Insurance Ombudsman Performs Quasi-Judicial Functions While Deciding Complaints; Award Can Be Challenged Under Article 227: Bombay High Court

"…. the adjudication of a complaint before the Insurance Ombudsman possesses all essentials of a judicial/quasi-judicial adjudication akin to an adjudication by a tribunal", the court stated.

Justice G. S. Kulkarni disagreed with the view taken by the Calcutta High Court that a writ petition under Article 227 of the Constitution against an award passed by the Ombudsman would not be maintainable.

The court also held that all parties to an insurance contract must make a true declaration of all material facts. The court set aside an award passed by the Insurance Ombudsman as the insured had not disclosed previous ailments before availing the policy.

The court was dealing with petition under Article 227 filed by an insurance company challenging Insurance Ombudsman decision granting relief to the complainant in an insurance complaint.

Dr. Fakhruddin Chhatriwala (insured) had taken a life insurance policy from the petitioner through HDFC Bank. He denied having any pre-existing conditions. On his death while undergoing treatment, the hospital recorded that he was a known case of Diabetes Mellitus/Hypertension. His wife submitted an insurance claim for 75 Lakh rupees. The petitioner found that the insured had been under treatment for schizophrenia and hypertension. The petitioner denied the insurance claim stating that he deliberately concealed material information about his medical history. The wife moved the Grievance Redressal Committee (GRC) which upheld the petitioner's decision.

Chhatriwala's wife filed a complaint before the Insurance Ombudsman which allowed her claim and directed the petitioner to settle the claim for 30 Lakh rupees. The petitioner challenged this award before the Bombay High Court.

Chhatriwala's wife challenged the maintainability of the petition on the ground that Rule 17(6) read with 17(8) of the Insurance Ombudsman Rules, 2017 (2017 Rules), provide that the award of the Insurance Ombudsman is binding on the insured. Reliance was placed on Calcutta High Court' decision in Life Insurance Corporation of India v. The Insurance Ombudsman.

The court relied on the 2017 Rules to demonstrate that when adjudicating a complaint, an Insurance Ombudsman performs quasi-judicial functions just like a tribunal. "The functions which are discharged by the Ombudsman are akin to the function as discharged by a tribunal in adjudicating the dispute", the court observed.

The court observed that the word "tribunal" in Article 227 of the Constitution must be interpreted liberally to include all statutory authorities vested with quasi-judicial power even though they may not have been labelled as tribunals.

The court relied on M/s Amrit Versha Udyog Pvt. Ltd v. Uttaranchal Power Corporation Ltd. in which the Uttarakhand High Court observed that if an authority is required to act judicially under a statute, the decisions of such an authority generally amount to quasi-judicial decisions.

The court relied on Apex Court decision in Columbia Sportswear Company v. Director of Income Tax wherein the Authority for Advance Rulings was held to be a tribunal under Articles 136 and 227 of the Constitution. The court held that the law established in Columbia Sportswear was applicable to the current case. The court answered the question of maintainability thus –

"It thus may not be an acceptable proposition that merely because Sub-Rule (8) of Rule 17 provides that an award shall be binding on the insurer, the insurer would be precluded from assailing the award by invoking the jurisdiction of this Court under Article 227 being a remedy as guaranteed by the Constitution, more particularly, being an adjudication governed by statutory rules as noted above."

On merits, the insurance company submitted that any non-disclosure by the deceased insured to the insurer would result in the insurance contract being vitiated under Section 45 of the Insurance Act, 1938. The material facts need not be related to the cause of death. The insured's wife submitted that the diagnosis of hypertension was made after the policy had already been availed. Further, schizophrenia has no correlation with the actual cause of death of the insured. Not every non-disclosure would entitle the insurer to repudiate the policy.

The court relied on Supreme Court decision in Reliance Life Insurance Company Ltd. v. Rekhaben Nareshbhai Rathod and stated that there is "perversity" in the award on many accounts. The Ombudsman overlooked the requirement of disclosure in good faith which is "sine-qua-non" for an insurance contract to be enforceable. The conclusion that the non-disclosure of material facts did not have any relevance with the cause of death without any supporting evidence amounts to an ex-facie perversity.

"The observations and conclusions of the Insurance Ombudsman are bereft of any reasoning on such material which formed part of the record before him, they are cryptic, as also extraneous to the issue before him", the court stated.

The insurance company also argued that the Ombudsman had no jurisdiction to pass the award as the claim exceeded the pecuniary jurisdiction. Chhatriwala's wife submitted that she had been ready to settle the claim for 30 Lakhs.

The court held that the Insurance Ombudsman had no jurisdiction to entertain the complaint in the first place as the claim of 75 Lakh rupees far exceeded the pecuniary jurisdiction of 30 Lakh rupees available to the Insurance Ombudsman under Rule 17(3) of the 2017 Rules. The willingness to settle at a lower amount would not amount to amendment of claim amount in the complaint.

Case no. – WP/7804/2021

Case title – Aditya Birla Sun Life Insurance Co. Ltd. v. Insurance Ombudsman & Anr.

Coram – Justice G. S. Kulkarni