State Insurance Regulator

Taking an insurance company to court should be used as a last resort as it can tie up a claim in court for many years and seriously delay receiving needed funds to replace a home or pay medical bills.

The first steps are to attempt to work directly with your insuranceagentor insurance firm provider in a calm, patient manner – documenting the entire process all the while. If they end up proving difficult to work with, utilizing the services of a state insurance regulator can help move the process forward.

It has seen from most of the cases that instead of taking due diligence or utmost care, rejection of claim still happen.

Few questions are resolved by this article like, options available for policyholder for claiming rejection etc.

Following are the procedure by which the policyholder may seek resolution
1. Approach IRDA, an Insurance Regulatory and Development Authority

2. An Approach to Insurance Ombudsmen under Rule 12 of Redress of Public Grievances 1998.
3. Approach to Alternative Dispute Resolution (ADR), under any specific policy.
4. An Approach to Consumer forum.
5. Approaching the commercial court under section 2(c)(xx) of the Commercial Court ,commercial division & Commercial Appellant Division Act.

IRDA, an Insurance Regulatory and Development Authority (Approach 1)
Before one intensify touch on IRDA, you ought to have:
1. Approached the grievance redressal cell of the underwriter or the Insurance Company. Provided all the supporting documents and brought acknowledgement of the criticism. You’ll be able to additionally drop e-mail to Grievance Redressal Cell of the insurance firm.
2. If the underwriter doesn’t respond and resolve the problem to your satisfaction among fifteen days from the date of criticism, you’ll be able to intensify to IRDA.

How does one step up the pertain IRDA?
You can approach the Grievance Redressal Cell of the patron Affairs Department of IRDA in either of following ways that.
# One Call Toll-Free range 155255 or 1800 4254 723[5]
# Send e-mail to complaints atirda.gov.in
# Register your criticism through Integrated Grievance Management System (IGMS).
# Send a letter or fax (040-6678 9768) to IRDA together with your criticism. One be able to notice the criticism kind and address here.

Insurance Ombudsmen under Rule 12 of Redress of Public Grievances 1998 (Approach 2)
Insurance Ombudsman has power under Section 12(1)(b) in the Redressal of Public Grievances Rules, 1998to act as a counsellor or mediator which are related to any partial or total repudiation of claims by an insurer.[7]

In addition to this, the person in authority shall give in writing about the settlement done between in the policyholder and the insurer.

This is to be noted that the decision made by the Insurance shall be binding and final on both the parties.

Whenever the policyholder wants to approach Insurance Ombudsman, he/she may approach without any layer too. You must approach the Insurance investigator beneath whose jurisdiction the branch or workplace of the underwriter falls.

Consumer forum or a court of law (Approach 3)
Once increase to IRDA or approaching Insurance investigator (in choose cases) one can take the fight to client forum or civil courts.

One can also approach the courts while not approaching IRDA or investigator. However, this is often seemingly to be a long method and not restricted by timelines as in 1st 2 ways.

In the case of Om Prakash v. Reliance General Imsurance[8]is has been held by the honourable supreme court that the insurance company cannot reject claims on Technical Grounds.

End-Notes
[2] http://www.policyholder.gov.in/RPG_Rules_concerning_Ombudsman_scheme.aspx
[3] If there is an arbitration clause.
[4] https://www.prsindia.org/uploads/media/Commercial%20courts/Commercial%20courts%20Act,%202015.pdf
[5] https://www.irdai.gov.in/Defaulthome.aspx?page=H1
[6] http://www.policyholder.gov.in/uploads/CEDocuments/complaintform.pdf
[7] Consumer Education Website, Address of Ombudsmen available athttp://www.policyholder.gov.in/Addresses_of_Ombudsmen.aspx
[8] MANU/SC/1259/2017

A Hybrid insurance product is basically a combination of two insurance products which may include few featured of financial instrument, however not necessarily accessing the capital market.

A variety of Hybrid products have been developed. Hybrid insurance plans have been primarily innovated by the insurance companies providing private long-term care insurance. This is one of the ongoing and quickly developing advancement in the insurance market. In light of the customers’ demands, the insurance business has made innovative combinations, or ‘hybrid’, and other wellbeing strategies.

These courses of action offer health advantages which are given by annuity or life coverage and any other long-term insurance plans. The historical background is mainly the continuing interest of government and policy-makers to increase such innovations especially in the long-term care insurance to reduce strain on the payment of such facilities in the long run.

This not only helps in curbing the spiraling cost of affording long term care insurance for the insured as well as reduces the risk factor, thus benefiting the profit motive insurers. Thus, it is more convenient for the insured because of variety of benefits offered by hybrid product than compared to a traditional insurance product. In addition to this hybrid insurance plans though enables economies of scale, the charge on premiums differ from person to person depending on the age and health conditions.

Nature of Long-Term Care Insurance:
The nature of such insurance is to cover for all the costs and expenses incurred for the services done to ensure well-being of the individual. It becomes more useful where an insured is suffering with a certain disability and need constant care. A certain class of financial loss due to such disability will be covered under such insurance.

This is different from a health insurance which is prevalent in India. The concept of long term care insurance (hereinafter referred to as LTC) is new to India because of its limited customers and high premium. However, the traditional long-term care insurance unlike reimbursing medical expenses for certain illness, it also covers the day to day care taken to ensure the health of the customer.

The introduction of long term care insurance has been long brought up by the IRDAI, which has recently started formulating guidelines for the long-term care insurance. This is because of the growth of health care in India and the new development based on the need for a now innovative policy in the insurance sector.

