Left in the Lurch: Insurance companies often wriggle out of paying for an expensive medical procedure by citing the exclusion clause

Niranjan Shah, an entrepreneur, had to undergo an appendix operation recently. His operation proved more complicated than was expected and he had to stay in hospital for nearly two months. “I had taken a medical insurance to meet such exigencies and once I was better, I approached the insurance company to get my medical expenses reimbursed,” says Shah.

But Shah was in for a rude shock. The insurance company told him curtly that his medical bills would not be reimbursed since he had not declared all his illnesses at the time of taking the insurance policy. Not one to give up what he clearly thinks is his right, Shah is considering legal action against the insurance company. “How could I possibly have known the likely future manifestation of a disease?” he asks.

Shah is just one among many who have run into a similar impasse with insurance companies and several court cases have been filed in this regard.

But if a recent judgement by the National Consumer Redressal Disputes Commission is upheld, insurance companies may no longer be able to cite this particular reason for not paying the insured person’s medical bills.

The National Commission order dated October 3, 2006, questions the validity of Clause 4.1 of the insurance policy of the case in question. The clause states that “it is not material whether the insured had knowledge of the disease or not, and even the existence of symptoms of the disease prior to the effective date of insurance enables the insurance company to disown the liability of paying for insurance.”

According to this exclusion clause, the insurance company is not liable to pay any claim whatsoever because many people suffer from symptoms of diseases without knowing being aware of the fact. The ruling states that “This policy is not a policy at all, as it is just a contract entered for the purpose of accepting the premium without the bona fide intention of giving any benefit to the insured under the garb of a pre-existing disease.”

The judgement has drawn mixed reactions. Advocate Prabir Basu, who is also a consumer activist, welcomes the new legal stance and points out that “under the exclusion clause of insurance companies, no claim is payable as most human beings have diseases pre-existing in the system without them knowing anything about it.” Basu adds that using the exclusion clause as an excuse for not paying for a genuine illness of a consumer is unacceptable, and the latest judgement will bind insurance companies in fair practice. The National Commission judgement is legally binding on all insurance companies until it is challenged in the Supreme Court.

Basu reveals that the Supreme Court had, in fact, given a judgement in 1992 that said that “the burden of proving that the insured had made false representations and suppressed material facts was undoubtedly on the insurance company and this would have to be proved by appropriate affidavit or evidence.”

Shankar Prasad Dey, regional manager of the legal department of the National Insurance Company (Calcutta regional office) explains that his company has launched several new policies to benefit clients. “On December 4, 2006, we started a new Mediclaim policy for senior citizens which gives relaxation for pre-existing diseases except for malignant diseases which will be covered under Section I of the policy after one claim-free year,” he states.

However, regarding the recent National Commission judgement, Dey points out that the ruling can be challenged in the Supreme Court.

Lawyers are of the opinion that the ruling will definitely help consumers. “The exclusion clause has caused a lot of legal hassles for clients and the recent judgement ought to be upheld in the interest of the consumer,” states Anjan Dutta, an advocate at Judges Court, Calcutta, and assistant secretary of the Bengal Federation of Consumer Organisations. Dutta says that many people enter mediclaim deals without reading the fine print and remain unaware of the exclusion clause that can be invoked by insurance companies to get out of paying for the client’s medical bills. “The new judgement will certainly aid their cause,” he notes.

Some lawyers, however, point out that the judgement can only be effective if both the insurer and the insured display more maturity and responsibility whilst agreeing to undertake mediclaim insurance policies. Samarendranath Dutta, a Calcutta High Court lawyer, cites the case of a lady who got 20 teeth extracted all at once and had her mediclaim insurance claim legally ruled out. “The insurance company rejected her claim and the doctor consulted also confirmed that there was no rational reason for her to undergo such a procedure,” says Dutta.

He adds that although he recognises the importance of the National Commission judgement, it is incumbent on the insured to submit a proper medical certificate to the insurer to avoid unnecessary litigation. “The insurer should also take proper steps to consider the validity of such a certificate before entering into any agreement with an individual,” he says.