AVM J. RAJENDRA, AVSM, VSM (RETD.), MEMBER

1.      The present First Appeal has been filed under Section 19 of the Consumer Protection Act, 1986 (hereinafter referred to as “the Act”) against the Order dated 22.01.2021 passed by the learned State Consumer Disputes Redressal Commission, Lucknow, U.P. (hereinafter to be referred as “the State Commission”), in Consumer Complaint No. 521 of 2017, wherein the Complaint filed by the Complainant (Respondents herein) was partly allowed.

2.      For the sake of Convenience, the parties in the present matter being referred to as mentioned in the Complaint before the State Commission. Mr. Atul Kumar & Anr. are identified as the Complainants. While "M/s. Star Health and Allied Insurance Co. Ltd. & Anr." are referred to as the Opposite Parties / Insurer (OPs in short) in this matter.

3.      This case pertains to repudiation of a medical claim of son of the Complainant No. 1, Anshuman Rai. The rejection as notified by email dated 07.06.2017 was contested by the Complainant as unjust. He was also aggrieved by the premature termination of the health Insurance Policy effective from 27.05.2017 to 27.05.2018.

4.      The matter in brief is that Complainant No. 1, his wife, and their son, Anshuman Rai, obtained a health insurance policy from the OP vide policy number P/231100/01/2014/001530, valid from 28.02.2014 to 27.02.2015. The total premium paid was Rs.18,719/. Identity Cards were issued for the Complainant (No. 3402889 -1), his wife (No. 3402889-2), and son Anshuman Rai (No. 02889-3). However, no insurance policy document was issued by the OP. Thereafter, this policy was renewed several times from 28.02.2015 to 27.02.2018, with no pre-existing diseases declared. Anshuman Rai (Complainant No.2) was born on 08.08.2011 with no congenital anomalies. Later, the Complainant No.1 noticed some spots on his son's back and consulted Medanta Global Health Pvt Ltd on 22.06.2016. Medical examination revealed the presence of café-au-lait spots and a tuft of hair on his back. Thereafter, an EEG and MRI were conducted, and the impression was diagnosed as neurofibromatosis. On 13.07.2016, Complainant No.1 subsequently consulted Primus Super Specialty Hospital, and after confirming the condition of the child, a surgery was advised. The Complainant No.1 requested cashless treatment at the hospital, which was denied by the OPs/Insurer, leading to the spending Rs.14,75,567/- in Primus Super Specialty Hospital and Rs.29,510 in Medanta Global Health Pvt Ltd.

5.      The Complainant alleged that this disease was not a genetic or birth defect, as it was not present in any family member, and he only became aware of it during the consultation at Medanta Global Health Hospital. The insurance policy's terms and conditions did not exclude pre-existing conditions, and the Complainant No. 1 believes the denial of the claim by the OPs/Insurer is unjust. Complainant No.1 contacted the OPs for reimbursement and submitted all required documents. However, the claim was rejected without clear communication. He asserted that the rejection was arbitrary and violated the principles of natural justice. Being aggrieved by the repudiation of Medi-claim and deficiency in service on the part of the OPs/Insurer, the Complainants filed a consumer complaint (No. 521 of 2017) before the learned State Commission, prayed to allow the complainant and quash the order dated 07.06.2017 by means of which claim of Complainant No. 2 has been rejected and undated termination order of agreement of health policy pertaining to the Complainant No. 2 with effect from 27.05.2017. The Complainant also prayed to continue Health Policy/Health Insurance of the Complainant No. 2. It was also prayed that the OPs/Insurer be directed to pay ₹15,05,077/- spent on the treatment, Rs.34 lakhs towards mental agony and harassment the Complainant.

6.      In their response, the OPs/Insurer denied the Complainant's claim, stating that they issued a Star Comprehensive Insurance Policy covering Mr.Atul Kumar, his wife and son Anshuman Rai for sum insured of Rs.7,50,000/-. They asserted that Complainant No. 1 failed to disclose the pre-existing disease of Baby Anshuman Rai in the proposal form. Consequently, the OPs repudiated the claim vide letter dated 20.03.2017 and canceled the policy of Anshuman Rai, effective from 27.05.2017, in terms of Condition No. 14 of the policy and refunded Rs.3,852. Therefore, the repudiation is justified and in accordance with the law. They annexed a copy of the insurance policy and its terms and conditions. The OPs further contended that café au lait macules, is a type of birthmark present since the insured child's birth. These marks, characterized by hyper-pigmented skin patches with sharp borders and diameters of less than 0.5 cm, are considered congenital anomalies. They can be present at birth or appear in early infancy, sometimes associated with systemic diseases. As per OPs, the insured child had these marks since birth. The insured child was two years and six months old at the policy's inception and they were aware. The failure to disclose this significant medical history in the proposal form amounted to misrepresentation and non-disclosure of material facts, violating Condition No. 9 of the insurance policy.

