Supreme Court Clarifies “Pre-Existing Condition” in Overseas Mediclaim Policy: Manmohan Nanda vs. United India Assurance Co. Ltd. (2021)

Date of the Judgment: 6th December 2021

Citation: (2021) INSC 745

Judges: Dr Dhananjaya Y Chandrachud, J. and B.V. Nagarathna, J.

Can an insurance company reject a claim by citing a ‘pre-existing condition’ when the insured was unaware of the condition’s severity? The Supreme Court of India addressed this question in a recent case concerning an overseas mediclaim policy. The core issue was whether the insurer could deny coverage for a heart condition that manifested shortly after the insured’s arrival in the USA, arguing it was a pre-existing condition. The Supreme Court bench comprising of Dr. Dhananjaya Y Chandrachud, J. and B.V. Nagarathna, J., delivered the judgment.

Case Background

The appellant, Manmohan Nanda, sought an overseas mediclaim policy from United India Assurance Co. Ltd. as he was traveling to the USA to attend his sister-in-law’s daughter’s wedding. Prior to the policy issuance, he underwent a medical examination where it was noted that he had diabetes mellitus type II. However, his electrocardiogram (ECG) was normal, and no other adverse conditions were found. The insurance company issued the policy valid from May 19, 2009, to June 1, 2009, later extended to June 21, 2009. On May 19, 2009, shortly after arriving at San Francisco airport, the appellant felt weak and was admitted to a medical center where he underwent angioplasty and had three stents inserted.

The appellant’s son-in-law contacted the insurance company’s foreign collaborator, M/s Corris International, to initiate the claim process. After receiving treatment, the appellant received bills from the medical centers. On August 19, 2009, he submitted all original bills and discharge summaries to the insurance company. However, on August 22, 2009, the insurance company rejected his claim, stating that he had a history of hyperlipidaemia and diabetes, which were pre-existing conditions not covered under the policy. The appellant contested this rejection, but the insurance company reiterated its stance on April 9, 2010.

Aggrieved, the appellant filed a complaint under Section 21(9) of the Consumer Protection Act, 1986 before the National Consumer Disputes Redressal Commission. The insurance company defended its decision, stating that the appellant had not disclosed his pre-existing conditions, particularly the use of statins, a lipid-lowering medication. The Commission dismissed the complaint, stating that there was non-disclosure of material facts. This led to the appeal before the Supreme Court.

Timeline:

Legal Framework

The case revolves around the interpretation of “pre-existing conditions” in insurance policies and the principle of uberrima fides (utmost good faith) in insurance contracts. The Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002, defines “material” information as all important, essential, and relevant information in the context of underwriting the risk. The judgment also refers to the principle of contra proferentem, which states that any ambiguity in the policy must be interpreted in favor of the insured.

Arguments

Appellant’s Submissions:

• The appellant argued that the repudiation of the claim was erroneous as he had no knowledge of hyperlipidaemia at the time of taking the policy. He contended that the obligation to disclose a fact extends only to what is known to the insured.
• The proposal form was vague and did not specifically ask about hyperlipidaemia. The terms “pre-existing disease,” “pre-existing ailment,” and “pre-existing condition” were not defined in the policy.
• The appellant relied on Satwant Kaur Sandhu v. New India Assurance Co. (2009) 8 SCC 316, arguing that the proposal form should be completed to the best of the insured’s knowledge and belief.
• The appellant stated that he had disclosed his diabetes and that the tests done showed good results. He also argued that the heart attack was not caused by diabetes or hyperlipidaemia and that the discharge summary indicated he had no prior coronary history.
• The appellant argued that the insurance company failed to prove that the heart attack was caused by diabetes or hyperlipidaemia, or that hyperlipidaemia was a pre-existing condition known to him.
• The appellant emphasized that the insurance policy should be given a purposive interpretation in favor of the insured, citing Canara Bank v. United India Insurance Co. (2020) 3 SCC 455.
• The appellant argued that exemption clauses in insurance contracts should be construed contra proferentem, in favor of the insured, citing Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. (2021) 7 SCC 151.

Respondent’s Submissions:

• The respondent contended that the appellant had misrepresented facts by not disclosing his history of hyperlipidaemia and the use of statins.
• The respondent argued that the appellant’s medical history was disclosed to doctors in the USA, proving that he was aware of his condition.
• The respondent stated that the policy excluded all claims arising from diseases existing at the commencement of risk, whether declared or not.
• The respondent argued that the non-disclosure of past medical history relating to a pre-existing condition was a valid reason to repudiate the policy.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the appellant had suppressed or not disclosed material facts in the proposal form which could have led the insurer to repudiate the policy in question?
2. Whether the Commission was justified in dismissing the complaint?
3. What Order?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered various authorities, including:

Judgment

How each authority was viewed by the Court?

• Satwant Kaur Sandhu v. New India Assurance Co. [CITATION]: The court distinguished this case, noting that in the present case, the appellant had disclosed his diabetes and the ECG was normal.
• Canara Bank v. United India Insurance Co. [CITATION]: The court applied the principle that if a column is left blank, the insurer must ask the insured to fill it, and cannot later claim misrepresentation.
• Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. [CITATION]: The court applied the principle that exemption clauses must be construed contra proferentem against the insurer.

What weighed in the mind of the Court?

The Supreme Court emphasized that the appellant had disclosed his diabetes and that the ECG report was normal. The court also noted that the prescription of statins was a precautionary measure, not an indication of a pre-existing heart condition. The court found that the insurance company was aware of the appellant’s health status and still issued the policy. The court also applied the contra proferentem rule, interpreting ambiguous clauses against the insurance company. The court was swayed by the fact that the appellant had not suppressed any material facts known to him and that the heart attack was not a direct result of his diabetes or hyperlipidaemia.

Logical Reasoning

Key Takeaways

• Insurance companies must clearly define “pre-existing conditions” in their policies.
• Insurers cannot reject claims based on vague or unspecified pre-existing conditions.
• The principle of contra proferentem applies, meaning ambiguities in policies are interpreted in favor of the insured.
• Insurers must conduct thorough assessments of medical reports before issuing policies.
• Policyholders are obligated to disclose all known material facts, but not conditions they are unaware of.

Directions

The Supreme Court directed the respondents to:

• Indemnify the appellant for medical expenses with 6% interest from the date of filing the claim petition.
• Use the exchange rate as it existed on the date of filing the claim petition or at Rs. 45 per USD, whichever is lesser.
• Pay Rs. 1,00,000 towards the cost of litigation.

Development of Law

This judgment clarifies the interpretation of “pre-existing conditions” in insurance policies, emphasizing that the insured’s knowledge of a condition is crucial. It reinforces the principle of contra proferentem in favor of the insured and underscores the importance of clear definitions in insurance contracts. The judgment also highlights that insurers cannot reject claims based on vague or unspecified pre-existing conditions, particularly when the insured has disclosed relevant information and the insurer has accepted the proposal.

Conclusion

The Supreme Court ruled in favor of the appellant, holding that the insurance company’s repudiation of the claim was illegal. The court emphasized that the appellant had disclosed his diabetes, and the ECG report was normal. The court also noted that the prescription of statins was a precautionary measure, not an indication of a pre-existing heart condition. The Supreme Court’s judgment underscores the importance of clarity in insurance policies and the need for insurers to act in good faith, ensuring that policyholders are not unfairly denied coverage.