Citation Codes

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Case Number

W.P(MD) No. 3930 of 2007 & M.P Nos. 2&3 of 2007

Advocates

Mr. S. Srinivasaraghavan
Mr. G.P Prabhu Rajadurai

Judges

Chitra Venkataraman, J.

Acts

ARTICLE 12 CONSTITUTION OF INDIA

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Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

This Writ Petition was filed seeking a Writ of Certiorarified Mandamus to call for the records of the respondent's impugned order dated 1.3.2007, to quash that order and to direct the respondent to renew the Hospitalisation and Domiciliary Hospitalisation Benefit Policy (Individual Mediclaim Policy) No. 720300/48/05/76191 dated 24.02.2006 for the period 25.02.2007 to 24.02.2008.

Facts as stated in the opinion: the third petitioner (son of petitioners 1 and 2) was the proposer of the policy and had renewed it periodically from 2003 to 2006 without break. The policy expired on 23.02.2007. The third petitioner sent a cheque to renew the policy with a 40% loading (attributing the loading to claim factor and the age of the parents). That cover containing the cheque was returned on 23.02.2007. The third petitioner again presented the remittance by registered post on 24.02.2007 within the permissible grace period. The respondent replied (by a letter dated 01.03.2007 enclosing the cheque) that it could not accept the remittance because the proposer had allegedly made a "harsh selection" by retaining the aged parents with the respondent and insuring younger family members and staff with another insurer; the respondent expressed inability to accept the renewal premium and returned it. The third petitioner challenged the respondent's letter dated 01.03.2007 as arbitrary and discriminatory.

Procedurally, the Court heard submissions from counsel for both sides and examined clauses of the policy (Clause 5.9 and Clause 11 of the prospectus) and precedent cited by the petitioners.

Legal Issues Presented

Whether the respondent's refusal to accept the renewal premium and consequent refusal to renew the Mediclaim policy (by the letter dated 01.03.2007) was arbitrary and liable to be quashed.
Whether, under the policy terms (notably Clause 5.9 and Clause 11 of the prospectus) and consistent case law, renewal is effectively available on payment of the renewal premium (i.e., whether there is a standing offer/automatic renewal on payment) or whether renewal requires renewed mutual consent permitting the insurer to refuse renewal on the grounds asserted.
Whether the respondent could validly refuse renewal on the ground that the proposer had insured some family members with another insurer while retaining aged parents with the respondent.

Arguments of the Parties

Petitioners' Arguments

The respondent is a nationalised insurance company and, being within the scope of Article 12 of the Constitution of India, ought to act responsibly and fairly in accepting renewals.
The respondent's action in refusing renewal is arbitrary, lacks fairness and reasonableness, and is discriminatory because mere choice of another insurer for some family members cannot justify refusal to renew.
Clause 5.9 of the Mediclaim Policy creates a standing offer: the company is not bound to give notice of renewal and, by maintaining a standing offer, the moment the insurer remits the premium there is automatic acceptance — thus renewal should have been granted unless specific reasons analogous to original acceptance problems existed.
Reliance was placed on United India Insurance Co. Ltd. v. Mohanlal Aggarwal (AIR 2004 Gujarat 191), particularly paragraph 34.4 and the scheme of the policy, to support the proposition that renewal can operate as automatic extension rather than a fresh contract requiring fresh disclosure.

Respondent's Arguments

Clause 5.9 does not by itself compel automatic renewal; renewal is governed by mutual acceptance of terms and cannot be treated as absolute automatic renewal in all circumstances.
The third petitioner should have explained why he retained the aged parents with the respondent while insuring the younger family members/staff with another insurer; such choice could affect underwriting risk and justify refusal.
The conditions of renewal must be read along with other policy terms (and Clause 11 of the prospectus) and, in view of competition and underwriting considerations, the offer in the policy cannot be treated as an unconditional offer without reservation.
The Gujarat High Court decision relied upon has no bearing due to Clause 11 of the prospectus and, additionally, the extraction of Clause 11 in that judgment is said to be incorrect; therefore the respondent's rejection was justified and not arbitrary.
The proposer, having shifted some policies elsewhere, should have taken the aged parents along to the new insurer if that was intended; this conduct is relevant to the respondent's underwriting decision.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
United India Insurance Company Ltd. and another v. Mohanlal Aggarwal, AIR 2004 Gujarat 191	The distinction between types of "renewal" (automatic extension by contractual right on payment of premium versus creation of a new contract by mutual agreement); and the proposition that where there is a standing offer, payment of renewal fee may lead to automatic acceptance and continuance of cover.	The Court relied upon paragraph 34.4 to support the view that renewals can operate as extensions where payment of premium gives effect to the standing offer; and paragraph 24 was cited for the proposition that a standing offer may produce automatic acceptance on payment of the renewal fee. The Court treated the Gujarat High Court's exposition as supportive of granting renewal here.