7.      The OPs repudiated the claim on the ground of non-disclosure of his pre-existing disease, cancelled the insurance policy and Rs. 3852 was refunded in terms of Condition No. 14 of the policy which states that:-

“The company may cancel this policy on grounds of misrepresentation, fraud, moral hazard, nondisclosure of material fact as declared in proposal form”

8.      The Complainant adopted malicious practices to obtain the insurance policy wrongfully, failing to disclose material facts in the proposal form. They emphasized that the claim was correctly repudiated in line with Condition No. 9 of the insurance policy. Therefore, they argued that the complaint is misconceived and not maintainable before the Hon'ble Consumer Commission. In terms of Section 17 of the Consumer Protection Act, 1986 the State Commission shall entertain complaints exceeding Rs.20 lakhs but not exceeding Rs.1 crore in value. In this case, the claim valuation was Rs.15,05,077/-, and thus not maintainable.

9.      In the additional written statement, the OPs contended that the State Commission admitted the complaint while the maximum liability under the policy was only Rs.12,44,869/- against total bill of Rs.40,25,567/-. The Complainant’s expenditure of Rs.15,05,077/- was further subject to necessary deductions under the policy.

10.    The learned State Commission upon hearing the parties, and considering the facts and the circumstances, of the case allowed the complaint and observed the following: -

“So, in the present scenario, the opposite party failed to establish the fact that the baby Anshuman Rai was suffering from this disease by birth and there is concealment of fact at the time of taking the insurance policy. So the complaint is liable to be allowed. The point of jurisdiction is decided on the valuation clause of the complaint and not by other discussions. The amount of compensation sought by the complainant is on the higher side so it cannot be granted in toto. After considering all the facts and circumstances the complainant is liable to be allowed partially. The policy cancelled in the midterm is also liable to be extended till the date it was valid.

ORDER

The Complaint is allowed partially. The opposite parties are directed to pay ₹ 15 lakhs towards hospital charges with interest at a rate of 6% per annum from the date of filing of this complaint, ₹ 5 lakhs for mental agony, harassment and ₹ 20,000 as cost of the case within 30 days from the date of this judgement and if not paid within 30 days, the opposite parties shall be liable to pay interest at a rate of 10% per annum on whole amount. The opposite parties are also directed to extend the term of policy till the date it was valid.”

11.    Being aggrieved by the impugned order, the Opposite Parties (Appellants herein) filed the present Appeal No. 150 of 2021 and prayed for set aside the impugned Order dated 22.01.2021 passed by the Hon’ble State Commission and dismiss the complaint.

12.    The Appellants mainly raised the following contentions in the present of Appeal:

(a) The learned State Commission erred in holding that the baby Anshuman Rai was not suffering from disease by birth.

(b)     The learned State Commission omitted to decide whether there was a concealment of the child's previous seizure, for which antiepileptic drugs were administered. They emphasize that a cafe au lait macule (CALM) can be a congenital condition, and the Commission failed to address the issue of concealment.

(c)  The State Commission failed to see that the complainant had submitted the claim only for Rs. 14,86,110/- out of which Rs. 2,41,241/- was inadmissible as per policy and the balance of Rs. 12,44,069/- ought to have been awarded.

(d) The State Commission awarded a high amount of Rs. 5 lakhs towards compensation for mental pain and harassment. The Appellant denied the claim on the ground of concealment of material fact and provisions 9 and 14 of the insurance policy. Therefore, the compensation amount should be reduced to a more reasonable level given the circumstances of the case.

