Insurance coverage not changeable mid-way: High Court

Providing a major relief to the insured and holding against the insurance companies, the Andhra Pradesh High Court in a recently reported decision [T. Suresh v. Oriental Insurance Co. Ltd., AIR 2010 AP 86] has declared that once a policy has been taken by a person and continuously renewed without lapse, then the terms and coverage of the policy cannot be changed mid-way to the prejudice of the policy holder. The High Court was dealing with a challenge to the denial of insurance claim by the policy holder wherein the insurance company denied the liability on the ground that the coverage of the policy has been changed.

The High Court, dismissing the contention of the coverage being allowed to the changed mid-way, declared the law in the following terms;

6. The petitioner took out the Medi-Claim Policy, way back in the year 2002. It is rather unfortunate that a disease, which had a severe impact on the individual for the rest of his life, has occurred to the petitioner. Expenditure had to be incurred, not only for conducting operation to the kidneys, but also for the Dialysis, which is almost a routine. The existence of policy for the petitioner provided financial relief, though his suffering remain. The respondents discharged their obligation under the policy by reimbursing the cost incurred by the petitioner towards treatment, be it for Dialysis or medicines. It is only for the year 2008, that they refused to honour the claim of the petitioner on the ground that it was excluded from the list, with effect from the year 2008.

7. It is no doubt true that the duration of the coverage under the policy is one year. Clause 2.18 of the policy makes this very clear. However, Clause 3 of the policy, dealing with the renewal, confers a right on the policyholder to seek renewal on payment of the premium. The clause reads as under. 

3. Renewal of Policy:
Company shall not be responsible or liable for non-renewal of policy due to non-receipt or delayed receipt (i.e. After the due date) of the proposal form or of the medical practitioners report wherever required or due to any other reason whatsoever. Standing this, however, the decision to accept or reject for coverage any person upon renewal of this insurance shall rest solely with the Company. The company may as its discretion revise the premium rates and/or the terms & conditions of the policy every year upon renewal thereof. Renewal of this policy is not automatic; premium due must be paid by the proposer to the company before the due date. Company normally sends renewal notice, but not sending it will not tantamount to deficiency in service.

8. The very first sentence gives an indication that in case the premium is paid without delay, renewal becomes a matter of course. It is not alleged that the petitioner delayed the payment of premium at any point of time. Once the policy was taken and it is being renewed from time to time, it virtually becomes a continuous phenomenon, and any changes as to the coverage that takes place in between, would not apply to the policyholder. The change, as regards coverage may apply to those persons who take out a policy for the first time or where, their existing policy is elapsed and a necessity has arisen to take out a fresh policy, after it.

9. A Division Bench of High Court of Gujarat dealt with similar terms, as to renewal of policy was taken into account. It was held that the intermittent changes, as to coverage, do not apply, if the renewal of the policy is without any break. The conclusions of the Bench were summed up in Para 38 and they read as under.

The insured has an option under the existing mediclaim insurance policy to continue the cover by payment of renewal premium in time in respect of the sum insured In case of renewal without break in the period, the mediclaim insurance policy will be renewed without excluding any disease already covered under the existing policy which may have been contracted during the period of the expiring policy. Renewal of mediclaim insurance policy cannot be refused on the ground that the insured had contracted disease during the period of the expiring policy so far as the basic sum insured under the existing policy is concerned.

Have a look at the decision.