Court's Reasoning and Analysis

The Court examined the relevant policy provisions and the factual matrix presented by the parties. Its analysis proceeded in these principal steps:

The Court considered Clause 5.9 of the Mediclaim Insurance Policy. It observed that Clause 5.9 recognizes that "The policy may be renewed by mutual consent" but also provides that the company "shall not however be bound to give notice that it is due for renewal" and that the company may cancel by giving notice and refund a pro-rata premium. The Court quoted the operative portion of Clause 5.9 to show that a standing offer for renewal is retained by the insurer, subject to payment of the renewal premium.
The Court examined Clause 11 of the prospectus, which stated that continuation of cover will be available if the renewal premium is paid in time and outlined specific benefits that accrue on timely renewal; it also allowed a further period of seven days in exceptional cases with a health certificate. The Court treated Clause 11 as reinforcing that renewal is available on timely payment and that benefits accrue from the first day after renewal.
The Court considered the combined effect of Clauses 5.9 and 11: it concluded that the conditions for rejecting a policy initially are the same as those governing renewal, and that if a policy was acceptable originally and there are no extraneous circumstances warranting rejection, the insurer cannot refuse renewal arbitrarily where there is a clause permitting renewal.
The Court treated the Gujarat High Court decision in United India v. Mohanlal Aggarwal as directly relevant. It quoted paragraph 34.4 to explain the legal distinction between types of renewal (automatic extension versus new contract) and relied on paragraph 24 regarding the effect of a standing offer where payment of renewal fee produces automatic acceptance by the insurer.
Turning to the respondent's factual justification for refusal — that the proposer had insured some members with a different insurer while retaining the aged parents with the respondent — the Court found that this reason did not amount to a legally sufficient ground to refuse renewal. The Court noted the nationalised status of the respondent and emphasized that such an insurer must act with fairness and in accordance with the object of the policy and the welfare of the insured.
The Court expressly rejected the respondent's submissions that Clause 11 had been improperly quoted in the Gujarat judgment (noting only a comma difference) and found no merit in the respondent's contention that retaining the aged parents would be detrimental to its interests so as to justify refusal.
Consequently, the Court concluded that the order dated 01.03.2007 was an arbitrary exercise of discretion, that there were no negative facts justifying rejection, and that the respondent's letter of 01.03.2007 deserved to be quashed.

Holding and Implications

Holding: The Writ Petition is allowed. The Court set aside and quashed the respondent's order dated 01.03.2007 and directed the respondent to issue the renewal of the policy, considering that the renewal fee had been remitted in time under the policy terms.

Implications and direct effects:

The immediate consequence is that the respondent must accept the renewal and issue the renewed Mediclaim policy for the stated period (as the renewal premium was paid in accordance with the policy terms).
The Court found the respondent's refusal to be arbitrary and therefore invalid in the circumstances; the decision returns the parties to the position where the renewal must be granted.
The Court ordered no costs and closed the connected miscellaneous petitions (M.P.s).
The opinion does not purport to lay down a novel binding precedent beyond applying the existing policy clauses and the cited Gujarat High Court authority; it resolves the dispute on the facts and the law as applied to those facts.

End of summary based exclusively on the text of the provided opinion.

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Mulji Virji Thakkar 2. Smt. Radha Ben Mulji Thakker 3. Nayan Mulji Thakker Petitioners v. The Divisional Manager, New India Assurance Company Ltd. Rekha Towers, Kamarajar Salai, Madurai 625 009.

This Writ Petition is for a Writ of Certiorarified Mandamus to call for the records relating to the impugned order of the respondent dated 1.3.2007, to quash the same and to consequently direct the respondent to renew the Hospitalisation and Domiciliary Hospitalisation Benefit Policy (Individual Mediclaim Policy) No. 720300/48/05/76191 dated 24.02.2006 from 00.00 hours on 25.02.2007 to midnight of 24.02.2008