This is also different from the Term insurance as long-term care insurance primarily covers the expenses of basic needs of aging people. Ostensibly, these insurances may sound expensive, but they are feasible with the growth of nuclear family, increase in population of older people, and so on. Additionally, they also provide tax benefits.

Nature of Disability Insurance:
Disability insurance is basically that the insurer provides for financial benefits that maybe equal to the income the insured could have earned in the absence of disability. Usually it replaces the a portion of your lost income caused due to such disability. Disability insurance includes both short term disability benefits as well as long term disability benefits.

Additionally, disability insurance policy can be taken for permanent disability or temporary disability; full disability or partial disability, and depending on the degree of disability, shall the insurance company shall make payment. It ensures financial security to your lifestyle and family in case of any unfortunate circumstances.

This type of insurance is usually taken by the employer of an organization on behalf of the employees and in case of any misfortune, the insurance company shall pay monthly benefits for the lost period, however in this case this insurance taken by the employer is subject to taxes unlike a purchase of disability insurance by a non-employee. Disability insurance are importance as much as health insurance in India.

The growth and scope of disability insurances in private sector is very limited, exactly why the need for awareness of disability insurance as based on the recent report on the survey of disabilities in India.

Difference Between Disability And Long-Term Care Insurance:
Most of the time, these insurance policies overlap and misunderstood to be more or less the same. However, there are unique elements in each insurance that distinguishes one from the other. Ostensibly, both help in financial planning, nevertheless, have distinct characteristics.

Disability insurance is monthly benefits provided to the disabled and his family only for a specific time or until the retirement age, which is usually 65 years. While, having a long-term care insurance extends until the maturity or as long as such care and services is necessary for the insured.

Hybrid of Disability And Long-Term Care Insurance And Its Feasibility In India:
According to the World Bank, more than 40% of hospitalized people borrow money or sell assets to cover expenses and 35% fall below the poverty line. Disability protection and life coverage are ordinarily bought before in life than long- term care protection.

Thus, if hybrids of long term care protection with both of these two kinds of protection were showcased to people at ages when incapacity and life coverage are ordinarily advertised, these combinations could have a helpful impact of empowering the growth of such insurances.

In India, the recognition for hybrid insurance models began around the early months of 2015 and later on based on the report conferred by the Confederation of Indian Industries (CII) recommended the introduction of hybrid model as an implementation step towards universal health coverage.

Thus, the IRDA in 2016 introduced the IRDA (Health Insurance) Regulations 2016 which covered hybrid or combinations plans of health insurance with any life insurance plan, which is still practiced in India. However, what observe that the scope of hybrid insurance plans in India is only limited to life insurance. The development in such area is the need of the hour.

Even with the existence of disability insurance, the concept of long term care insurance is relatively new term, though they maybe a part of the health insurance per se. However, it is not always necessary that all health insurance plans are also long-term care insurance plans.

Conclusion:
It creates the impression that undeniable hybrids that significantly protect against the dangers secured by the both the protection plans are uncommon in the market. This may demonstrate that one potential interest of hybrid insurance of long-term care is that they enable the purchaser to buy one strategic plan that guarantees against two dangers, despite the fact that scope will be restricted for the existence of both the risks.

Rather, the protection gives the adaptability of paying out which is subjected upon which misfortune happens first and repayment for the same. The hybrid protection items may subsequently exhibit one approach to accomplish a fractional and second-best answer for the issue of numerous critical dangers. The few long- term care insurance hybrid with disability protection plan are deserving of further examination.

Such combinations can enable the purchaser to assess in a reasonable procedure, the potential needs to supplant income lost because of incapacity and in addition to pay for that might be required health care services and necessities because of the handicap, and may advice the insured to buy an insurance on the risk that has not been covered under the combined risk.

At the same time, it is better than getting separate insurance covers for varied misfortunes that may be the result of disability. Therefore, hybrid protection items will require a well aware customer with a specific end goal to settle on the money-related choice that is best for him or her. This type of insurance has been emerging aspect and since IRDA is gradually recognizing this insurance product, it can be inferred that the need is real, and the government must act swiftly for consumer protection.

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Hon’ble Justice Pratibha M Singh stated Can’t Exclude Genetic Disorders in Insurance Policy. High Court of Delhi on 26 February directed the Insurance Regulatory Development Authority of India to review the exclusion clauses in the insurance contracts.

So that medical claims were not rejected on the basis of exclusions relating to “genetic disorders” like cardiac conditions, high blood pressure and diabetes.

Stated that the availing of health insurance was an integral part of the ‘Right to Health and healthcare’ under the Constitution, Hon’ble Justice Pratibha M. Singh held that the clause in the insurance policy excluding a person with “genetic disorder” from availing its benefit was “discriminatory” and contrary to public policy.

The judge left it to lawmakers to take necessary steps in this regard, saying there was an urgent need for a proper framework against genetic discrimination.

“The Insurance Regulatory Development Authority of India is directed to re-look at the exclusionary clauses in insurance contracts and ensure that insurance companies do not reject medical claims on the basis of exclusions relating to genetic disorders,” the verdict stated.

The exclusion of genetic disorders in all forms would be contrary to public policy. Several of the prevalent medical conditions which affect a large mass of population, including cardiac conditions, high blood pressure, diabetes in all forms, could be classified as genetic disorders. High Court of Delhi

“The entire purpose of taking medical insurance would be defeated if all genetic disorders are excluded,” the High Court said in the judgement, holding that the law and norms of ‘genetic disorders’ in the insurance policies in India were “too broad, ambiguous and discriminatory” and hence violated the constitutional provisions.

