Can Insurers Deny Pre-Existing Disease Claims?

Manmohan Nanda was about 55 when he and his wife travelled to San Francisco to attend the wedding of his sister-in-law's daughter. Before United India Assurance Co. Ltd. considered his request for an overseas mediclaim policy, it had him examined. Dr. Jitendra Jain recorded diabetes mellitus-II, found no other adverse condition, reported a normal electrocardiogram and answered that there was no possible illness or disease for which Nanda might need treatment during the USA trip.

The insurer accepted the proposal and issued the Overseas Mediclaim Business and Holiday Policy. On 19 May 2009 Nanda boarded a flight from Delhi to San Francisco and reached it that day. On exiting the customs section at San Francisco airport he felt weak and started sweating. He was admitted at SFO Medical Centre and shifted to Mills Peninsula Medical Centre. He underwent angioplasty on 19 and 22 May, had three stents inserted to remove blockage from his heart vessels, and was discharged on 24 May.

The bills came later. On 19 August 2009 Nanda sent the original bills and the discharge summary to United India Assurance's Bhopal office, and sent the same letter to a second respondent. On 22 August 2009 the claim was repudiated for Bill No.1, of USD 2,29,719. The stated reason was that he had a history of hyperlipidaemia and diabetes, and that the policy did not cover pre-existing conditions and complications arising from them.

The excuses were three. First, the insurer said his statin medicine proved an undisclosed lipid problem. Second, it pointed out that he left query no. 2 of the medical-history section blank and relied on the policy's exclusion for any disease existing when the risk began. Third, it said all complications of a pre-existing condition were unpayable.

Nanda protested on 16 November 2009. He said the statins were taken as a precaution against cardiovascular complications in diabetics, not because he had hyperlipidaemia, and that he had told Dr. Jain about his medicines. The insurer reiterated its repudiation on 9 April 2010. The National Consumer Disputes Redressal Commission then dismissed his complaint. It treated his statin use as proof of an undisclosed pre-existing disease and said he could have disclosed the condition. It found a breach of uberrimae fidei and applied the pre-existing exclusion.

Nanda had filed his complaint under Section 21(9) of the Consumer Protection Act, 1986. After the Commission dismissed it, he appealed to the Supreme Court. The real fight was over "material fact" in an insurance contract.

Such contracts run on uberrimae fidei, or utmost good faith. The insured must reveal all material facts known to him or which he ought reasonably to know. The insurer must explain the policy's terms and stick to the proposal form and its agents' statements. Materiality depends on the policy, the risk covered and the specific questions asked. A blank column is not a free concealment hatch. The insurer must ask for it to be filled, and if it takes the premium and issues the policy anyway, it cannot later repudiate on that ground.

Earlier decisions pointed in different directions. In Satwant Kaur Sandhu, the Court allowed repudiation where the insured answered "Sound Health" and "Nil" despite diabetes and chronic renal failure. In Canara Bank, it protected the insured where the insurer ignored a blank column. In Hari Om Agarwal, the Delhi High Court held that a clause on pre-existing conditions could not override the insurer's primary liability under a mediclaim policy. The Supreme Court had to fit those rules to Nanda's proposal form, the exclusion clause and the insurer's own pre-issuance medical assessment.

The Court held that Nanda had suppressed nothing. His diabetes mellitus-II was disclosed, and the ECG and other reports were before the insurer. The doctor who examined him at the insurer's instance had noted a normal ECG and no current illness likely to need treatment abroad. A heart attack can strike a person with no history of diabetes. Diabetes is a risk factor, not a guarantee. Once the insurer saw the risk and issued the policy, it could not call the sudden heart attack a concealed pre-existing complication.

The Bench used that principle to close two doors:

• United India Assurance could not resurrect a disclosed condition as an undisclosed "related complication" after deciding to issue the policy.
• Because the insurer drafted the exclusion clause, it was read against the insurer under the contra proferentem rule. Otherwise, the Court said, "the very contract of insurance would become meaningless."

The repudiation was illegal. The respondents had to indemnify Nanda's medical expenses within one month of receiving the judgment and pay 6% annual interest from the date the claim petition was filed until realisation. The USD claim was to be converted at the lower of the exchange rate on the claim-petition date or Rs.45 per USD. They also had to pay Rs. 1,00,000 as litigation costs.

Many people ask whether a pre-existing disease is covered from day 1. This judgment sets no day-one rule. Manmohan Nanda is the Supreme Court judgement on pre-existing disease that turns on what the insurer knew before issuing the policy. The insurer's own assessment and decision matter.

• Gather the signed proposal form, ECG, blood-sugar and urine reports, policy copy, hospital bills, discharge summary, claim correspondence and the repudiation letter.
• Route the claim through the insurer's emergency assistance or claims administrator, as Nanda's family did with M/s Corris International. If the claim is repudiated, send a written representation as Nanda did on 16 November 2009. When the insurer stood by its repudiation, Nanda filed a complaint under Section 21(9) of the Consumer Protection Act, 1986 before the National Consumer Disputes Redressal Commission.
• Show that the insurer knew the condition before issuing the policy: your disclosure, the medical report and its decision to issue the policy despite that disclosure.
• Avoid suppressing or misstating a known material fact, or leaving a proposal-form column blank and relying on that blank to hide a known illness.