew the cover, when the insured fulfil his obligation to pay the premium in time as
stipulated. There is no impossibility of performance of the contractual obligation to renew the cover as stipulated merely because the deal becomes
less profitable or entails a loss. When renewal is given in respect of the insurance under the same policy for a number of claim-free years by letting
the insured pay premium in time, then performance of the obligation to renew as per the stipulation of renewal, which is clearly implied having
regard to the nature and contents of the contract and so understood by the insurer itself in its prospectus and the circular letter, cannot be refused
on the ground that the continuance of cover by renewal of the Mediclaim insurance policy would become financially more onerous. Any arbitrary
refusal to renew the cover by these Government Companies will be open to judicial review. Refusal would, however be justified on grounds such
as misrepresentation, fraud, non-fulfilmenl of the obligations by the insured, or where the performance of obligation under the contract to renew the
policy as stipulated is dispensed with or excused under the provisions of Contract Act or of any other law.
ii) Biman Krishna Bose Vs. United India Insurance Co. Ltd., , wherein the Honourable Supreme Court in Para-4 and 5 held thus:-
Coming to the next question whether the appellant''s policy was required to be renewed with effect from the date when it fell due for renewal.
The view taken by the High Court is that an insurance policy cannot be renewed for the period which has already expired. It is not disputed that
original mediclaim policy taken out by the appellant provided for its renewal. It is also not disputed that the appellant applied for renewal of the
insurance policy well in time and sent a cheque towards its premium. The respondent Company has not challenged the order of the High Court
setting aside the order refusing to renew the mediclaim policy of the insured. Under such facts and circumstances of the case, whether the appellant
can be directed to take a fresh mediclaim policy on the premise that no renewal of the policy can be ordered for the expired period.
A renewal of an insurance policy means repetition of the original policy. When renewed, the policy is extended and the renewed policy in
identical terms from a different date of its expiration comes into force. In common parlance, by renewal, the old policy is revived and it is sort of a
substitution of obligations under the old policy unless such policy provides otherwise. It may be that on renewal, a new contract comes into being,
but the said contract is on the same terms and conditions as that of the original policy. Where an insurance company which has exclusive privilege
to carry on insurance business has refused to renew the mediclaim policy of an insured on extraneous and irrelevant considerations, any disease
which an insured had contacted during the period when the policy was not renewed, such disease cannot be covered under a fresh insurance
policy in view of the exclusion clause. The exclusion clause provides that the pre-existing diseases would not be covered under the fresh insurance
policy. If we take the view that the mediclaim policy cannot be renewed with retrospective effect, it would give handle to the Insurance Company
to refuse the renewal of the policy on extraneous consideration thereby deprive the claim of the insured for treatment of diseases which have
appeared during the relevant time and further deprive the insured for all time to come to cover those diseases under an insurance policy by virtue of
the exclusion clause. This being the disastrous effect of wrongful refusal of renewal of the insurance policy, the mischief and harm done to the
insured must be remedied. We are, therefore, of the view that once it is found that the act of an insurance company was arbitrary in refusing to
renew the policy, the policy is required to be renewed with effect from the date when it fell due for its renewal.
We have heard the counsel on both sides and perused the material records placed. A renewal of insurance policy means repetition of the
original policy in identical terms for further period. In other words, the old policy is revived and it is a sort of substitution of obligations under the
old policy unless such policy provides otherwise. Under Article 47 of the Constitution of India, it is the obligation of the State to ensure the creation
and sustaining of conditions congenial to health including ensuring the health insurance and it is being regulated. In exercise of the powers conferred
under clause (zc) of Sub-section (2) of Section 114-A of Insurance Act, 1938 (4 of 1938) read with Sections 14 and 26 of the Insurance
Regulatory and Development Authority Act, 1999 (41 of 1999), the Authority, in consultation of Insurance Advisory Committee made the
Insurance Regulatory and Development Authority (Protection of Policyholders Interests) Regulations 2002. These Regulations applied to all
insurances including mediclaims.
The mediclaim scheme was approved by Central Government, which is known as Hospitalisation and Domiciliary Hospitalisation Benefit Policy.
Thus, the constitutional and statutory provisions regulate these insurance contracts and the interest of the community is kept paramount in
consonance with the directive principles of State policy.
The issue in this case revolves on clause 5.9 and 11 of Mediclaim Insurance Policy. In short, the words ""mutual consent"" in clause 5.9, the
words ""....continuation of insurance cover will be available if the renewal premium is paid in time."" It is argued by the counsel for appellant before
us that the words ''mutual consent'' employed made it clear that equal rights given to the parties to renew the policy as well as not to renew the
policy, thus, the renewal is not automatic or matter of right by the issue. If the insurer finds that it is not prudent to continue the policy of a particular
insurer, the insurer can stop it.
