Insurer Should Indemnify If Insured Suffers Sudden Sickness Or Ailment Which Is Not Expressly Excluded Under The Policy: Supreme Court

The Supreme Court has observed that 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.

The bench of Justices DY Chandrachud and BV Nagarathna in the present matter was considering a civil appeal against the order dated 22nd May, 2015, passed by the National Consumer Disputes Redressal Commission ("Commission") in a Consumer Complaint by which the appellant's complaint was dismissed on the ground of non disclosure of material facts.

While allowing the appeal, the bench in Manmohan Nanda V. United India Assurance Co. Ltd. & Anr observed 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. 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 appellant for the expenses incurred thereunder."

Factual Background

The appellant had sought an overseas mediclaim policy­ B ("mediclaim policy") as he intended to travel to the United States of America ("USA") to attend the wedding of his sister ­in ­law's daughter. At the instance of the insurance company, the appellant was medically examined prior to the consideration of his request for issuance of a mediclaim policy and on his medical examination, the report categorically noted that the appellant had diabetes­ type II (diabetes mellitus). No other adverse medical condition was found.

Pursuant to the queries, the insurer accepted the proposal form and issued an Overseas Mediclaim Business and Holiday Policy which was valid from 19th May, 2009 to 1st June, 2009, to the appellant.

While the appellant exited the customs section at San Francisco airport, he felt weak and started sweating. His wife got him admitted at the SFO Medical Centre and after he received medical treatment, he was shifted to Mills Peninsula Medical Centre where angioplasty was performed on the appellant on 19th May, 2009 and 22nd May and three stents were inserted to remove the blockage from the heart vessels.

In order to avail the benefit under the mediclaim policy, appellant's son ­in­ law contacted M/s Corris International, a foreign collaborator of the Insurance Company which was to provide emergency assistance and claims administration services to the insured. M/s Corris International sought certain documents regarding details of treatment given by the Medical Centre as well as details of the mediclaim policy for the purpose of considering the same for indemnifying the appellant. The appellant was discharged on 24th May, 2009.

Two and a half months thereafter, appellant started receiving bills from the cardiovascular wing of the Medical Centre and SFO Medical Centre towards the treatment he received at their facility. On 19th August, 2009, the appellant sent a letter annexing all bills in original as well as the discharge summary to the Divisional Manager of the insurance company at their Bhopal office and a copy to Heritage Health TPA Pvt Ltd.

On 22nd August, 2009, appellant received a letter from Heritage Health TPA Pvt Ltd. stating that his claim had been repudiated as the appellant had a history of hyperlipidaemia and diabetes and the policy did not cover pre existing conditions and complications arising therefrom.

Aggrieved, the appellant filed a complaint under Section 21 (9) of the Consumer Protection Act, 1986 ("Act") against the respondents before the Commission. The Commission dismissed the complaint filed by the appellant on the ground of non­disclosure of material facts.

Submission Of Counsels

Senior Advocate Gopal Sankarnarayanan along with Advocate Zehra Khan appearing for the appellant submitted that the policy in question contained the nature of coverage and excluded pre­ existing conditions as defined in general condition 10. He further contended that repudiation of the contract on the ground of suppression of pre­ existing disease by appellant was wholly erroneous. Senior Counsel further submitted that the appellant had no knowledge that he was suffering from hyperlipidaemia at the time of submission of the proposal form and that the obligation to disclose any fact extends only when the said fact is known to the appellant but not otherwise.

He further argued that the proposal form was worded in such a manner that there was no specific query which could have led to the appellant disclosing that he was suffering from hyperlipidaemia and that the insurance policy did not define the terms "pre ­existing disease," "pre­ existing ailment," "pre­ existing condition", "disease" or "illness."

Senior counsel further submitted that the nature of a disease or illness which would exclude a policy holder or an insured from the benefits of the said policy must be clearly mentioned in the policy itself. He contended that the same could not be vague or non ­specific so as to enable the insurer to interpret the policy to its benefit whenever a claim is made under the mediclaim policy.

Advocate Sunaina Phul for the Insurance Company submitted that had the appellant disclosed that he was suffering from hyperlipidaemia which was an existing disease as on the date of the making of the proposal, the insurer may not have issued the mediclaim policy to him. In this regard she argued that the insured therefore did not disclose this vital fact and had not answered the column related to illness or disease suffered by him up to the date of the filling up of the proposal form. It was also her contention that the non­disclosure or the failure to disclose the past medical history relating to a pre ­existing medical condition in the proposal form was a good reason to repudiate the policy.

Supreme Court's Analysis

The bench in the judgement authored by Justice BV Nagarathna proceeded to consider the issue by firstly discussing the two aspects of the matter which gave rise to the controversy in the present appeal which was:

• What may be expressed in the legal maxim uberrimae fidei or the principle of good faith and the corresponding principle of disclosure of all material facts by the parties to an insurance policy
• Contra Proferentem Rule

Uberrimae Fidei

In this regard the bench remarked that any fact which has a bearing on the very foundation of the contract of insurance and the risk to be covered under the policy would be a "material fact".