It said the insurance companies were free to structure their contracts based on reasonable and intelligible factors which should not be arbitrary and in any case cannot be exclusionary.

Discrimination in Health Insurance Based on Genetics is Unconstitutional:
The judge said discrimination in health insurance against individuals based on their genetic disposition or genetic heritage, in the absence of appropriate genetic testing and laying down of intelligible differentia, was unconstitutional.

Hon’ble Justice Pratibha M. Singh stated: “The broad exclusion of genetic disorders is thus not merely a contractual issue between the insurance company and the insured but spills into the broader canvas of Right to Health. There appears to be an urgent need to frame a proper framework to prevent against genetic discrimination as also to protect collection, preservation and confidentiality of genetic data.

Insurance companies are free to structure their contracts based on reasonable and intelligible factors which should not be arbitrary and in any case cannot be exclusionary.

“Such contracts have to be based on empirical testing and data and cannot be simply on the basis of subjective or vague factors. It is for lawmakers to take the necessary steps in this regard, he said.

This verdict in Jai Prakash Tayal v/s United India Insurance Company Limited

the appellant Mr.Jai Prakash Tayal was suffering from Hypertrophic Obstructive Cardiomyopathy, he was denied his medical insurance claim simply on the grounds that it was genetic, Since genetic diseases were not payable as per the policy.

Earlier the trial court had ruled in favour of Jai Prakash Tayal, holding that there cannot be a discriminatory clause against persons who suffered from genetic disorders and they were entitled to medical insurance. United India Insurance Company Limited had appealed against the trial court’s order.

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Explained herein with Case laws the Relation between Indemnity and Insurance-whether insurance contracts are contracts of indemnity.

According to section 124 of the Indian Contract Act, a contract of indemnity means, a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person.

A contract where one party promises to save other from loss which may be caused, either
1. By the conduct of promisor himself
2. Or by the conduct of any other person

Definition given in Sec. 124 is very narrow. It includes only:
(i) Express promises to indemnify, and
(ii) The loss caused by the conduct of the promisor or any other person.

However, it does not include:
(i) Implied promises to indemnify, and
(ii) Loss caused by accidents and events not dependent upon the conduct of the promisor or any other person.

Section 124 does not cover a promise to compensate for loss not arising due to human agency [Gajanan Moreswar vs. Moreswar Madan]. Therefore, strictly speaking, contracts of insurance cannot be included in the definition.

In the case of New India Assurance Company Ltd. Vs Kusumanchi Kameshwra Rao & Others, 1997, court held that a Contract of indemnity is a direct engagement between two parties thereby one promises to save the other harm. It does not deal with those classes of cases where the indemnity arises from loss caused by events or accidents which do not or may not depend on the conduct of indemnifier or any other person.

Thus, if under a contract for insurance, an insurer promises to pay compensation in the event of loss by fire, such a contract does not come within the purview of section 124. Such a contract is valid contract as being contingent contract as defined in section 31.

However, it was not the intention of the legislature, as it has been held by Justice M.C. Chagla that “Sections 124 and 125 of the Contract Act are not exhaustive of the law of indemnity and the Courts here would apply the same equitable principles that the Courts in England do.” [Ganjanan Moreshwar v. Moreshwar Madan]

English Law has given a comprehensive definition which is as follows:
“A promise to save another harmless from loss caused as a result of a transaction entered into at the instance of the promisor.”

From the above definition it would be seen that it covers the loss caused by accidents and events not depending upon the conduct of any person. Thus it is much wider in its scope and as such, Indian Courts apply and definition given by England Law to Indian cases.

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The whole world is developing a slew of measures to cope up with COVID-19, India is not left untouched with the increasing number of cases day by day with rising death tolls.

India as a country has encouraged mass production of PPE kits to achieve self-reliance with the imposition of stricter lockdown regulations in the affected areas. In these trying times, the Supreme Court in a remarkable judgement has issued notice to Centre and Insurance Regulatory Development Authority of India (IRDAI) for directing insurers to provide medical insurance for treatment of mentally ill patients.

IRDAI’s dereliction of its duties with violation of Section 24(1) of Mental Healthcare Act, 2017 raises serious questions which are left unanswered. Through this paper, the author intends to provide legal insights upon the SC order with its rationale and pressing need in the prevalent current scenario.

Significance Of This Development

people are left stranded with no family support in these pressing COVID-19 times, they become more prone to depression and anxiety issues. In our conventional society, mental illness is often portrayed as a taboo or form of seclusion from societal relations. People suffering from mental health problems are regarded as neglected part of society which are left to suffer on their own without any helping hands. Without any recourse, medical health insurance proves as a lasting resort for them to cope up with rising medical expenditures.

This proves a progressive step towards considering mental illness at par with the physical illness which will further help in providing better mental health care facilities. India’s health care spending stands of 3.6% of total GDP expenditures, the lowest in comparison to other developing countries. With out of the pocket health expenses, people are not being provided with basic health facilities. This move is aimed at widening the scope of facilitating insurance coverage to needy mentally ill patients.

In these trying times of health emergencies, health insurance acts as boon for people suffering from different diseases. According to the National Mental Health Survey, mental illness cases proportionately increase with less income, low education and limited employment which form the part of widespread ramifications of COVID-19 crisis. This move will help in properly temporary relief to mentally ill people who are left stranded without any help. But despite the enactment of relevant statutory provisions, IRDAI has failed to provide directives to different insuring authorities to include mental illness as part of physical illness for a mental health insurance claim.

