Consumer protection: Changes in insurance policy terms must be conveyed

The National Commission noted that critical illness risk should have been included by the insurer to avoid prejudice caused by the discontinuation of this risk

Mustafa Pithawala had taken a home loan of Rs 20,11,101 from Tata Capital Housing Finance on October 19, 2015. To secure its repayment, he was covered under ICICI Lombard Group Secure Mind Policy, valid from October 23, 2015, to October 22, 2020. This policy also covered personal accident and major medical illnesses and procedures such as coronary artery bypass graft surgery (CABG).

 

During the tenure of the loan and the policy, a representative of Cholamandalam Investment and Finance Company approached Pithawala with an offer to transfer his existing loan for a higher amount of Rs 1,02,10,000 and repayment coverage under an identical policy from HDFC Life Group Credit Protect Plus Insurance Plan, with the only difference being that the sum insured would be the enhanced loan amount of Rs 1,02,10,000 and the tenure would be seven years. 

Relying on the representation, Pithawala executed the necessary documents and paid a premium of Rs 2,08,458. Subsequently, the switch took place on February 8, 2018. Pithawala repeatedly requested a copy of the policy, but it was not issued. 

Later, Pithawala developed a heart problem for which he incurred Rs 2,65,816 for a CABG Surgery in December 2018. He lodged a claim, which was rejected as the new HDFC policy was limited only to death benefits and did not cover critical illnesses. 

Pithawala complained to the Insurance Regulatory & Development Authority of India (IRDAI) as well as the Prime Minister’s Office. As his grievance was not resolved, he approached the National Consumer Commission, alleging that he was kept in the dark for nearly a year by withholding information about the nature and extent of the coverage available under the policy. He sought a direction to settle his claim as a critical illness and to refund the EMI payments collected after the CABG procedure. 

Nearly a year later, Cholamandalam emailed on December 23, 2019, forwarding a soft copy of HDFC’s policy. 

The insurer contested the complaint, contending that the policy issued to Pithawala clearly mentioned that it was for “Life Option”, so it would cover only death benefits. It pointed out that Pithawala had neither disputed the policy terms within the free look-in period of 15 days nor contended that the premium was too high. It argued that the objective of the insurance policy was to cover the repayment of the loan amount, so the policy could not be cancelled unless the financier, that is Cholamandalam, gave a no-objection certificate. 

The insurer argued that the law had been settled by the Supreme Court that consumer fora cannot interfere with, modify, or recast the terms and conditions of an insurance policy, which is a contract mutually agreed upon by both parties. It argued that the purpose of the policy was to safeguard against default in repayment due to the death of the borrower. 

The National Commission observed that the insurer’s affidavit stated that the policy was served on Pithawala, but it had failed to substantiate this with documentary evidence showing proof of service. The Commission termed the affidavit as “self-serving” and refused to believe it. 

The Commission noted that the option for various types of coverage had been left blank and held that the risk of critical illness ought to have been included by the insurer to avoid prejudice caused by the discontinuation of this risk. 

Accordingly, by its order of October 14, 2024, delivered by Bharatkumar Pandya, the National Commission directed HDFC and Cholamandalam to pay Rs 2.5 lakh each, totalling Rs 5 lakh as compensation. 

The writer is a consumer activist