Insurer cannot arbitrarily refuse policy renewal

Healthcare is costlier than a stay in a five-star hotel. Clearly, it is beyond the means of the common man. One-time hospitalisation can wipe out a lifetime's savings. So, mediclaim policy, as a welfare measure to bring the cost of decent healthcare within the reach of the average citizen, was introduced. Yet, insurance companies, which willingly accept premium year after year, are reluctant to settle legitimate claims. They look for excuses to reject these.

Often, insurers arbitrarily refuse to renew a policy, when it becomes evident that the claims ratio would go up. This, clearly, is not permissible, as held by the Supreme Court in the case of Biman Krishna Bose versus United India Insurance & Anr.

Biman Bose and his wife, Alka, had a mediclaim policy with United India Insurance. Alka fell ill, and was hospitalised. After discharge, a claim was made for reimbursement of expenses, amounting to Rs 8,243. Although all the necessary documents were submitted, yet even this meagre claim was not settled. This, despite repeated reminders.

So, the insured filed a complaint before the Kolkata district consumer forum. The ding-dong legal battle spanned four years and four tiers of courts till the Supreme Court finally intervened, directing the insurer to pay the claim, as also awarding Rs 20,000.

One would have expected the matter to have concluded here. But, unfortunately, when the policy became due for renewal, the insurer refused to renew in vengeance.

Once again, the insured felt compelled to take legal action. A writ petition was filed in the Calcutta high court, and the second round of battle ensued.

The High Court allowed the writ, set aside the insurer’s refusal, and directed the policy be renewed.

The insurer, however, contended the policy had lapsed, as, during litigation, the renewal premium had not been paid. So, the division bench, while agreeing with the view taken by the single judge, directed the insured to subscribe to a new policy, holding that renewal was not possible.

This order defeated the very purpose of litigation, because, in case a fresh policy is taken, all pre-existing diseases are excluded. Also, claims in respect of certain diseases contracted within the first 30 days of the new policy are excluded. So, Bose appealed to the Supreme Court (SC).

The SC observed the insurer is bound to act fairly and reasonably. Renewal cannot be refused on irrelevant and extraneous considerations, or in an arbitrary manner. Refusal to renew merely because the insured had approached the courts against the rejection of the claim is not justified.

The SC further observed the initial renewal premium had been paid by the insured, but wasn’t acknowledged by the insurer. Even during the intervening years of litigation, there arose no occasion to deposit the premium.

Accordingly, it held the refusal to renew as unfair and arbitrary, and directed the policy be renewed from the date it fell due for renewal.

It also ordered to further renew the policies for the subsequent expired years, if the premium had been paid. The insured was also awarded costs of Rs 5,000.

Since then, the SC has now held that refusal to renew a policy amounts to victimisation, unfair practice, and high-handededness.

The author is a consumer activist