13.    Upon the notice on the Appeal, the Respondents filed reply to the present Appeal and denied the Appellants submissions. They reiterated the facts of the case and insisted that case does not fall under the category of pre-existing diseases or congenital anomalies as stated by the Appellants. They first became aware of the disease affecting Respondent No. 2 only in June 2016 when the wife of Complainant No. 1 observed some unusual symptoms. Following this, they sought medical advice and examinations leading to the discovery of the condition. Respondent No. 2 did not exhibit any such marks or diseases at birth or at the time of policy inception. The rejection of the claim vide letter dated 07.06.2017 is unjust and arbitrary. According to the policy's definitions, the Complainant's case does not fall into pre-existing disease category. The history of febrile seizure mentioned in the discharge summary from Primus Super Specialty Hospital is unrelated to the café-au-lait spots, and the Appellants have misinterpreted this medical history. The disease in question is neither genetic nor present at birth. Neither the parents nor any family members had such history. They first became aware of their son's condition during a consultation at Medanta Global Health Hospital. The Appellants unjustly and arbitrarily rejected the claim. The Condition No. 14 of the policy cited does not apply to the case.

14.    The learned counsel for the Appellants/ OPs argued that the child patient in this case was born on 08.08.2011. On 12.07.2012 when the child was 11 months old, an MRI of Brain was conducted. Therefore, the medical condition of the child was serious enough to go straight for MRI Brain as the previous treatment was ineffective. The diagnosis of Dr. PP Gupta, who referred for MRI was not disclosed. As this stage of treatment was prior to proposal to the insurance, it was the duty of the Complainants to disclose. The learned Counsel argued that the child was admitted to Primus Super Speciality Hospital on 28.8.2016. The Discharge Summary described that there was "history of febrile seizure one episodes 2 years back and is taking anti-epileptics. MRI suggested plexiform neurofibromatosis D3 to D8." This makes it clear that antiepileptic medication was continued from the date of episode 2 years back up to the date of admission to hospital on 28.08.2016. Prior to admission to the hospital, the Respondent provided history of patient that "On repeat telephonic conversation with patient's father, he reports an episode of febrile convulsion at around 1½ years of age for which he was treated appropriately. He has not suffered another episode since then. The rest of the documents were attached except MRI images which are with the patient's father”. The learned Counsel stressed that the details of episode, medical consultation and treatment ought to have been disclosed when subsequently obtaining insurance. After MRI on 12.07.2012 and further episode of febrile convulsion and antiepileptic treatment, the Respondent realized of expensive future treatment and obtained insurance on 28.02.2014 for himself, his wife and child, deliberately concealing the medical condition of the child. He signed a proposal form on 28.02.2014 misrepresenting material facts and misleading the insurers relating to the child that he was in good health and free from physical and mental disease or infirmity; no consultation, treatment and admission for any illness was done. The child did not suffer any stroke, epilepsy, fainting etc. No medical tests and not prescribed any medicines. He forcefully argued that there is active, deliberate concealment of material facts was done to mislead the insurers on facts. The policy is specific that if the proposal is not truthful, the basis of contract is vitiated and no benefits under it can be claimed. He cited the Hon'ble Supreme Court decisions in Satwant Kaur vs New India Assurance Co. Ltd. IV 2009 CPJ 8 SC, P.C. Chacko vs LICI I 2008 CPJ 78 SC and Hon'ble Kerala High Court decision in P. Sarojam vs. LICI AIR 1986 Ker 201. There is no scope for any claim and the learned State Commission erred in awarding interest when there is no policy to pay interest and Rs. 5 lacs towards compensation.

