Legal Provisions Relating to Health Insurance in India

Health Insurance:-

Health insurance can be defined in a very narrow sense where an individual or group buys health insurance in advance by paying a fee called a “premium”. But it can also be defined more broadly to include any financial arrangement where consumers can avoid or reduce their expenses when using services. The existing health insurance in India covers a very wide spectrum of arrangements, so the latter – a broader interpretation of health insurance is more appropriate.[1].

Principles of Insurance Law

• Good Faith

A contract of insurance is a contract uberrimea fidei i.e. a contract of utmost good faith. This is a fundamental principle of insurance law. Both the parties t o the contract are required to observe utmost good faith and should disclose every material fact known to them. There is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of utmost good faith[2]. The burden of proof to show non-disclosure or misrepresentation is on the insurance company[3] and the onus is a heavy one[4]. The duty of good faith is of a continuing nature in as much no material alteration can be made to the terms of the contract without the mutual consent of the parties[5]. Just as the assured has a duty to disclose all the material facts, the insurer is also under an obligation to do the same[6]. The insurer cannot subsequently demand additional premium[7] nor can he escape liability by contending that the situation does not warrant the insurance cover[8].

• Misrepresentation

Representations are statements, made by one part y to the other, either prior to or while entering into an insurance contract, of some matter or circumstances relating t o it and which is not an integral part of the contract[9]. These statements are said to have fulfilled their obligations when the final acceptance on the policy is conveyed[10]. A mere recital of representations made at the time of entering into the contact will not make then warranties[11]. However, if representations are made an integral part of the contract they become warranties, and, in case of their being untrue, the policy can be avoided, even if the loss does not arise from the fact concealed or misrepresented. A policy of life insurance cannot be called in question on the ground of misrepresentation after a period of two years from the commencement of the policy.  

• Warranties

 The statements must be true in fact without any qualification of judgment, opinion or belief[12].The warranty should be in the policy or must be incorporated by reference. If any of the statements or representations made by the assured in the proposal have been made the “basis” of the contract and they are found to be untrue, the contract of insurance would be void and unenforceable in law, irrespective of the question whether the statement, concerned is of a material nature or not[13].

• Condition

Conditions are terms which prescribe the limitations under which an insurance policy is granted and which specify the duties of the assured. They can be either conditions precedent or subsequent. Conditions precedents are those, which are essential for the creation of a valid contract[14], the non-satisfaction of which makes the contract void ab initio[15]. Conditions subsequent relate to the continuance of a valid contract, the non-fulfillment of which leads t o the avoidance of the contract from the date of the breach[16]

• Insurable Interest

To constitute insurable interest, it must be an interest such t hat the risk would by its proximate effect cause damage to the assured, that is to say, cause him to lose a benefit or incur a liability[17]. The validity of an insurance contract, in India, is dependent on t he existence of an insurable interest in the subject matter. The person

Types of Health Insurance[18]

There are mainly three types of Health Insurance covers:

• Individual Mediclaim : The simplest form of health insurance is the Individual Mediclaim policy. It covers the hospitalization expenses for an individual for up to the sum assured limit. The insurance premium is dependent on the sum assured value. Example : If you have 3 family members you can get an individual cover of Rs 2 lacs each . In this case each of you are covered for 2 lacs , if 3 members face a need for hospitalization , all 3 of them can get expenses recovered upto Rs 2 lacs . All the 3 policies are independent .
• Family Floater policy : Family Floater Policies are enhanced version of the mediclaim policy. The sum assured value floats among the family members. i.e each opted family member comes under the policy, and it covers expenses for the entire family up to the sum assured limit. The premium for family floater plans is typically less than that for separate insurance cover for each family member. Example : In this case if suppose there are 3 family members , you can take a Family floater policy for Rs 6 lacs in total . Now anyone can claim upto 6 lacs in expenses , but then the cover will go down by that much amount for that year . So if one of the family member is hospitalised and the expenses are 4.5 lacs . It will be paid and then the cover will be reduced to 1.5 lacs for that particular year . Next year again it will start from fresh 6 lacs. Family floater makes sense for a family because that way each one in family gets a big cover and probability of more than 1 getting hospitalized in same year is too low untill and unless whole family is travelling together most of the times in a year .

