Object of seeking mediclaim policy is to seek indemnification in respect of sudden illness and duty is cast on insurer to indemnify insured if he suffers sudden ailment which is not expressly excluded under policy: SC

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Read Judgment: Manmohan Nanda vs. United India Assurance Co. Ltd. & Another

Pankaj Bajpai

New Delhi, December 8,2021: The Supreme Court recently opined that the object of seeking a mediclaim policy is to seek indemnification in respect of a sudden illness or sickness which is not expected or imminent and which may occur overseas. 

Therefore, if the insured suffers a sudden sickness or ailment which is not expressly excluded under the policy, a duty is cast on the insurer to indemnify the insured for the expenses incurred thereunder.

A Division Bench of Justice Dr. D.Y Chandrachud and Justice B.V Nagarathna however observed that if there is any suppression or falsity in the statements in the proposal form, then same would result in a breach of duty of good faith and would render the policy voidable and consequently repudiate it at the instance of the insurer. 

Going by the background of the case, an Overseas Mediclaim Policy-B, was issued by the United India Assurance Co. Ltd (Respondent-insurance company) to Manmohan Nanda (Appellant), as the appellant intended to travel to USA to attend his sister-in-law’s daughter’s wedding which was to take place in May, 2009. Dr. Jitendra Jain, the doctor who examined the appellant prior to issuance of the policy noted that the appellant had diabetes mellitus-II (DM-2) which was controlled on drugs. However, there was no mention of any past history of any disease, operation, accident, investigation etc. The doctor further noted that there was no current illness or disease which would possibly require medical treatment during the proposer’s (appellant’s) forthcoming trip. 

However, when the Appellant reached San Francisco, his wife got him admitted at the SFO Medical Centre at San Francisco airport and received initial medical treatment. Two and a half months thereafter, appellant started receiving bills from the cardio vascular wing of the Medical Centre and SFO Medical Centre towards the treatment he received at their facility. The appellant when claimed insurance amount, he received a letter stating that his claim had been repudiated as the appellant had a history of hyperlipidaemia and diabetes and the policy did not cover preexisting conditions and complications arising therefrom. 

The appellant protested against the repudiation and requested his claim to be settled on a priority basis as the Medical Centre and the other centre in the USA where he had taken treatment had started pressing for release of payment. Hence, the Appellant filed a complaint u/s 21(9) of the Consumer Protection Act. The Commission however dismissed the complaint on the ground of nondisclosure of material facts. Hence, present appeal by the claimant.

After considering the arguments, the Top Court observed that insurance contracts are special contracts based on the general principles of full disclosure inasmuch as a person seeking insurance is bound to disclose all material facts relating to the risk involved. 

Law demands a higher standard of good faith in matters of insurance contracts which is expressed in the legal maxim ‘uberrimae fidei’, added the Court.

Just as the insured has a duty to disclose all material facts, the insurer must also inform the insured about the terms and conditions of the policy that is going to be issued to him and must strictly conform to the statements in the proposal form or prospectus, or those made through his agents. Thus, the principle of utmost good faith imposes meaningful reciprocal duties owed by the insured to the insurer and vice versa. This inherent duty of disclosure was a common law duty of good faith originally founded in equity but has later been statutorily recognized”, observed the Bench. 

Speaking for the Bench, Justice Nagarathana noted that the basic test hinges on whether the mind of a prudent insurer would be affected, either in deciding whether to take the risk at all or in fixing the premium, by knowledge of a particular fact if it had been disclosed. Therefore, the fact must be one affecting the risk. 

If such fact has no bearing on the risk it need not be disclosed and if it would do no more than cause insurers to make inquiries delaying issue of the insurance, it is not material if the result of the inquiries would have no effect on a prudent insurer, added the Bench.

Justice Nagarathana found that a proposer is under a duty to disclose to the insurer all material facts as are within his knowledge, and whilst the proposer can only disclose what is known to him, the proposer’s duty of disclosure is not confined to his actual knowledge, it also extends to those material facts which, in the ordinary course of business, he ought to know.

However, the assured is not under a duty to disclose facts which he did not know and which he could not reasonably be expected to know at the material time, added Justice Nagarathana. 

Hence, the Apex Court concluded that the repudiation of the policy by the respondent insurance company was illegal and not in accordance with law, and therefore directed respondents to indemnify the appellant regarding the expenses incurred by him towards his medical treatment.  

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