The cold attitude of IRDAI towards taking legal action against unregulated insurers raised serious objections about the transparency of it. This move will further help in providing insurance cover to mentally ill patients along with the imposition of action against different authorities for non-compliance of the same.

Legal Nuances

According to Section 21(4) of the Mental Health Care Act, all insurers are mandated to provide medical insurance for treatment of mental illness on a similar basis for treating physical illness. This provision was included as a result of ratification of United Nations Convention on Rights of Persons with Disabilities (UNCRPD), Article 25 of UNCRPD deals with health and its sub-clause (e) provides for prohibition of discrimination in relation to Health insurance against Persons with Disabilities[4].

In the recent case, the petitioner has also filed an RTI application for disseminating information of insurers who conceded to order passed by IRDAI in 2018. But in response, despite the inclusion of Section 21(4) in the Act, its implementation remains a stricter challenge as none of the insurance companies have adhered to the same.

This biased behaviour also violates the fundamental right of equality under Article 14 of the Indian constitution as mentally ill patients are disproportionately affected as the existing laws prove to be ineffective. This violation discriminates mentally ill patients as a lack of appropriate health insurance cover only increases their risks.

Critical Analysis

The IRDAI was established as a central authority to regulate the structure of the evolving insurance industry of India. But due to it the prevalent red-tapism, it has been bypassing its responsibilities for stricter implementation of Section 21(4) of MHCA, 2017. IRDAI had also issued an order in 2018 complying all insurance companies to cover mental illness under the purview of Health insurance but without continual follow up, it failed to achieve the desired purpose.

The reluctance in taking stern action against insurance companies and its casual stance for the inclusion of mental illness under the Health insurance scheme poses serious doubts upon its unaccountable behaviour. Transparency helps in enhancing the credibility of any institution but its inaction on the errant behaviour of different insurance companies provides an ideal example of iniquitousness in its functioning.

The Supreme Court has also been continuously monitoring the rehabilitation issues of thousands of people who are languishing in different hospitals despite they are fit for discharge. According to SC, rehabilitation has a wider scope and includes physical, medical, occupational and psychological services necessary for basic existence. But the irresponsible behaviour of IRDAI has excluded a multitude of people from taking benefits of health insurance scheme.

Conclusion

In these pressing times, the significance of medical treatment for mental illness become paramount for achieving better health care facilities. It is high time that IRDAI and Health Ministry should provide an extensive report regarding the compliance of Section 24(1) by different insurance companies for achieving transparency. With recent advancements, it is the hour that society should revamp its ideals to change the notion of mentally ill patients from neglected to being accepted by every section of society.

End-Notes:

Dhananjay Mohapatra, Why is mental illness not covered under the medical insurance, asks SC, The Times of India, June 17, 2020
Pooja Mehra Indian economy needs a bigger dose of health spending, Live Mint, April 8th, 2020. https://www.livemint.com/news/india/india-s-economy-needs-big-dose-of-health-spending-11586365603651.html
Gururaj G, Varghese M, Benegal V, Rao GN, Pathak K, Singh LK, et al. Bengaluru: National Institute of Mental Health and Neurosciences Publication; 2016. National Mental Health Survey of India, 2015-16
Samanwaya Rautray SC wants mental illness to be covered by insurance companies as provided in law The Economic Times. June 16th, 2020.

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In all the laws relating to contracts, the pressing covenant of good faith and the way to be dealing in a fair manner is just a presumption that the parties subject to that particular contract have to handle amongst themselves honestly and in good faith.

This also keeps in check not to hamper each other’s rights and take all the benefits related to the contract on one’s own.
Even a cause of action based on the breach of the promise arises if one party to the contract claims to have been in an upper position by referring contractual terms and use it to runaway from his or her contractual obligation.

When a court or trier of fact interprets a contract, there is always an “implied covenant of good faith and fair dealing” in every written agreement.

Now narrowing down Good Faith to its application with the particular maxim used named “Uberrima fides” which is a Latin phrase which sums up to the meaning “utmost good faith”. This above mentioned doctrine governs insurance contracts. It essentially in literal terms means that all parties to an insurance contract have to deal in good faith and disclosing all material facts in the given insurance terms.

Good Faith

History

In U.S. law, in the mid-19th century, the legal principle of the implicit bond of good faith and fair dealing emerged when contemporary legal interpretations of “the narrowly understood express contract language seemed to give one of the parties unbridled discretion.[4] In 1933, in the case of Kirke La Shellee Company v. Paul Armstrong Company et al. 263 N.Y. 79; 188 from N.E. 163; 1933 N.Y., as reported by the New York Court of Appeals:
“There is an implicit covenant in any contract that no party is to do something that would have the effect of destroying or harming the other party’s right to enjoy the fruits of the contract. Every contract, in other words, has an implicit agreement in good faith and fair dealing.”

In addition, the covenant was debated by the American Law Institute in the First Restatement of Contracts, but the common law of most states did not accept an implicit covenant of good faith and fair dealing in contracts prior to the introduction of the Uniform Commercial Code in the 1950’s. Some states have tighter compliance than others, such as Massachusetts.

For example, under Chapter 93A that regulates Unfair and Misleading Commercial Practices, the Commonwealth of Massachusetts will assess punitive damages, and a party found to have violated the good faith and fair dealing arrangement under 93A will be responsible for punitive damages, legal fees and treble damages.

