Insurer's Reliance On Clause Without Evidence Constitutes Deficiency In Service: Ernakulam District Commission

Brief Facts of the Case

The complainant, insured under a Happy Floater Mediclaim Policy by Oriental Insurance, had his claim partially settled by the insurer. He incurred Rs. 95,410 for his wife's eye surgeries but received only Rs. 61,200 from the insurer, which was deemed reasonable by the Third-Party Administrator (TPA). Dissatisfied, the complainant approached the Insurance Ombudsman, who supported the insurer's decision. The complainant filed a complaint before the District Commission and argued that the deduction of Rs. 34,210 was unjustified and sought reimbursement with 12% interest plus Rs. 10,000 for mental agony and legal costs.

Contentions of the Insurer

The insurer argued that the insurance contract was governed by specific terms and conditions binding both parties, and they were liable only according to these terms. They contested the complainant's assertion that the expenses at the hospital were reasonable compared to other hospitals in Kerala, claiming that the deduction from the claim was neither illegal nor a service deficiency. The insurer highlighted that the policy only covered “reasonable and customary charges” and had already paid Rs. 61,200 after applying deductions based on policy clauses. They also noted that the policy excluded expenses for lenses. The Insurance Ombudsman had dismissed the complainant's case, supporting the insurer's position. The insurer argued that there was no deficiency in service or unfair practice and requested the dismissal of the complaint with costs.

Observations by the District Commission

The District Commission observed that the insurer's primary defense was that the deductions were in line with the “reasonable and customary charges” clause of the policy. However, the insurer failed to provide evidence to support these deductions. The Commission noted that the insurer's reliance on the clause without evidence constituted a deficiency in service, inconsistent with the Supreme Court's ruling in Canara Bank vs United India Insurance Co. Ltd., which requires interpreting policies in favour of the insured and resolving ambiguities in their favour. Given the standard nature of insurance contracts and the difficulties policyholders face in understanding all clauses, the complaint was deemed valid. The Commission observed that the insurer's refusal to fully reimburse the complainant despite lacking justification for deductions amounted to a deficiency in service and unfair trade practice.

The District Commission allowed the complaint and directed the insurer to pay Rs. 34,210 to the complainant as the balance claim amount. Additionally, the insurer was instructed to provide Rs. 5,000 as compensation for mental agony, financial loss, and hardship resulting from the deficiency in service and unfair trade practices, along with Rs. 5,000 for the cost of the proceedings.

Case Title: Sabu U Vs. Oriental Insurance Company Ltd.

Case Number: C.C. No. 20/431

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