Insurer's Failure To Disclose Exclusion Clause Makes It Unenforceable : NCDRC

Brief Facts of the Case

The complainant obtained two home loans totaling ₹28,95,000 and ₹48,60,000 as a co-borrower with her husband from Bajaj Allianz Life Insurance/insurer. Alongside, she acquired an insurance policy under a scheme where the Finance Company acted as the Master Policy Holder of a Group Master Policy of the insurer. A unique Certificate of Insurance (COI) was issued, enrolling the complainant under the Group Insurance Scheme for a sum assured of ₹71,49,174. The complainant informed the insurer about her critical illness of carcinoma of the right breast, leading to hospitalization. However, the claim was rejected by the insurer citing policy terms. Despite rejection, the complainant filed a complaint with the State Commission, seeking direction for the insurers to pay the sum assured, along with compensation for mental agony, harassment, costs, and interim relief from monthly loan installments debited through ECS. The State Commission allowed the complaint with directions for the insurer to refund deposited loan installments with interest, and to pay towards medical expenses to the complainant, along with compensation for mental agony and costs. Aggrieved by the State Commission's decision, the insurer filed an appeal before the National Commission.

Contentions of the Opposite Party

The insurer argued that the State Commission overlooked the fundamental principle that a contract must be interpreted according to its terms and conditions. They cited judgments of the Hon'ble Supreme Court, emphasizing that in insurance contracts, courts are bound to interpret the language used by the parties without altering the terms of the contract. The insurer asserted that the insurance policy between them and the insured constitutes a binding contract, and as such, the terms of the agreement must be strictly construed to determine the insurer's liability. They further pointed out that the policy included a 15-day Free Look Period, and since no request for cancellation of the Certificate of Insurance (COI) was made during this period, it was deemed confirmed. Additionally, the insurer argued that the State Commission failed to properly consider the terms and conditions of the COI in conjunction with the Master Policy. They highlighted that the claim was rightfully rejected under Clause 15(iii)(a) of the Master Policy, which excluded coverage for critical illnesses occurring within 180 days from the date of risk. Therefore, according to the insurer, the claim was not admissible under the policy terms and was appropriately denied.

Observations by the Commission

The Commission observed that the insurer was not authorized to issue a certificate of insurance under the Master Insurance Policy since the said Master Policy had already been withdrawn. The complainant argued that the so-called Master Policy issued to Bajaj Finance Ltd. lacked legal validity as it was withdrawn before the Certificate of Insurance was issued, which constituted the real contract between the parties. It was contended that the rejection of the claim was unjust, as there was no waiting period exclusion clause in the policy. The insurer had been penalized for regulatory violations, and it was alleged that they had acted against regulatory guidelines and used coercive measures against the complainant. The commission highlighted that The central issue was whether the critical illness treatment was covered under the Certificate of Insurance issued as part of the loan. The insurer rejected the claim, citing an exclusion clause for illnesses occurring within six months of the policy. However, the State Commission found that the terms and conditions were not communicated to the complainant, rendering the exclusion clause non-binding. Consequently, the insurer was directed to pay the sum insured before the maturity date. Regarding the interpretation of the insurance contract, the insurer argued for strict adherence to the policy's terms, while the complainant asserted that non-disclosure constituted a deficiency in service. The commission found that the insurer's failure to communicate the exclusion clause rendered it unenforceable. The commission upheld the State Commission's interpretation, allowing the appeal for insurance cover for critical illness. However, the commission disagreed with the State Commission'd order regarding the repayment of the loan amount, as it was not part of the insurance policy. Therefore, the order for refunding loan installments was set aside. In conclusion, the appeal was partly allowed, directing the insurer to pay medical expenses and compensation to the complainant under the insurance policy. The commission upheld the award for payment of Rs. 25,000 mental agony and Rs. 15,000 as litigation costs.

Case Title: Bajaj Allianz Life Insurance Co. Ltd Vs. Bharti Mahaveer Jain

Case Number: F.A. No. 614/2020