In USA

In United States law, the implicit bond of good faith and fair dealing is particularly relevant. It was adopted (as part of Section 1-304) into the Uniform Commercial Code and was codified as Section 205 of the Restatement (Second) of Contracts by the American Law Institute.

The violation of the implied agreement of good faith and fair dealing is treated by most U.S. jurisdictions solely as a variant of breach of contract, in which the implied covenant is merely a ‘gap-filler’ that allows for yet another contractual term, and breach of it simply gives rise to usual contractual damages. Of course, for claimants, this is not the most ideal law since consequential damages for breach of contract are subject to such restrictions.

Violation of the implied covenant may also give rise to a tort suit in some jurisdictions, e.g. A.C. A.C. 105 Nevada 913, 915, 784 P.2d 9, 10 Shaw Construction v. Washoe County (1989). In insurance law, this rule is most prevalent when the violation of the implied covenant by the insurer can give rise to a tort claim known as insurance bad faith. The benefit of tort liability is that it encourages wider compensatory damages and the chance of punitive damages.

Some plaintiffs have sought to force courts to expand tort liability from insurers to other important defendants such as employers and banks for breach of the implied covenant. Many U.S. courts, however, have followed the precedent of some seminal California court rulings, which dismissed such tort liability in 1988 against employers and in 1989 against banks.

In Canada

In 2014, the Canadian Supreme Court in its decision on the Bhasin v. Hrynew’ case established a new common law obligation of honest contractual performance.

In Europe

Traditionally, English private law has been averse to general clauses and has consistently opposed the acceptance of good faith as a core private law principle. EU law has injected the notion of “good faith” into restricted areas of English private law over the past thirty years.

Most of these EU initiatives concerned the safety of customers in the sense of their experiences with companies. Only Directive 86/653/EEC on the coordination of the laws of the Member States relating to self-employed business agents added ‘good faith’ to English commercial law.

Good faith is also deeply embedded in the legal system on the European Continent. Treu und Glauben (Good faith) has a strong legal meaning in the German-speaking region, e.g. in Switzerland, where Article 5{12} of the Constitution specifies that state and private actors must behave in good faith. This leads, for example, to the presumption in contracts that both parties have signed a contract in good faith and that any incomplete or ambiguous element of the contract is to be understood on the basis of both parties’ expectations of good faith.

In Australia

Following the events of Carter v Boehm (1766), the principle of good faith was developed in the insurance industry and is enshrined in the Insurance Contracts Act 1984 (ICA). The Act stipulates the duties of all parties within the contract to act with utmost good faith under Section 13.

In India

In the Indian Penal Code, “good faith” is specified under section 52 as nothing is said to be done or believed in “good faith” that is done or believed without due care and attention.[11] In the case of Muhammad Ishaq v. The Emperor (1914), the Privy Council expanded on this definition in which it held that an action taken by the defendant was based on the belief that a decree had been passed in his favor.

Uberrima Fides

A Latin term meaning “utmost good faith” is Uberrima fides (literally, “most abundant faith”). It is the name of a legal theory that regulates contracts for insurance. This implies that all parties to an insurance policy must negotiate in good faith, make a full statement in the insurance plan of all material facts. It is described as “firm compliance with promises made to another, including disclosure of all relevant facts and complete confidence in the fidelity of the other.”

The insurance policy is governed by the “utmost good faith” legal maxim. For an insurance policy, the observance in the utmost good faith by the parties is important. Insurance is considered a UBERRIMAE FIDEI arrangement since the parties are bound to comply with a greater degree of good faith than the general contract law. Insurance stands on a different basis as a risk transfer device. The non-disclosure of a material fact, whether false or innocent, has the same effect as the avoidance of the contract. A strict obligation is placed on the insured to include all the material facts that could affect the insurer’s decision.

Insurance Contracts

In order to ensure the disclosure of all relevant details, a higher obligation is required from the parties to an insurance contract than from the parties to most other contracts, so that the contract will adequately represent the real risk being undertaken. Lord Mansfield stated the principles underlying this rule in the leading and often-quoted case of Carter v Boehm (1766) 97 ER 1162, 1164, “Insurance is a speculative contract…

Most commonly, the special facts on which the contingent opportunity is to be measured lie in the knowledge of the insured only:

The under-writer trusts his representation and continues to trust that he does not hold any circumstances in his knowledge, to trick the under-writer into a belief that there is no situation… By concealing what he privately knows, good faith forbids any party to lure the other into a deal out of his ignorance of that fact, and his belief in the contrary.”

The insured party must also disclose the precise existence and potential of the risks it passes to the insurer (which, in turn, can be sold to the reinsurer) and, at the same time, the insurer must ensure that the potential contract meets the needs and benefits of the insured party.

Reinsurance contracts involve the highest degree of ultimate good faith, and the cornerstone of reinsurance, which is an integral component of the modern insurance industry, is considered to be such ultimate good faith. A reinsurer should not duplicate expensive insurance underwriting and claim management costs in order to make reinsurance viable, and must rely on the insurer’s utter honesty and candor. In exchange, a reinsurer must fully examine and refund the good faith claim payments of an insurer, following the fortunes of the cadent.

Section 45 Of Insurance Act, 1938

In the case of life insurance, pursuant to section 45 of the Insurance Act of 1938, a two-year period is enforced in order to call into question the validity of the policy by the insurer on the grounds of mistakes in the answers to questions in the form of the plan or in any report or document relating to the issue of the policy.

Section 45 states that no life insurance policy shall be called into doubt by the insurer after the expiry of two years from the date on which it was carried out on the ground that the declaration made in the insurance proposal or in any report of the insured’s medical officer or referee or friend, or in any other document giving rise to the policy, was incorrect or false.

