This is case of Jacob Punen & Anr. vs United India Insurance Co. Ltd. (Civil Appeal 6778 of 2013) regarding renewal of terms of insurance policy. Proceeding on the basis of the principles enunciated a renewal of the contract would ordinarily, undoubtedly involve the expectation of replication of the terms of the original contract and what is more, the actual continuation of the terms. The terms of the renewed contract of insurance may be located in the actual contract of insurance. A renewed contract of insurance may provide terms, which are different from the terms of the original contract of insurance.
The Insurer brought about a change in the policy. This 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. Even proceeding on the basis that the policy incorporates the terms of the contract, insofar as the respondent insurer unilaterally purported to incorporate a clearly cumbersome limitation involving a breach of the duty to take the appellants into confidence, the court would not be powerless to undo the wrong. Be it that the policy purported to incorporate the substantive limitation, the appellant can be relieved of the result of the deficiency in service by the insured. This can be done by restoring the position, the appellants would occupy if there was no breach. I would, therefore, agree with my learned Brother that the appeal be allowed on the basis that there was unjustifiable non-disclosure by the Insurer about the introduction of clause of limitation and, in this case, it constituted a deficiency in service and resultantly the appellants are entitled to relief.
The insurer obtained the policy in question for the year 2008, however, wherein the son was not included and there was also change in the amount of the insurance. The period of insurance was operative from 28.03.2008 to 27.03.2009. It is while this policy was in force that the second appellant went for angioplasty in June 2008 and a claim for Rs.3,82,705.27 was submitted. The insurer paid a sum of Rupees Two Lakhs only. The reduction in the claim was based on the express provisions which was in force in the policy in issue. Under the earlier policy for previous year such a clause was conspicuous by its absence. The law in India is that unless the unilateral mistake about the terms of a contract is so serious as to adversely undermine the entire bargain, it does not result in automatic avoidance of a contract.
Applied to the facts of this case, it is evident that the appellants could insist on the old insurance policy, on the premise that it renewed the pre-existing policy. The other conclusion would be cold comfort to the party seeking insurance cover, as the choice would be to avoid it altogether- too drastic as to constitute a choice.
What are the duties of an insurer, when a policy holder seeks renewal of an existing policy. The insurer here contends that the consumer was under an obligation to inquire about the terms of the policy, and any changes that might have been introduced, in the standard terms. It was urged that the appellants, in the facts of this case, should have inquired from the concerned agent; since they omitted to do so, they were bound by the terms of the policy. A striking feature of insurance law, is the principle of uberrima fide (duty of utmost good faith) which applies to both the insured as well as one who seeks indemnity and cover. In United India Insurance Co. Ltd. v. M.K.J. Corpn.11 this court underlined the importance of this principle, and its application to the insurer.
Other decisions too have expressed the same view.12 In Modern Insulators Ltd. v Oriental Insurance Co. Ltd13 this court observed that: “It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from non-disclosure of the facts which the parties know.
In view of the state of law, which is, that the insurer was under a duty to disclose any alteration in the terms of the contract of insurance, at the formation stage (or as in this case, at the stage of renewal), the respondent cannot be heard to now say that the insured were under an obligation to satisfy themselves, if a new term had been introduced. If one considers the facts of this case, it is evident that the insurer had caused a renewal reminder, which was acted upon and the renewal cheque, issued by the appellant. At that stage, or just before the renewal premium was furnished the insurer, or its agent was under a duty to alert the appellants that the change in terms, was likely to impact their decision, and if so required, offer a better or fuller coverage. One cannot be oblivious to two circumstances here.
There is no doubt that insurance business is run through brokers and agents. The role of an agent in this regard is to be examined. This Court has spelt out, in the context of insurance business the role of insurance agents and the liability or responsibility of insurance companies in the event of failure to discharge the duties cast upon agents, and the likely vicarious responsibility or liability of the insurer.
