Summary
The Court restored consumer relief against an insurer that introduced an angioplasty sub-limit when renewing a long-held health policy without informing the senior policyholders before accepting premium. The insurer’s duty of good faith required disclosure of material changes so that meaningful coverage choices remained available. Mere later dispatch of the policy or an unsupported suggestion that the agent must have explained it did not cure the omission. Both judges agreed that this was deficient service, while Joseph J separately emphasised that renewed policies could otherwise contain agreed changes.
Issues
- Whether an insurer could rely on a new procedure-specific limit not disclosed when renewal was invited and premium accepted.
- Whether later policy delivery or an assumed explanation by the agent displaced responsibility for non-disclosure.
Provisions considered
- Section 2(1)(g), Consumer Protection Act, 1986Failure to disclose the material restriction at renewal amounted to deficient service, permitting restoration of the policyholders’ position. (¶¶ Bhat J., 34, 39-40, Joseph J., 6)
Held
- Renewal ordinarily carried an expectation of continuation of existing terms, although validly agreed renewed terms could differ. Here the insurer invited renewal and accepted premium without bringing the newly introduced surgical sub-limit to the policyholders’ attention. It could not defeat relief merely by characterising the product as a fresh contract. (¶¶ Bhat J., 16-19, Joseph J., 4-6)
- The duty of utmost good faith applied to the insurer as well as the insured. Material restrictions had to be disclosed before renewal was completed so the policyholders could consider fuller or alternative cover. The insurer could not shift that duty onto them to discover undisclosed changes. (¶¶ Bhat J., 23-26, 29-30)
- No evidence from the agent established that the restriction had been explained. Even if communication was entrusted to the agent, the insurer as principal remained responsible for the omission. (¶ Bhat J., 30-33)
- Later health-insurance regulations gave express form to an informational obligation that already existed; the decision did not retrospectively impose their later procedural requirements on the earlier renewal. The non-disclosure constituted deficient service in the circumstances. (¶ Bhat J., 34-40)
- Joseph J concurred in the relief because the insurer breached its duty to inform the insured when it introduced the burdensome limit. Even assuming incorporation in the policy, consumer relief could undo the consequences of that deficient service. (¶ Joseph J., 5-6)
Result
Appeal allowed; State Commission and National Commission orders set aside and District Forum award of Rs 1,75,000 balance payment plus Rs 5,000 compensation restored. Insurer directed to bear additional costs of Rs 50,000.