The insured cannot escape the implications of the insurance contract by merely proving the inaccuracy or falsity of the assertion presented in the form of the proposal, but must show, in compliance with section 45, that the life insurance policy was purchased by dishonest misrepresentation.

“It must be convincingly demonstrated that the matter in question was knowingly concealed in order to avoid the policy on the basis of fraudulent concealment under the provisions of section 45.” The insurer also needs to show:
That such a declaration applies to a subject matter or to suppressed evidence. Which it was necessary to reveal and,
That the policyholder fraudulently made it and,
At the time of making the declaration, the policyholder understood that the statement was misleading or that it suppressed evidence which was necessary to reveal.

Fiduciary Duties

However, the fact that a contract is one in the highest good faith does not indicate that it establishes a general fiduciary relationship. The relationship between the insured and the insurer is not identical to that between, say, the guardian and the ward, the principal and the agent,[3] or the trustee and the receiver. The intrinsic character of the partnership in these above instances is such that the statute has historically imported general fiduciary duties.

The arrangement between the insurer and the insured is contractual; the parties to an arms-length agreement are parties. The Uberrima Fides principle does not influence the arms-length aspect of the arrangement and cannot be used for the purpose of forming a general trust relationship.

The insurance policy, as noted above, imposes on its parties some specific obligations. However, these commitments should not import general fiduciary responsibilities into each and every partnership with insurers. There must be clear conditions in the partnership that allow for their imposition before such fiduciary liability can be imported.

7 N.E. In Murray v. Beard, “An agent is held to Uberrima fides in his dealings with his principal; and if he acts adversely to his employer in any part of the transaction … it amounts to such a fraud upon the principal, as to forfeit any right to compensation for services. An agent is held by Uberrima fides in his dealings with his principal; and if, in any part of the transaction, he acts adversely with his employer… it amounts to such a fraud on the principal as to forfeit any right to compensate for services.

Limitations

In English law, Uberrima Fides is specifically limited to the formation of an insurance policy. American courts extended it even further into a post-formation implicit covenant of good faith and equal dealing throughout the mid-20th century. Violation of the implicit covenant, now known as bad faith protection, came to be seen as a tort.

Carter V. Boehm Brief Analysis

Carter v Boehm (1766) 3 Burr 1905 is a landmark case in English contract law, in which Lord Mansfield defined in insurance contracts the duty of utmost good faith or Uberrima fidei.

Facts

Founded by the British East India Company, Carter was the Governor of Fort Marlborough (now Bengkulu, Sumatra). With Boehm, Carter took out an insurance policy against the fort being occupied by a foreign enemy. Captain Tryon, a witness, testified that Carter was aware that the fort was designed to withstand native attacks but would not be able to repel European enemies, and he knew it was inevitable that the French would attack. The French struck successfully, but Boehm declined to respect the compensator, Carter, who sued promptly.

Judgement

Lord Mansfield held that, because the proposer owed the insurer an obligation of utmost good faith (uberrimae fidei), Mr. Carter was required to report all relevant facts at risk:

“A deal based on speculation is insurance. Most generally, the precise details on which the contingent opportunity is to be measured lie in the knowledge of the insured only; the underwriter trusts his representation and proceeds to trust that he does not hold any circumstances in his knowledge, to deceive the underwriter into thinking that the condition does not exist, and to encourage him to measure the risk as if it did not exist. By concealing what he privately knows, good faith forbids any party to lure the other into a deal out of his ignorance of that fact, and his belief in the contrary.”

Lord Mansfield went on to claim that the responsibility was mutual and that if an insurer withheld relevant evidence, the example cited was that an insured vessel had arrived safely already, the policyholder might declare the policy invalid and recover the premium.

Lord Mansfield continued to describe the responsibility of disclosure:
“In order to exercise their judgment on grounds open to all, either party can be innocently silent…. An under-writer cannot insist that the policy is void, since he was not told by the insured what he really knew…. The insured does not need to mention what the under-writer should know; what information he takes on himself; or what he waives to be notified of. What lessens the risk accepted and known to be run by the express terms of the policy does not need to be told to the under-writer. It is not appropriate to tell him general speculative topics.”

On the grounds that the insurer knew or should have known that the danger existed because the political situation was public knowledge, Lord Mansfield ruled in favor of the policyholder:
“There was not a word said to him, of the affairs of India, or the state of the war there, or the condition of Fort Marlborough. If he thought that omission an objection at the time, he ought not to have signed the policy with a secret reserve in his own mind to make it void.”

Significance

Lord Hobhouse said in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd that,
Lord Mustill points out that Lord Mansfield was at the time seeking to incorporate a general concept of good faith into English commercial law, an effort that was largely futile and survived only for small classes of transactions, one of which was insurance. His Carter v Boehm decision was an extension of his general theory to the formulation of an insurance policy. It was focused on the inequality of knowledge between the proponent and the underwriter and the existence of “speculation” insurance as a contract. He equated deception to non-disclosure.

At p.1909, he said:

“The keeping back [in] such circumstances is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention; yet still the underwriter is deceived, and the policy is void.”

Therefore, as common law is understood, it was not actual fraud but a form of error that the other party was not permitted to take advantage of. Twelve years later, in Pawson v Watson (1778) 2 Cowp 786 at 788, he stressed that a rule of law resulted in the avoidance of the contract:

“But as, by the law of merchants, all dealings must be fair and honest, fraud infects and vitiates every mercantile contract. Therefore, if there is fraud in a representation, it will avoid the policy, as a fraud, but not as a part of the agreement.”