2. The third petitioner herein is the son of petitioners-1 and 2. The third petitioner is the proposer in the Hospitalisation and Domiciliary Hospitalisation Benefit Policy (Individual Mediclaim Policy) issued by the respondent herein. The third petitioner had renewed his policy periodically without any break right from 2003 to 2006. The said policy expired on 23.02.2007 The third petitioner sent a cheque in the name of the respondent seeking the renewal of the policy by payment loading 40% more than the previous year on account of the claim factor as well as the age of the parents. The said cover containing the cheque for renewal premium was returned back on 23.02.2007 Thereafter, the third petitioner once again presented the same on 24.02.2007 to the respondent through its Divisional Manager by registered post within the permissible grace period. The respondent, however, replied by letter dated 23.02.2007 that the third petitioner had been advised to make alternative arrangements for renewal of Mediclaim Policy. On 01.03.2007, a reply was sent by the respondent enclosing the cheque therein that the third petitioner had made a harsh selection against the respondent by preferring to insure the petitioners-1 and 2 who are the aged parents, with the respondent company and insuring the less age group family members and the staff with another insurer. Under the circumstances, the respondent has expressed its inability to accept the remittance and returned the same to the third petitioner. The third petitioner challenges the letter of the respondent dated 01.03.2007 contending that the respondent's action is arbitrary and totally against the scheme of the policy. The third petitioner states that the attitude on the part of the respondent in the matter of refusing to insure the aged parents is arbitrary and is totally discriminatory.

3. Learned counsel appearing for the petitioners submitted that the respondent being a Nationalised Insurance Company under Article 12 of the Constitution of India, ought to have acted in a responsible manner in accepting this renewal. Learned counsel further submitted that there is total lack of fairness and reasonableness in dealing with this matter of acceptance of renewal and the respondent cannot insist on the continuance of policy as regards the other family members. Learned counsel further submitted that the mere fact that they are having their insurance done with some other company cannot be a ground for the respondent refusing to accept the renewal giving 40% additional loading of premium.

4. In support of his contention, learned counsel pointed out that as per Clause 5.9 of the Mediclaim Insurance Policy, the respondent company is bound to accept the renewal for the simple reason that Clause 5.9 states that the respondent company is not bound to give notice when the policy is due for renewal. By this, there is a standing offer by the respondent company. The moment the insurer remits the premium, there is an automatic acceptance disclosed. In the circumstances, unless there is a specific reason as in the case of the original grant of the policy, the respondent company is bound to grant the renewal.

5. In support of his argument, learned counsel for the petitioners placed reliance on the decision in the case of United India Insurance Company Ltd. and another v. Mohanlal Aggarwal reported in AIR 2004 Gujarat 191. In particular, he placed emphasis on paragraph 34.4 as well as the scheme of the policy laying stress on the status of the Insurance Company. Learned counsel pointed out that there is total arbitrariness in its refusal of the renewal plea made by the petitioner herein.

6. Learned counsel appearing for the Insurance Company submitted that a renewal, even going by Clause 5.9, is only on mutual acceptance of the terms and that Clause 5.9, by itself, cannot be a ground for the respondent. Apart from that, learned counsel for the respondent pointed out that the third petitioner has to state the reasons in choosing to retain petitioners-1 and 2, who are aged members with the respondent Insurance Company and insuring the less age group of other family members and staff with another insurer. Under the circumstances, considering the nature of business carried on, the conditions of policy necessarily have to be read in for the purpose of finding out whether the renewal could be treated as an automatic one or rest on mutual consent by both the parties. In this connection, learned counsel pointed out that the decision of the Gujarat High Court has no bearing on the present case in view of Clause 11 of the prospectus. Considering the fact that the refusal is subject to the renewal of the policy and so long as there is no arbitrary exercise, given the reasons for rejection, the order passed by the respondent may not be faulted with. Learned counsel further submitted that the third petitioner has chosen to shift his policy with somebody else except his parents, it stands to reason that he should have taken these persons too along with the other policies also. There was no reason at all for going out from the respondent company, especially when the aged parents alone have been retained with the respondent company. He submitted that the conditions for renewal cannot be different in its terms from the one for original policies in terms of Clause 11 of the prospectus. Under the circumstances, the decision of the Gujarat High Court cannot be fairly placed for reliance. Quite apart from this, learned counsel pointed out that Clause 11 extracted in the judgment of the Gujarat High Court is not correctly extracted as given in the prospectus available. Considering the same, the learned counsel pleaded that the acceptance of the order impugned is correct and justified in the circumstances of the case.

7. At the outset, it may be noted that even as per Clause 5.9 of the Mediclaim Insurance Policy, the respondent has retained the standmg offer for renewal only subject to the insurer paying the renewal fee. A perusal of Clause 5.9 shows that the insured may, at any time, cancel this policy, and in such event, the company shall allow refund of premium at the company's short period. The relevant portion of 5.9 reads as follows: —

“5.9 The policy may be renewed by mutual consent. The company shall not however be bound to give notice that it is due for renewal and the company may at any time cancel this policy by sending the insured 30 days notice by registered letter at the insureds last known address and in such event the company shall refund to the insured a pro-rate premium for unexpired period of insurance. The company shall however, remain liable for any claim which arose prior to the date of cancellation. The insured may at any time cancel this policy and in such event the company shall allow refund of premium at company's short period rate only (table given here below) provided no claim has occurred upto the date of cancellation.