• Unit Linked Health Plans : Taking the ULIP route, health insurance companies too have introduced Unit Linked Health Plans. Such plans combine health insurance with investment and pay back an amount at the end of the insurance term. The returns of course are dependent on market performance. These plans are very new and still in development phase . This is only recomended for people  who can handle market linked products like ULIP and ULPP
• Health insurance for poor by NGOs[19]

With 70 per cent of population in India living in rural areas and 95 per cent of work-force working in unorganized sectors, and disproportionately large percentage of these populations living below poverty line, there is strong need to develop social security mechanisms for this segment of population. This need for security is further increased because the poor are the most vulnerable for ill health, accidents, death, desertion, social disruptions such as riots, loss of housing, job and other means of livelihood. There are some efforts in this direction of providing social security to the poor by a few NGOs.

The most prominent among them is that of Self-Employed Women’s Association (SEWA). The other scheme by government insurance companies developed to focus on poor is called Jan Arogya Bima Policy which was introduced in 1995 and covers expenditure up to Rs. 5000 for a premium of Rs. 70 per annum[20]. Seeking an insurance policy must establish some kind of interest in the life or property to be insured, in the absence of which, the insurance policy would amount to a wager and consequently void in nature[21].

The test for determining if there is an insurable interest is whether the insured will in case of damage to the life or property being insured, suffer pecuniary loss[22]. A person having a limited interest can also insure such interest[23]. Insurable interest varies depending on the nature of the insurance. The controversy as to the existence of an insurable interest between spouses was settled by the court, which held that such  an interest could exist as neither was likely to indulge in any ‘mischievous game’[24]. 

Renewal of policy:-

Renewal of policy refers to the continuance of insurance in force by the payment of a new premium. Generally, renewal is done under a provision for renewal contained in the contract of insurance, by payment of a new premium. Where there is no provision in the policy for its renewal, it is done by a new contract on the same terms as the old, but where the renewal is in pursuance of a provision to that effect, it is not a new contract but an extension of the old[25].

In the words of the supreme court as uttered in Biman Krishna Bose v.  United India Insurance Co. Ltd.[26]

“A renewal of an insurance policy means repetition of the original policy. When renewed, the policy is extended and the renewal policy in identical terms from a different date of its expiration comes into force. In common parlance, by renewal, the old policy is revived and it  is a sort of substitution of obligations under the old policy unless such policy provides otherwise. It may be that on renewal, a new contract cones into being, but the new contract is on the same terms and conditions as that of the original policy”.

Wrongful refusal to renew:-

If an insured lodge a claim with the company and the company does not honour the claim, the insured is left with no alternative but to know the doors of a court of law. Merely because the appellant had approached the Consumer Forum and the Supreme Court for redressal of his grievance, such an act cannot be attributed to him as a bad record sp as to disentitle him to get his policy renewed[27].

Even in an area of contractual relations to act with fariness and in doing talities are enjoied with the obligation to act with fariness and in doing so can take into consideration only relevant materials. They must not take any irrelevant and extraneous while arriving at a decision. Arbitrariness should not appear in their actions or decisions[28].

In the present case, arbitrariness is writ large in the actions of the respondent companies when it refused to renew the mediclaim policy of the insured on the ground of his past conduct i.e. having gone into litigation for payment of his claim against the respondent company[29].

Where the mediclaim policy of an insured is not renewed, any disease which an insured contracts during the period is not renewed cannot be covered under a fresh insurance policy in view of the exclusion clause which provides that pre-existing diseases would not be covered under a fresh insurance policy. So, if in the case of wrongful refusal to renew, the view is taken that the mediclaim policy cannot be renewed with retrospective effect, it would give a handle to the insurance company to refuse the renewal of the policy on extraneous or irrelevant considerations thereby deprive the claim of the insured for treatment of disease which have appeared during the relevant time and further deprive the insured for all time to come to cover those disease under an insurance policy by virtue of the exclusion clause. This being the disastrous effect of wrongful refusal of renewal of an insurance policy, the mischief and harm done to the insured must be remedied. Therefore once it is found that the act of an insurance company was arbitrary in refusing to renew the policy, the policy is required to be renewed with effect from the date when it fell due for its renewal[30].

The high court committed error in directing the appellant to take a fresh mediclaim policy even after setting aside the order of refusal to renew the mediclaim policy by the insurance company. The order passed by the high court to that extent is not sustainable in law and that portion is therefore set aside.

There was delay in renewal of policy. The insurer, therefore, refused to renew the policy on existing terms and conditions. The delay was due to the Development Officer in not collecting premium. There was no new disease. The court said that the insured was entitled to have the policy renewed on the same term and conditions[31]. A writ petition was filed against this decision before a Division Bench and this decision was reversed. It was held that there was no obligation on the insurer to renew a policy on the original terms even if the insured applied for renewal after expiry of the period policy. If the view taken by the single Judge was taken to be correct, it would mean that that even if a party approached for renewal after 10 years of the expiry of the original policy, the insurer would be bound to renew on original terms[32].