Life Insurance Corporation V. Asha Goel

Facts
The insurance policy was taken by the respondent’s husband and the insured died 1 and a half years after the policy was taken and the lawsuit was rejected on the grounds of non-disclosure and withholding of information on the health of the insured.
A written petition was lodged in the High Court pursuant to Article 226.

In view of the maintenance matter, the learned judge held that the corporation’s liabilities under life insurance are statutory liability and that a written petition may lie under Article 226.

Company claimed that the argument was repudiated on the ground that the deceased gave incorrect responses because he stated that his health was good and during the last 5 years he had not seen a medical practitioner, and even for 13 days a few years ago he did not stay absent from work on health grounds.

The opportunity to lead the evidence by the single judge was not granted to the company and there was no adequate record brought by the corporation to determine the requirements referred to in the second part of Sec. 45 of the Insurance Act. Thirteen days’ leave could not be fair to assume that the deceased suffered from a health problem in 1976.

The Division bench held that proof should be permitted to lead to the business because it would be useful for their argument that fraud was obtained by regulation. A new trial has begun.

Issues
If the high court should entertain a written petition with factual and evidence disputes?
The matter relating to contractual liability should not be heard by the High Court. For the SMT case. “Patna High Court’s Kiran Sinha Vs LIC wrote jurisdiction no. 1620 of 1981, that the Supreme Court issued an order that “the High Court could not have ordered the payment of money stated in the petition under Article 226 of the Constitution under the insurance policies in question. In this case, the only recourse open to the respondent was a complaint before a civil court. The High Court’s decision is therefore set aside.

If the division bench’s decision is correct in canceling the claim’s repudiation?

Note
The appeal to the division bench in the following case was allowed on the basis that the company was not allowed to produce evidence. The Division Bench permitted this. Therefore, when the business begins to present proof, it would defeat the stance that states that if it becomes appropriate to investigate evidence, the proceedings should not be entertained pursuant to Article 226 of the Constitution and the matter should go to an alternative venue that is a civil action and not a written petition pursuant to the High Court. In such cases, where there is no disagreement about the facts and no need to file evidence, a formal request should be filed. The matter should therefore be resolved in a civil suit and not in a written petition.

Judgement
Because of the following points, the division bench’s judgment upholding the single judge’s decision to pay the alleged is supported:
That the argument was repudiated on the basis that the medical history of the ailment was not disclosed and that the policy was repudiated after the limitation period of 2 years had expired. Where Sec. 45 specifically states that, after a term of 2 years has elapsed from the date of issuance of the regulation, the claim cannot be called into doubt.

The protection taken under the second section of the policy will not be accepted since the organization must show that a false statement was made by the deceased and that such a statement was material in nature and fraudulently made. The company submitted a claim form B-1 that indicated that the deceased had a myocardial infarction given to Dr. Kowde by the patient.

The petitioner (widow) had 2 documents annexed to it. First, Dr. P.S. Kulkarni’s medical attendant certificate claiming that he had no heart disease prior to the policy, and secondly, another form of claim B-1 obtained by Irwin hospital group indicating that he had no heart disease.

For the following reasons, it is clear that there is insufficient proof to suggest that he suffered from heart disease. There is also no question of repudiation by dishonest means on the grounds of non-disclosure. Taking these points into account, the repudiation of the allegation appears to be performed wrongly, unjustly and arbitrarily. It should pass the argument.

Conclusion
The word good faith has been referred to in the Indian Penal Code and it means good intention and due care and caution. Insurance contracts, including the life insurance policy, are contracts Uberrima fides, which implies a contract based on “utmost good faith” so that all relevant data must be revealed and any material information must be withheld or any false or incorrect information given. This stems from every individual’s right to know and there is no escape from every material reality connected with the subject matter of the contract.

Concealment of any material fact entitles the insurer to deprive the arrangement of the benefits of the insureds. It was noted that the object of taking an insurance policy is not very material. It can serve the function of social security, but with a dishonest act by the insured, the same should not be accomplished. If a fraudulent act is found, the idea will be repudiated. The proposer must demonstrate that he was bona fide in his intent. From the face of the record, it must appear.

This concept therefore forms an integral part of the law of insurance. It provides the insurer with a reasonable chance of risk assessment and also guarantees that all the contract terms and conditions are well understood by the insured.

However, this concept is more beneficial to the insurer since it is the insured who has to make all the reports in general. Additionally, two years after it has been in effect, the Insurance Act stipulates that an insurance policy should not be called into question. This was intended to avoid the difficulties of the insured because, on the grounds of misrepresentation, the insurance provider decided to avoid a policy that had been in effect for a long time. However, where a statement has been made fraudulently, this clause is not applicable. Furthermore, technical developments have made it possible for both sides to ensure that their needs are taken care of. But, there are a few other grey areas to this as well.

First, there is still no strong differentiation of what is substantive or immaterial, and the same depends mainly on the insurers’ whims and the contract terms. By treating them as promises, it is still very straightforward for an insurer to repudiate the contract at the slightest point of non-disclosure, thereby placing the insured in an even more difficult role.

Second, although all parties are under an obligation of utmost good faith, it is unclear on behalf of the insurer what this means. In essence, the insurer is left with a minimal or no responsibility other than the obligation to ask any questions at all. These questions are also unclear and the assured person is not clear what he is being asked or what to reveal. The insured will therefore find himself in a role where he is expected to reveal material information.