15.    The learned Counsel for the Respondent on the other hand reiterated the contentions in the complaint and written version and argued that the OPs arbitrarily and illegally rejected the claim. The child was insured vide policy No. P/231100/01/2014/001530 from 27.05.2017. Respondent No. 1 got his family including son insured on 28.02.2014 and agent of Appellants also written in the insurance policy pre-existing disease Nil. He forwarded his claim through email on 21.05.2017. On 21.05.2017, the Appellant replied that the claim department was advised to review the claim. All papers demanded were submitted. He then contacted Appellant’s regional office on 06.03.2017 and no progress was notified. The Appellants illegally rejected claim for Rs.15,05,077 even though the claim was fully covered under the policy. As per the browser Appellants, congenital internal means congenital anomaly which is not in the visible and accessible parts of the body and also described for pre-existing disease means any condition or aliment or injury or related condition or aliment or injury or related condition(s) for which the insured person had signs or symptoms and/or where diagnosed and/or received medical advised/treatment within 48 months prior to insure person's first policy with any insurer. The child had not received any treatment for "Café au laid spot with tuft of hair on back" within 48 months prior to the first policy on 28.02.2014. Hence Appellants illegally and arbitrarily rejected claim and even terminated his policy form 27.05.2017. Pre-existing disease means any condition or aliment or injury or related condition(s) for which the insured person had signs or symptoms and/or where diagnosed and/or received medical advice/treatment within 48 months prior to insured person. Respondent No. 1 came to know about the disease in June 2016 for the first time when his wife saw hair on black spot of the child. Then he met doctors and got him examined. He came to know about the disease as café-au-lait spots and tuft of hair. At the time of birth or at the time of inception in insurance policy, he had no such marks or disease. Therefore, the rejection of claim is illegal and arbitrary. The Appellants cannot deny the claim based on the history of Febril Seizure stated in discharge summary of Primus Super Speciality Hospital, as it related to symptoms of a common viral infection in young children that may cause high fever and rashes, for which the child was given medicines. Therefore, the Appellants misinterpreted the facts and illegally rejected the claim of Rs 15,05.077/-, even though it was fully covered. The insured is entitled to the benefit of bonus calculated at 100% of the basic sum insured. At the time of birth, no apparent anomaly of any kind was seen as certified by the Dr. Nirmala Singh Obstetrics & Gynaecology and Dr. PP Gupta, Child Specialist & Neonatologist.

16.    We have examined the pleadings and associated documents placed on record and thoughtfully heard the detailed and intense arguments advanced by the learned Counsels for both the Parties.

17.    The primary issue raised by the Appellant/Insurer in the present Appeal is that it had rightly repudiated the claim of the Respondents. The insured child had a pre-existing medical condition, specifically café-au-lait macules and tufts of hair on the skin, which were present since birth or early infancy. They contend that these conditions fall under the definition of congenital anomalies as per the insurance policy. Further, the Respondent No. 1 failed to disclose these pre-existing conditions or the medical history of the child in the proposal form for obtaining the insurance policy, which, according to the terms and conditions of the policy, constitutes misrepresentation and non-disclosure of material facts and violation of good faith clause. In accordance with the policy's conditions, the insurer has no liability to make any payment, if there is misrepresentation or non-disclosure of material facts. Therefore, the repudiation of the insurance claim is legal, justified and in adherence to the insurance contract between the parties. The termination of the insurance policy was also in terms of the policy. In addition, the reduction of the claim amount and certain inadmissible charges in terms of the policy was also pleaded.

18.    As regards the cases where the life assured fails to disclose his ailment during the reinstatement/revival in the proposal form, the recent judgement by Hon’ble Supreme Court in Bajaj Allianz Life Insurance Company Ltd. v. Dalbir Kaur, 2020 SCC OnLine SC 848 decided on 09.10.2020 is relevant wherein it was held that:

“A contract of insurance is one of utmost good faith. A proposer who seeks to obtain a policy of life insurance is duty bound to disclose all material facts bearing upon the issue as to whether the insurer would consider it appropriate to assume the risk which is proposed. It is with this principle in view that the proposal form requires a specific disclosure of pre-existing ailments, so as to enable the insurer to arrive at a considered decision based on the actuarial risk.”

19.    On the contrary the Respondent/ Complainant vehemently pleaded that the insured child, Anshuman Rai, did not have any pre-existing conditions whatsoever at the time of obtaining the insurance policy. They contend that Anshuman was diagnosed with café-au-lait spots and tuft of hair for the first time in June 2016. This was well after the inception of the insurance policy. They asserted that these conditions were not known to the family at the time his birth or when the insurance policy was procured. Further, the denial of the insurance claim and termination of the insurance policy was illegal, unjust and arbitrary. They stressed that the rejection of the claim based on alleged non-disclosure of pre-existing conditions, is not valid as per the terms and definitions of the insurance policy. The Respondent also emphasized that the history of febrile seizures mentioned in the discharge summary of Primus Super Specialty Hospital was unrelated to café-au-lait spots and should not have been a basis for claim denial.

