Failure of insurer to inform policy holders about changes in policy terms is deficiency in service: Supreme Court

The Supreme Court has held that an insurer is clearly under a duty to inform policy holders about changes in terms of policy during renewal, and failure to do so would amount to deficiency in service under the Consumer Protection Act, 1986 [Jacob Punnen vs United India Insurance]..A Bench of Justices S Ravindra Bhat and KM Joseph also held that the principle of uberrima fides i.e utmost good faith applies to insurance contracts, and prior intimation of changes to the policy terms is part of the same.Hence, failure to keep the policy holder informed about changes will amount to deficiency of service under Section 2(g) of the Consumer Protection Act, the Court held."The Consumer Protection Act, 1986 states the definition of ‘deficiency’ in service under Section 2(g) as “[A]ny fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service”. In order to demonstrate deficiency, it is not necessary that the same emanates only from a law or a contract. The term “or otherwise” clearly provides for circumstances where a certain level of service is expected from a provider," the judgment said.In the present case, the Court ruled against United India Insurance holding that since "mediclaim holders were kept in the dark, and asked to renew a policy, the terms of which had undergone a significant change in that its cover was radically different, and imposed limitations on the insurer’s liability.".The top court was dealing with an appeal against the judgment of the National Consumer Disputes Redressal Commission (NCDRC), which had ruled in favour of the insurance company.The appellant before the top court had renewed his policy upon reminder, but when an amount was claimed for angioplasty, only partial amount was refunded. The appellant had raised a claim of ₹3.82 lakh but only ₹2 lakh was paid. The insurance company's contention was that that the terms and conditions of mediclaim policy changed periodically and the policy for the relevant year indicated that in respect of procedures such as angioplasty, 70 percent of the policy limit could be claimed subject to an overall limit of 2,00,000 for any one surgery.Though the District Consumer Disputes Redressal Forum ruled in favour of appellant, the NCDRC set it aside leading to the present appeal before the Supreme Court..The Supreme Court while setting aside the NCDRC verdict, stated that the IRDA (Health Insurance) Regulations of 2016 underline an insurer’s obligation to inform every policy-holder about any important changes that would affect her or his choice of product. "These have been given statutory shape. Yet, the obligation of the insurer to provide information to existing and policy holders, for them to exercise choice, meaningfully, and choose products suited to their needs, existed. In this case, that obligation was breached," the judgment by Justice Ravindra Bhat said..Justice Bhat ruled that the insurer was clearly under a duty to inform the appellant policy-holders about the limitations which it was imposing in the policy renewed for 2008-2009 and will failure to do so will amount to deficiency in service."Its failure to inform the policy holders resulted in deficiency of service," the judgment said..Justice Bhat also stated that medical or health insurance covers become crucial with advancing age, and thus the policy-holder is more likely to need cover."Therefore, if there are freshly introduced limitations of liability, the insured may, if advised properly, and in a position to afford it, seek greater coverage, or seek a different kind of policy," the Court opined..Justice KM Joseph in his separate concurring judgment, stated that the insurer brought about a change in the policy and the change introduced a cumbersome limitation. "It kept the Insured in the dark about the limitation at the time when the renewal notice was issued, and what is more, the premium was accepted. The Insurer had a duty to inform the appellants that a change regarding the limitation on its liability was being introduced. This duty to take the insured into confidence was breached. This was the deficiency in service," he held.Advocate Arundhati Katju appeared for the appellant..[Read Judgment]