Period on risk Rate of premium to be charged upto one month 1/4 of the annual rate upto three months 1/2 of the annual rate upto six months 3/4 of the annual rate Exceeding six months Full annual rate

8. As regards the renewal of policy, Clause 11 of the prospectus reads as follows: —

“This insurance policy is issued for a period of one year and subject to review, continuation of insurance cover will be available if the renewal premium is paid in time. On continuation of insurance cover and timely remittance of premium insured becomes eligible for the following benefits from first day after renewal.

a) Cumulative bonus if accrued (Ref item 9)

b) Cost of health check-up if due (Ref item 10)

c) Payment of hospitalisation cost for diseases/illness/injury sustained even during first 30 days of renewal (Refer Exclusion 4.2 and 4.3)

Renewal of insurance cover: A further period of 7 days from the date of expiry will be permissible in exceptional cases subject to health Certificate from Medical Practitioner.

(N.B: Any diseases contracted during the period of 7 days extension will be excluded from the date of renewal in addition to other diseases excluded in the expiring policy, whereas other benefits mentioned above in item 11 (a) (b) (c) will be permissible.”

The cumulative effect of these conditions is that the conditions which prevail for rejection of a policy is the same as the one for renewal. If the policy sought for the first time is acceptable, in absence of any other extraneous circumstances (it stands to reason that with a clause for renewal) the insurance company cannot refuse the same on any other ground.

9. Touching on the clause 11 and clause 5.9 in the policy, the Gujarat High Court, in the case of United India Insurance Company Ltd. and another v. Mohanlal Aggarwal reported in AIR 2004 Gujarat 191, in paragraph 34.4, held as follows: —

“34.4 In the contract of insurance, the term “renewal” is used to denote both extension of the original period of cover by the exercise of a right given to the insured by the contract to extend the period of cover without the assent of the other, and the making of a new contract through the agreement of both. It is important to distinguish the two types of renewal, since only in the former case, will vitiating elements in the original contract, such as, failure to make full disclosure affect the extension, and conversely only in the later case will a duty arise to make full disclosure, at the time of renewal. Where the insurance (e.g life insurance) gives the assured the right to renew automatically on the payment of a further premium at the end of the first period, such renewal does not constitute a new contract”

10. Touching on Clause 5(1) of the prospectus, in paragraph 24 of its judgment, the Gujarat High Court held that when there is a standing offer from the Insurance Company, the moment the renewal fee is paid, there is an automatic acceptance from the insurer to offer the service and the continuance of the policy will be available to the insured. Learned counsel, however, submitted that given the competition in this field and the concept governing the issuance of the policy, the offer read in the policy cannot be taken as an offer without any reservation.

11. I do not find any justification in the submissions made by the learned counsel for the respondent. As to the claim that Clause 11 has not been properly extracted, except for the ‘comma’ there is no serious difference in the extracted portion in Clause 11 of the Judgment of the Gujarat High Court. In any event, that does not call for any different view in this matter.

12. It may be noted that given the status of a nationalised Insurance Company, it goes without saying that it should act with fairness, keeping in mind the very object of this policy and the welfare of the insurer. In the above circumstances, the contention put forth by the respondent to reject the renewal on the ground that retaining the aged parents of the third petitioner with the respondent company would be detrimental to the interest of the respondent herein, does not carry any merit for acceptance.

13. The order dated 01.03.2007 is nothing but an arbitrary exercise of its discretion and hence, deserves to be quashed. Except for the reasons as stated above, there are no negative facts for the Insurance company to reject the request of the petitioner.

14. The attitude of the respondent company in rejecting the plea only on the sole ground that the third petitioner had shifted some of his policies with somebody else would certainly amount to arbitrary exercise of its statutory applications rested with the respondent. When the conditions available for rejection are not there, the letter dated 01.03.2007 merits to be set aside by this Court. In the circumstances, I have no hesitation in setting aside the order dated 01.03.2007 Consequently, the Writ Petition is allowed with a direction to the respondent herein to issue the renewal of the policy, considering the fact that the renewal fee had been remitted well in time in accordance with the policy terms. With the above direction, the Writ Petition is allowed. There will, however, be no order as to costs. Consequently, connected M.Ps are closed.

VCJ/VCS

Mulji Virji Thakkar ... v. The Divisional Manag...