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Insurance company refusing to renew the policy even after receiving premiums

By: Shivendra Pratap Singh
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Insurance company is refusing to renew the policy even after receiving premiums. My wife lagged behind in paying her life insurance premium for April and May, hence her policy went on hold. But later she paid the premiums and even paid a little extra. Then she kept paying it till the month of September and as she was diagnosed with Muscular Dystrophy she claimed for the disability rider in her life insurance policy. 

We got a response that our policy is still on hold since June and the insurance company will conduct a medical test before reinstating it. And as my wife had already been diagnosed with MD, her results obviously came out to be of a sick person. And then they denied us the claim and terminated the policy. What should we do in this case?

Question from: Tamil Nadu

The health insurance contract is related to the category of life contracts. A policy of health insurance is for insuring against the risk of disease. The contract of health insurance, like that of life insurance made in consideration of premium. When the insurer receives the premium it has an effect that the contract between insurer and insured become complete. 

In your case the insurance company had been receiving the premiums towards the policy. It enables you to take all the benefits available under insurance policy. Whether an insurance policy is on hold or inactive is the fact within the specific knowledge of the insurer. It was the liability of the insurer to intimate the insured person towards the status of policy before receiving premium.

If the insurer does not inform the insured person about the status of policy but receiving premiums, it proves that the policy is renewed. The rule of estoppel will apply in this case and the insurer shall be stopped to take any plea which tends to disentitle the insured person to take benefits of policy.

In your case the insurance company has accepted the premiums with a fine in respect of late payment. Accepting premiums reflects the conduct of the insurance company that it has renewed or reinstated the policy. You have paid all the premiums and two of them i.e. premium for the month of April & May with a fine. 

It was the duty of the insurance company to conduct a medical test immediately after receiving the premiums. If not done on time the insurer cannot refuse the policy. 

Accepting premiums with fines proves that the policy has not been terminated. Refusal to renew the policy after receiving a claim of reimbursement from the insured person is an arbitrary action of the insurer. Such a refusal is prohibited.

In Biman Krishna Bose v. United India Insurance Company Ltd. (2001) 6 SCC 477; the Supreme Court held that the insurer cannot arbitrarily refuse to renew the policy.

“5. A renewal of an insurance policy means repetition of the original policy. When renewed, the policy is extended and the renewed policy in the 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 sort of a substitution of obligations under the old policy unless such policy provides otherwise. It may be that on renewal, a new contract comes into being, but the said contract is on the same terms and conditions as that of the original policy. Where an insurance company which has exclusive privilege to carry on insurance business has refused to renew the mediclaim policy of an insured on extraneous and irrelevant consideration, any disease which an insured had contacted during the period when the policy was not renewed, such disease cannot be covered under a fresh insurance policy in view of the exclusion clause. The exclusion clause provides that the pre-existing diseases would not be covered under the fresh insurance policy. If we take the view that the mediclaim policy cannot be renewed with retrospective effect, it would give handle to the insurance company to refuse the renewal of the policy on extraneous consideration thereby deprive the claim of insured for treatment of diseases which have appeared during the relevant time and further deprive the insured for all time to come to cover those diseases under an insurance policy by virtue of the exclusion clause. This being the disastrous effect of wrongful refusal of renewal of the insurance policy, the mischief and harm done to the insured must be remedied. We are, therefore, of the view that 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.” 

Biman Krishna Bose v. United India Insurance Company Ltd. (2001) 6 SCC 477

You should serve a legal notice to the insurer for the reimbursement. If the insurer does not reimburse then you should file a case before the District Consumer Forum.

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