Apart from fiduciary relationships, contracts of partnerships, contracts of Insurance are the leading instances of contracts expressed by the Law
to be contracts of utmost faith.
In interpreting documents relating to contract of insurance, the duty of the Court is to interpret the words in which the contract is expressed
without altering the nature of the contract, since, it may affect the interest of the parties adversely. Polymat India P. Ltd. and Another Vs. National
Insurance Co. Ltd. and Others,
The preamble of Mediclaim Insurance and its clauses 4.1, 4.2, 4.3, 5.9, 7.0, 8 and 11 are required to be read jointly because all clauses are
closely interlinked. Examination of particular clause in isolation alone is incorrect way of reading, particularly when all the said clauses are closely
interlinked. The meaning of the clause has to be tested in the light of its circumstances of the scheme and no general test be applied to a particular
clause alone. The relevant clauses are extracted below:-
Preamble:-
NOW THIS POLICY WITNESSETH that subject to the terms, conditions, exclusions and definitions contained herein or endorsed or otherwise
expressed hereon, the company undertakes that if during the period stated in the schedule or during the continuance of this policy by renewal any
insured person shall contract any disease or suffer from any illness (hereinafter called DISEASE) or sustain any bodily injury through accident
(hereinafter called INJURY) and if such diseases or injury shall require any such insured person, upon the advise of a duly qualified
Physician/Medical Specialist/Medical Practitioner (hereinafter called MEDICAL PRACTITIONER) or of a duly qualified surgeon (hereinafter
called SURGEON) to incur (a) hospitalisation expenses for medical/surgical treatment at any nursing home/hospital in India, as herein defined
(hereinafter called HOSPITAL) as an inpatient OR (b) on domiciliary treatment in India under domiciliary hospitalisation benefits as hereinafter
defined, the company will pay to the insured person the amount of such expenses as are reasonably and necessarily incurred in respect thereof by
or on behalf of such insured person but not exceeding in any one period of insurance the sum insured in aggregate state in the schedule hereto.
4.1 Such diseases which have been in existence at the time of proposing this Insurance, Pre-existing condition means any injury which existed prior
to the effective date of this insurance. Pre-existing condition also means any sickness or its symptoms which existed prior to the effective date of
this insurance, whether or not the insured person had knowledge that the symptoms were relating to the sickness. Complications arising from pre-
existing disease will be considered part of that preexisting condition.
4.2 Any expenses on hospitalisation /domiciliary incurred during first 30 days from the date of commencement of insurance cover except in case of
injury arising out of accident.
4.3 During the first year of the operation of insurance cover, the expenses on treatment of diseases such as Cataract, Benign Prostatic
Hypertrophy, Hysterectomy for Menorrhagia or Fibromyoma, Herna, Hydrocele, Congenital Internal disease or defect, Fistula in anus, piles,
sinusitis and related disorders are not payable. If these diseases/defect other than congenital internal diseases/defects are pre-existing at the time of
proposal, they will not be covered even during subsequent period of renewal too. If insured is aware of the existence of congenital internal
diseases/defects before inception of policy, it will be treated as pre-existing.
5.9 The policy may be renewed by mutual consent. The company shall not however be bound to give notice that it is due for renewal and the
company may at any time cancel this policy by sending the insured 30 days notice by registered letter at the insureds last known address and in
such event the company shall refund to the insured a pro-rate premium for unexpired period of insurance. The company shall however, remain
liable for any claim which arose prior to the date of cancellation. The insured may at any time cancel this policy and in such event the company shall
allow refund of premium at company''s short period rate only (table given herebelow) provided no claim has occurred upto the date of
cancellation.
Period on risk Rate of premium to be
charged
upto one month 1/4 of the annual rate
upto three months 1/2 of the annual rate
upto six months 3/4 of the annual rate
Exceeding six monthsFull annual rate
CUMULATIVE BONUS
Sum insured under the policy shall be progressively increased by 5% in respect of each claim free year of insurance subject to maximum
accumulation of 10 claim free years of insurance.
7.1 In case of a claim under the policy in respect of insured person, who has earned the cumulative bonus, the increased percentage will be
reduced by 10% of sum insured at the next renewal. However, basic sum insured will be maintained and will not be reduced.
N.B.I) For existing policy holders (as on date of implementation) the accrued amount of benefit of cumulative bonus will be added to the sum
insured, subject to maximum of 10 claim free years.