The court in the judgement noted the basic rules to be observed in making a proposal for insurance were:

(a) A fair and reasonable construction must be put upon the language of the question which is asked, and the answer given will be similarly construed. This involves close attention to the language used in either case, as the question may be so framed that an unqualified answer amounts to an assertion by the proposer that he has knowledge of the facts and that the knowledge is being imparted. However, provided these canons are observed, accuracy in all matters of substance will suffice and misstatements or omissions in trifling and insubstantial respects will be ignored.

(b) Carelessness is no excuse, unless the error is so obvious that no one could be regarded as misled. If the proposer puts 'no' when he means 'yes' it will not avail him to say it was a slip of the pen; the answer is plainly the reverse of the truth.

(c) An answer which is literally accurate, so far as it extends, will not suffice if it is misleading by reason of what is not stated. It may be quite accurate for the proposer to state that he has made a claim previously on an insurance company, but the answer is untrue if in fact he has made more than one.

(d) Where the space for an answer is left blank, leaving the question unanswered, the reasonable inference may be that there is nothing to enter as an answer. If in fact there is something to enter as an answer, the insurers are misled in that their reasonable inference is believed. It will then be a matter of construction whether this is a mere non-disclosure, the proposer having made no positive statement at all, or whether in substance he is to be regarded as having asserted that there is in fact nothing to state.

(e) Where an answer is unsatisfactory, as being on the face of it incomplete or inconsistent the insurers may, as reasonable men, be regarded as put on inquiry, so that if they issue a policy without any further enquiry they are assumed to have waived any further information. However, having regard to the inference mentioned in head (4) above, the mere leaving of a blank space will not normally be regarded as sufficient to put the insurers on inquiry.

(f) A proposer may find it convenient to bracket together two or more questions and give a composite answer. There is no objection to his doing so, provided the insurers are given adequate and accurate information on all points covered by the questions.

(g) Any answer given, however accurate and honest at the time it was written down, must be corrected if, up to the time of acceptance of the proposal, any event or circumstance supervenes to make it inaccurate or misleading.

The bench further opined that sometimes the standard of duty of disclosure imposed on the insured could make the insured vulnerable as the statements in the proposal form could be held against the insured and in this light, certain clauses in the policy of insurance could be interpreted in light of the contra proferentem rule as against the insurer.

Contra Proferentem Rule

Relying on General Assurance Society Ltd., v. Chandmull Jain ­ AIR 1966 SC 1644, Delhi Development Authority v. Durga Chand Kaushish ­ AIR 1973 SC 2609, Central Bank of India v. Hartford Fire Insurance Co. Ltd. AIR 1965 SC 1288, Md. Kamgarh Shah v. Jagdish Chandra AIR 1960 SC 953, United India Insurance Co. Ltd. v. Orient Treasures (P) (2016) 3 SCC 49, the bench observed that the following principles could emerge:

(i) There is a duty or obligation of disclosure by the insured regarding any material fact at the time of making the proposal. What constitutes a material fact would depend upon the nature of the insurance policy to be taken, the risk to be covered, as well as the queries that are raised in the proposal form.

(ii) What may be a material fact in a case would also depend upon the health and medical condition of the proposer.

(iii) If specific queries are made in a proposal form then it is expected that specific answers are given by the insured who is bound by the duty to disclose all material facts.

(iv) If any query or column in a proposal form is left blank then the insurance company must ask the insured to fill it up. If in spite of any column being left blank, the insurance company accepts the premium and issues a policy, it cannot at a later stage, when a claim is made under the policy, say that there was a suppression or non­ disclosure of a material fact, and seek to repudiate the claim.

(v) The insurance company has the right to seek details regarding medical condition, if any, of the proposer by getting the proposer examined by one of its empanelled doctors. If, on the consideration of the medical report, the insurance company is satisfied about the medical condition of the proposer and that there is no risk of pre­existing illness, and on such satisfaction it has issued the policy, it cannot thereafter, contend that there was a possible pre­ existing illness or sickness which has led to the claim being made by the insured and for that reason repudiate the claim.

(vi) The insurer must be able to assess the likely risks that may arise from the status of health and existing disease, if any, disclosed by the insured in the proposal form before issuing the insurance policy. Once the policy has been issued after assessing the medical condition of the insured, the insurer cannot repudiate the claim by citing an existing medical condition which was disclosed by the insured in the proposal form, which condition has led to a particular risk in respect of which the claim has been made by the insured.

(vii) In other words, a prudent insurer has to gauge the possible risk that the policy would have to cover and accordingly decide to either accept the proposal form and issue a policy or decline to do so. Such an exercise is dependant on the queries made in the proposal form and the answer to the said queries given by the proposer.

Thus the bench while allowing the appeal observed that the repudiation of the policy by the insurance company was illegal and not in accordance with law and consequently, the appellant was entitled to be indemnified under the policy.

Case Title: Manmohan Nanda V. United India Assurance Co. Ltd. & Anr

Coram: Justices DY Chandrachud and BV Nagarathna

Citation : LL 2021 725

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