Observing that the insurance ombudsman is like a court when deciding on a complaint, the Bombay High Court on Thursday said an insurance company can challenge the decision of the insurance ombudsman in the High Court under the article 227 of the Constitution.
“…. arbitration of a claim before the Insurance Ombudsman has all the essential elements of judicial/quasi-judicial arbitration similar to arbitration by a court“, said the court.
Justice GS Kulkarni disagreed with the Calcutta High Court’s view that a written petition under Section 227 of the Constitution against a decision by the Ombudsman would not be admissible.
The court also ruled that all parties to an insurance contract must make a true statement of all material facts. The court overturned a decision by the insurance ombudsman because the insured had failed to disclose prior medical conditions before availing himself of the policy.
The court was dealing with a Section 227 motion filed by an insurance company challenging the insurance ombudsman’s decision awarding relief to the plaintiff in an insurance complaint.
Dr. Fakhruddin Chhatriwala (insured) had taken out a life insurance policy with the claimant through HDFC Bank. He denied having any pre-existing conditions. When he died while undergoing treatment, the hospital recorded that he was a known case of diabetes mellitus/hypertension. His wife submitted an insurance claim for Rs 75 Lakh. The claimant noted that the insured was under treatment for schizophrenia and hypertension. The petitioner denied the insurance claim stating that he deliberately concealed important information about his medical history. The wife appealed to the Grievance Redress Committee (GRC) which upheld the Grievor’s decision.
Chhatriwala’s wife filed a complaint with the Insurance Ombudsman who granted her claim and ordered the petitioner to settle the claim Rs 30 Lakh. The applicant challenged this decision in the Bombay High Court.
Chhatriwala’s wife challenged the maintainability of the application on the grounds that Rule 17(6) read with 17(8) of the Insurance Ombudsman Rules, 2017 (2017 Rules), provides that the decision of the Insurance Ombudsman binds the insured. Reliance was placed on the decision of the Calcutta High Court in Life Insurance Corporation of India v Insurance Ombudsman.
The court relied on the 2017 rules to show that when deciding a complaint, an insurance ombudsman performs quasi-judicial functions much like a court. “The functions exercised by the ombudsman are similar to the function exercised by a court in the settlement of a dispute“, observed the court.
The Court observed that the word “court” in Section 227 of the Constitution should be interpreted liberally to include all statutory authorities vested with quasi-judicial power even if they have not been characterized as courts.
The court relied on M/s Amrit Versha Udyog Pvt. Ltd v Uttaranchal Power Corporation Ltd. in which the Uttarakhand High Court observed that if an authority is required to act judicially by virtue of a law, the decisions of such authority generally amount to quasi-judicial decisions.
The court relied on the decision of the Apex Court in Columbia Sportswear Company v Income Tax Director in which the Advance Rulings Authority was considered a court under Articles 136 and 227 of the Constitution. The court held that the law established in Columbia Sportswear was applicable in the present case. The court answered the question of maintainability thus –
“It is therefore perhaps not acceptable that, simply because subrule (8) of Rule 17 provides that an award is binding on the insurer, the insurer would be precluded from attacking the award on the basis of jurisdiction of the Court under section 227 being a remedy as guaranteed by the Constitution, more particularly, being a decision governed by statutory rules as indicated above.”
On the merits, the insurance company argued that any non-disclosure by the deceased insured to the insurer would invalidate the contract of insurance under section 45 of the Insurance Act 1938. The material facts need not be related to the cause of death. The insured’s wife maintained that the diagnosis of hypertension was made after the policy had already been used. Moreover, schizophrenia has no correlation with the actual cause of death of the insured. Not all non-disclosures would entitle the insurer to terminate the policy.
The court relied on the Supreme Court’s decision in Reliance Life Insurance Company Ltd. vs. Rekhaben Nareshbhai Rathod and said there is “perversity” in the award in many ways. The Québec Ombudsman ignored the requirement of disclosure in good faith, which is “sine qua non” for an insurance contract to be enforceable. The conclusion that the non-disclosure of material facts had no relevance to the cause of death without any supporting evidence amounts to ex facie perversity.
“The observations and conclusions of the insurance ombudsman are devoid of any reasoning on these elements which were part of the file before him, they are cryptic, because they are also foreign to the question before him.“, said the court.
The insurance company also argued that the Ombudsman had no jurisdiction to make the award because the claim exceeded pecuniary jurisdiction. Chhatriwala’s wife said she was ready to settle the claim of 30 Lakhs.
The court held that the Insurance Ombudsman lacked jurisdiction to hear the complaint in the first place, as the claim of Rs 75 Lakh far exceeded the pecuniary jurisdiction of Rs 30 Lakh available to the Insurance Ombudsman under the Rule 17(3) of the 2017 Rules. A desire to settle at a lower amount would not amount to a change in the amount of the claim in the Complaint.
Case No. – WP/7804/2021
Case Title – Aditya Birla Sun Life Insurance Co. Ltd. vs. Insurance Ombudsman & Anr.
Coram – Judge GS Kulkarni