2) Cumulative bonus will be lost if policy is not renewed on the date of expiry
Waiver: In exceptional circumstances the seven days extension in period of renewal is permissible tc be entitled for cumulative bonus although the
policy is renewed only subject to medical examination and exclusion of diseases.
8......
IMPORTANT
For Cumulative Bonus and Health Checkup Provisions as aforesaid:
Both Health Check-up and Cumulative Bonus provisions are applicable only in respect of continuous insurance without break excepting however,
wherein exceptional circumstances the break in period for a maximum of seven days is approved as a special case subject to medical examination
and exclusion of disease during the break period. Health check-up benefit will be accrued after completion of four years continuous claim free
insurance.
The Policy is issued for a period of one year and subject to review. Continuation of insurance cover will be available if the renewal premium is
paid in time. On continuation of insurance cover and timely remittance of premium insured becomes eligible to following benefits from first days
after renewal:
(a) Cumulative bonus, if accrued (ref. item 9)
(b) Cost of health check-up if due (ref. item 10)
(c) Payment of hospitalisation cost for disease/illness/injury sustained even during first 30 days of renewal and first year exclusion (ref. deletion of
4.2 and 4.3)
Renewal of insurance cover: A further period of 7 days from the date of expiry will be permissible in exceptional cases subject to health certificate
from medical practitioner.
N.B: Any disease contracted during the period of seven days extensions will be excluded from the date of renewal in addition to other disease
excluded in the expiring policy, whereas other benefits mentioned above in item 11 (a); (b), (c) will be permissible.
The clauses 4.1, 4.3 say that only in respect of diseases, injuries which are pre-existing, the liability of the insurance company will be excluded.
The expression in clause 5.9 and 11 of the policy read along with the preamble of the policy that if during the continuance of the policy by renewal,
the insured person affected by any disease, the company will pay reasonable and necessary expenses incurred. It means the policy continue by
renewal. The clause 7 extend benefit of cumulative bonus if the policy is continued or renewed periodically. Thus, the said clauses made it clear the
insurance company and the insured treat the policy without break as a continuance of cover so long as the premium for renewal is paid in time,
particularly it is very clear in clause 11 the policies issued for a period of one year and subject to review and continuation of insurance cover will be
available if the renewal premium is paid in time. The expression ''policy may be renewed by mutual consent'' and ''the company may at any time
cancel this policy'' found in clause 5.9 and corresponding clause 14 cannot be construed by the company to say that they can arbitrarily put an end
to the mediclaim policy or refuse to accept renewal premium which is tendered in time. The stipulation regarding renewal by mutual consent apply
to cases where the government insurance company is not obliged, under the existing policy, to continue the cover, on payment of the renewal
premium in time. No doubt that IRDA (PPI) Regulations 2002 referred to above, wherein clause 7 (n) provides for cancellation of the policy on
grounds mentioned therein i.e., misrepresentations, fraud, non-disclosure of material facts or non-cooperation of the insured.
For the said reasons, the plea of the appellant that they are entitled to refuse the renewal, taking shelter under clause 5.9 and that in the
absence of mutual consent, the renewal is not automatic or without any reservations is rejected.
In the impugned order, the appellant alleged that the third respondent insured less aged group of his family members and staff with another
insurer and prefers to insure aged respondents 1 and 2 with it, is certainly invalid reason besides contrary to basic principles of insurance laws. In
this context, it is necessary to mention that even in an area of contractual relations, the State and its instrumentalities are enjoined with the obligation
to act with fairness and while doing so can take into consideration only the relevant materials, not irrelevant and extraneous considerations while
arriving at a decision. Arbitrariness should not appear in their action or decisions. Followed Biman Krishna Bose Vs. United India Insurance Co.
Ltd.,
It is immaterial that a government company having monopoly in a particular business or not, but arbitrariness should not appear in their actions
or decisions. No doubt, the terms of policy have to be construed as they are and there is no scope for adding or subtracting something, however
the policy be construed liberally, such liberalism cannot be extended to permit substitution of words which are not intended as held by the
Honourable Supreme Court in the decision reported in National Insurance Co. Ltd. Vs. Laxmi Narain Dhut,
In this case, the renewal is denied arbitrarily on the extraneous reason that some of the policies of third respondent, his family members and
staff were transferred to other insurer and continuing the respondents 1 and 2 policy alone with them has become more onerous or burdensome,
defeats the aims and objects of mediclaim.
For the said reasons, the order passed by the learned single Judge is confirmed. The appellant is directed to renew the mediclaim policy of the
respondents 1 and 2 with retrospective effect forthwith. The writ appeal is dismissed with costs of Rs. 10,000/-.