Duty of insurers to inform on change in policy: Supreme Court

SC set aside an order passed by NCRDC, which said the policyholders were presumed to be known about the terms and conditions

The Supreme Court on Thursday said it is the duty of the insurer to inform policyholders about any important changes, including limitations on the renewal of the mediclaim, which would affect her or his choice of product.

A bench of Justices KM Joseph and S Ravindra Bhat set aside an order passed by the National Consumer Disputes Redressal Commission (NCDRC), which said the policyholders were presumed to be known about the terms and conditions and that it was not open to them to claim ignorance of the terms under the fresh policy, which had placed percentage and monetary cap on certain types of surgical procedures.

In his judgement, Justice Bhat said, “The insurer was clearly under a duty to inform the appellant policyholders about the limitations which it was imposing in the policy renewed for 2008-2009. Its failure to inform the policyholders resulted in deficiency of service. The impugned order of the NCDRC, as well as the order of the State Commission, are hereby set aside”.

Justice KM Joseph, in a separate judgment, agreed with the relief proposed by Justice Bhat.

He said, “The insurer brought about a change in the policy. This change introduced a cumbersome limitation. It kept the insured in the dark about the limitation at the time when the renewal notice was issued, and what is more, the premium was accepted”.

Justice Joseph said the insurer had a duty to inform the appellants that a change regarding the limitation on its liability was being introduced and this duty to take the insured into confidence was breached in the present case.

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A couple along with their son obtained an insurance policy in 2006 with certain conditions attached. They obtained the policy in question for 2008, however, wherein the son was not included and there was also a change in the amount of the insurance.

The period of insurance was operative from March 28, 2008 to March 27, 2009. One of the petitioners underwent angioplasty in June 2008 and a claim for Rs 3,82,705.27 was submitted. The insurer paid a sum of Rs Two Lakhs only and the reduction in the claim was based on the express provisions which were in force in the policy in issue.

Under the earlier policy for previous year, such a clause was conspicuous by its absence. The district forum directed the insurer, United India Insurance Co Ltd, to pay the appellants, Rs 1,75,000 as the balance amount and also awarded 5,000 as compensation.

The insurer approached the state consumer commission, which held that the terms of the policy were known to the appellants who were bound by it. The couple moved the NCDRC with a revision petition, which upheld insurer’s contention. They then challenged its order before the top court.

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