Refusal was not allowed to be made on the ground that the insured contracted o disease during period of the original policy. Renewal has to be made without excluding any disease already covered under the existing policy and which might have been contracted during the period of the policy. The insured was forced and pressurized to consent to the exclusion of cover for cardiac ailments. The consent being not free, the insured was not bound by the term[33].

Conclusion

In India has limited experience of health insurance. Given that government has liberalized the insurance industry, health insurance is going to develop rapidly in future. The challenge is to see that it benefits the poor and the weak in terms of better coverage and health services at lower costs without the negative aspects of cost increase and over use of procedures and technology in provision of health care. The experience from other places suggest that if health insurance is left to the private market it will only cover those which have substantial ability to pay leaving out the poor and making them more vulnerable.

Hence India should proactively make efforts to develop Social Health Insurance patterned after the German model where there is universal coverage, equal access to all and cost controlling measures such as prospective per capita payment to providers. Given that India does not have large organized sector employment the only option for such social health insurance is to develop it through co-operatives, associations and unions.

The existing health insurance programmes such as ESIS and Mediclaim also need substantial reforms to make them more efficient and socially useful. Government should catalyze and guide development of such social health insurance in India. Researchers and donors should support such development.

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[1]   http://www.iimahd.ernet.in/~dileep/PDF%20Files/Insurance.pdf

[2]   General Assurance Society Ltd. v. Chandumull Jain AIR 1966 SC 1644.

[3]   Life Insurance Corporation of India v. Smt. G.M.Channabasamma (1991) 1 SCC 357.

[4]   Life Insurance Corporation of India v. Parvathavardhini Ammal AIR 1965 Mad 357.

[5]   United India Insurance co. Ltd v. M.K.J Corpn. (1996) 6 SCC 428.

[6]   Section 21(a) of the Indian Marine Insurance Act, 1906.

[7]   Hanil Era Textiles Ltd. v. Oriental Insurance Co. Ltd. (2001) 1 SCC 269.

[8]   United India Insurance Co ltd. v. M.K.J. Corporation (1996) 6 SCC 428.

[9]    Behn v. Burness, (1863) 3 B&S 751.

[10]   Pawson v. Watson, (1778) 98 ER 1361.

[11]   Wheelton v. Haristy, (1857) 8 E and B 232.

[12]   New Castle Fire Insurance Company v. Mac Morram and Co., (1815) 3 ER 1057.

[13]   Balkrishna v. New Indian Assurance Company, AIR 1959 Pat 102.

[14]   Barnard v. Faber, (1983) 1 Q.B. 340.

[15]   Svenska Handelsbanken vs. M/s. Indian Charge Chrome and others, 1993 SC.

[16]   Glen v. Lewis (1853) 8 Exch. 607

[17]   Seagrave v Union Insurance Co. Ltd., (1886) LR 1 CP 305.

[18]   http://www.jagoinvestor.com/2010/01/introduction-to-health-insurance-in-india.html

[19]   Reeta Dhingra “NGOs AND HEALTH INSURANCE SCHEMES IN INDIA”

[20]   DAVE P. (1993): Community and Self-Financing in Voluntary Health Programmes in India; Health Policy and  

    Planning, 6(1).

[21]   Anctil v. Manufacturer’s Life Insurance Company, (1899) AC 604 (PC).

[22]   New India Insurance Company Ltd. v. G.N. Sainani, (1997) 6 SCC 383.

[23]   Tomlison (Haullers) Ltd. V Hoplurane, 1966 (1) AC. 418.

[24]   Griffith v. Fleming, (1909) 1 K.B. 805.

[25]   http://definitions.uslegal.com/r/renewal-of-policy/

[26]   (2001) 6 SCC 477

[27]   Biman Krishna Bose v.  United India Insurance Co. Ltd (2001) 6 SCC 477

[28]   Ibid.

[29]  Ibid.

[30]  Ibid, Para 5

[31]   Talvinder Choudhary v. Union of India, (2005) 127 Comp Cas 239 (De)

[32]   Oriental Insurance Co. Ltd. V. Talwinder Choudhary, (2006) 126 DLT 269

[33]   Ashok Kumar Paul v. New India Assurance Co. Ltd. AIR 2007 Del. 136