Considering that the principle of utmost good faith is one of the most basic concepts synonymous with insurance regulation, an appropriate remedy must be given in Indian Contract Act (1872).

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In the Wealth of Nations’ published in 1776, Adam Smith postulated four canons of taxation; Equity, Certainty, Convenience and Efficiency.

There is consensus regarding certainty since Smith’s postulation that taxes should not be arbitrary ,the taxpayers should know their tax liability, when and where to pay it. Retrospective tax legislation overtones this principle.

Retrospective or Ex-post factor Taxation imposes or increases tax charged on certain products, items or services prior to the taxation being introduced. Though there is constitutional prohibition against criminal legislation applying retrospectively under Article 20(1) of the Constitution, there is no prohibition of the civil legislation (including taxation laws) applying retrospectively as such.

Proponents of this taxation justify this on the ground that there are certain grey areas in Indian Tax legislation set up, specially in Income Tax Act 1961, which is exploited by the taxpayers leading to tax evasion and avoidance. So, there is need of piercing the corporate veil and putting substance over form, by introducing the Retrospective Taxation in order to thwart the illegitimate tax avoidance strategies. Even in UK, labor government introduced retrospective provisions in 2004 to counter schemes designed to avoid tax on employment income.
Retrospective taxation is viewed as carrying a perverse sense of vindictiveness and is perceived as unleashing tax terrorism.

It creates a situation of ambiguity in the market which negatively affects investors climate and is a threat to good governance. It harms India’s Ease of Doing Business rankings in enforcement of contracts category and doesn’t behoove well with the country who aims to be superpower. Recent Twin tax blows before Permanent Court of Arbitration(PCA) , Hague in the case of Vodafone in September, 2020 and now in Cairn case, in a series of three months have come as a double whammy for India.

In the case of Vodafone, the same Dutch based company acquired controlling stake of 67% in Hutchison Essar (Hongkong based) in 2007 through a purchase/transaction that took place overseas in Cayman Island in a deal valued at $11.2 billion. Income tax department issued a demand notice of Rs.22,000 crore against which Vodafone went to Bombay High Court and ultimately filed an appeal in Supreme Court where they won. Treating it as a moral hazard, a loophole in the taxation system and to circumvent the Supreme Court ruling, Income Tax department amended the Finance Act in 2012 retrospectively from 1962 with the clarification that indirect transfer of assets located in India was always taxable as capital gains tax under the income tax act and it applies to transactions that took place overseas.

Vodafone sought arbitration on the exorbitant tax claim at International Arbitration Tribunal, Hague where the tribunal unanimously ruled that India’s imposition of tax liability by retrospective legislation on Vodafone was in breach of Clause 9 of Bilateral Investment Treaty (BIT) of 1995 between India and Netherlands, which specifically mentioned that two countries must ensure the companies present in each other’s jurisdiction at all times be accorded fair and equitable treatment. The stand of the government that BIT doesn’t cover tax issues as taxation is a sovereign right that cannot be challenged under BIT , was discarded.

In the case of Cairn Energy, the government actually went ahead in recovering retrospective taxes. Income tax department said that Cairn UK had made capital gains of Rs.24,000 crore before the public listing of Cairn India. So, claim of Rs.10,247 crore in past taxes was slapped on Cairn. Government sold Cairn’s 5% holding in Vedanta , seized dividends and withheld tax refunds. Cairn approached PCA, Hague in 2015 who recently in December 2020 unanimously ruled that India’s claim was not a valid demand and ordered to return unto $1.4 billion to Carin Energy of UK. The tribunal further said that India failed to accord the claimant investments fair and equitable treatment under Bilateral Investment Treaty (BIT) of India and Britain and ordered the government to desist from seeking such tax.

Both these cases are in for a long haul, wherein India has challenged Vodafone arbitration ruling in Singapore based Appellate Tribunal mainly to delay its enforcement. Cairn award, even if not challenged, has to face a hurdle in the enforcement of the Tribunal award in India considering the uncertainty in the Indian legal regime.

In India, mechanism for enforcement of domestic and foreign arbitrary awards is contained in the Arbitration and Conciliation act (A & C), 1996. However, India while acceding to the New York Convention on recognition and enforcement of foreign awards (NYC) made a reservation to apply the convention only to awards that are considered ‘commercial’ in nature. In the court’s biter, investment arbitration disputes and its awards may not satisfy the commercial test in order to qualify for enforcement under the India’s A & C act. So, any party applying for enforcement of a BIT award under A & C act, would first have to overcome the jurisdiction hurdle with respect to in applicability of A & C Act to the BIT arbitration.

Will Rogers phrase ‘If you find yourself in a hole, stop digging’ needs to be applied in the current scenario where there is very feeble chance of winning these cases when even your nominee has voted against you. There is need to respect the decision and move away from the vicious cycle of arbitration and appeals which are ultimately lost and move towards achieving ‘Vivad Se Vishwas.

Providing modicum of stability by forming coherent investment strategy will boost investors confidence. We need to increase the scrutiny net and plug the loopholes so that tax evasion be reduced to a minimum. As long as the retrospective taxation law is there, temptation to use it will always exist, so repealing the retrospective provisions by amending the income tax act will assuage the concerns. India must reassure the world by start refilling the hole and close the chapter by burning the ghost of retrospective taxation.

Award Winning Article Is Written By: Mr.Ayush Sarna, Assistant Advocate General, Punjab and Tax Consultant

Awarded certificate of Excellence
Authentication No: JA32464437013-5-0121

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