20.    It is an established fact and admitted position that both the parties have entered into the said insurance contract for medical treatment of Complainant No. 1 and his family consisting of his wife and a small child. During the course of the contract, which was already extended for three years, the child of tender age was found to be suffering certain medical conditions which entailed treatment. The treatment was undertaken with due notice to the Appellants. There is no dispute about the existence of policy, medical condition of the child, treatment given to the child, as well as the amount of claim that was preferred by Complainant No. 1 to the Appellant insurer. The only specific contention of the Appellant is that the medical condition of the child was pre-existing at the time of birth and the Respondent No. 1 was aware of the same. However, he did not bring it on record to the notice of the Appellant at this time of making proposal for insurance. The whole controversy thus revolves around the fact weather the medical condition of the child was at the stage of his birth and was it known to the Complainant, who failed to the Appellant while making proposal for insurance.

21.    It is a fundamental principle in the insurance contracts that the party claiming the exemption clause needs to establish the same. However, Appellants failed to substantiate that the insured child had such medical condition by birth and that, while being aware, Respondent No. 1 failed to notify the same to the Appellant the stage of making the proposal. On the other hand, Respondent No. 1 repeatedly asserted the absence of knowledge of such medical condition, if any, and that the first discovery of the same was made much after the insurance contract was entered into and, therefore, he is entitled for reimbursement of medical expenses under the scope of the policy.

22.    It is in common amongst children of tender age to have convulsions during high fever conditions and recover after high temperature recedes. Therefore, mere isolated event of such incident cannot constitute knowledge of an entirely independent medical condition that may be revealed at a subsequent stage. The stated facts and records reveal that, while the Complainant No. 1 clarified the circumstances under which he discovered the medical condition of his child, the Appellant/OPs failed to establish that Master Anshuman Rai was suffering from this disease by birth and there was concealment of fact at the time of taking the insurance policy. Therefore, the claim is liable to be allowed.

23.    As regards jurisdiction, in terms of the Act, the same is to be decided based on the valuation of the complaint. The amount of compensation sought by the complainant is such that the same is within the pecuniary jurisdiction of the learned State Commission.

24.    In view of the above discussions and due consideration of the entire facts and circumstances the case, the Appeal is rejected to the extent of insurance claim. As regards claim for compensation, in the recent Order of the Hon’ble Supreme Court in the case of Experion Developers Pvt. Ltd. Vs. Sushma Ashok Shiroor, in Civil Appeal No.6044 of 2019 decided on 7.4.2022, has held as under:-

“We are of the opinion that for the interest payable on the amount deposited to be restitutionary and also compensatory, interest has to be paid from the date of the deposit of the amounts.  The Commission in the Order impugned has granted interest from the date of last deposit.  We find that this does not amount to restitution. Following the decision in DLF Homes Panchkula Pvt. Ltd. Vs. DS Dhanda and in modification of the direction issued by the Commission, we direct that the interest on the refund shall be payable from the dates of deposit. Therefore, the Appeal filed by purchaser deserves to be partly allowed. The interest shall be payable from the dates of such deposits.

At the same time, we are of the opinion that the interest of 9% granted by the Commission is fair and just.”

25.    The Hon’ble Supreme Court in the case of DLF Homes Panchkula Pvt. Ltd. Vs. D.S. Dhanda, in CA Nos. 4910-4941 of 2019 decided on 10.05.2019 has held that multiple compensations for singular deficiency is not justifiable. Therefore, award of Rs.5 Lakhs as compensation for mental agony and harassment; and Rs.20,000/- as costs litigation expenses by the learned State Commission are untenable.

26.    In view of the foregoing, the Order dated 22.01.2021 in passed by the learned State Commission in Consumer Complaint No. 521/2017 is modified as under:

ORDER

1. The Appellants/Opposite Parties shall pay the Complainant Rs. 15,00,000/- towards hospital expenses along with interest @ 9 per annum from the date of filing the Complaint before the learned State Commission till the date of payment, within a period of one month from the date of this order. In the event of delay beyond one month, the interest applicable for such period beyond one month shall be @ 12% per annum.

2. The Appellants/Opposite Parties shall pay the Complainant Rs. 30,000, towards costs of litigation.

3. The Order for payment of Rs. 5,00,000/- to the Appellant towards mental agony, harassment is set aside.

27.    All pending Application, if any, stand disposed of.

28.    The Registry is directed to release the statutory deposit amount, if any, in favour of the Appellants, after due compliance of this order.