IRDA Directed to Take a Re-look at “Discriminatory” Exclusionary Clauses in Insurance Contracts

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In its judgment delivered last month, in the matter of M/S United India Insurance Company Limited versus  Jai Parkash Tayal, the Delhi High Court held that the exclusionary clause of genetic disorders in the insurance policy is “too broad, ambiguous and discriminatory, and hence in violation of Article 14 of the Constitution of India.”

The Insurance Regulatory and Development Authority of India was directed by the High Court of Delhi to scrutinize the exclusionary clauses in insurance contracts regarding genetic disorders and also to make certain to ensure that insurance companies do not reject the claims on the basis of these exclusionary clauses. In its 47-page judgment, the High Court said, “The exclusion of genetic disorders in all forms would be contrary to public policy. Several of the prevalent medical conditions which affect a large mass of the population, including cardiac conditions, high blood pressure, diabetes in all forms, could be classified as genetic disorders.”

Facts in Brief

The judgment was delivered by the High Court of Delhi in an insurance claim by Jai Prakash Tayal against United India Insurance Company.

The petitioner was suffering from Hypertrophic Obstructive Cardiomyopathy, a condition characterised by abnormal thickening of the muscular tissue of the heart. He was denied his claim by the insurance company which reasoned that the particular condition was genetic and genetic disorders fell under the exclusionary clauses and therefore his claim was not payable as per the policy.

Aggrieved, the petitioner moved to the Trial Court. The Trial Court ruled in the favour of the Mr Tayal, holding, “there cannot be a discriminatory clause against persons who suffered from genetic disorders and they were entitled to medical insurance.” In August 2017, the insurance company appealed against the order of the trial court in the High Court of Delhi.

The decision of the Delhi High Court

On 26th February 2018, the High Court delivered its verdict, upholding the view of the Trial Court. The Court while looking into the science of genetic disorders and status of similar claims in other countries said that “There are several medical conditions which could be partially attributable to genetics, but could also be attributable to several other factors, such as lifestyle, environmental conditions, dietary habits, etc. Detailed genetic testing is required in order to determine the nature of the genetic disorder, in the absence of which, it would be medically impossible to determine whether a broad medical condition is a purely genetic disorder i.e., solely attributable to a gene or to the several other factors which could contribute.”

Further Justice Pratibha Maninder Singh opined that if every insurance company starts rejecting claims of the insured on such extensive and wide exclusions, then a massive part of the country’s population will not be able to claim insurance, which is certainly not beneficial for the people.

To quote, Justice Pratibha Singh said that, “Discrimination in health insurance against individuals based on their genetic disposition or genetic heritage, in the absence of appropriate genetic testing and laying down of intelligible differentia, is unconstitutional.” The insurance companies are free to structure their contracts but the policy’s terms and conditions should not be arbitrary.

The IRDAI Circular

In pursuance of the directions rendered by the High Court in its judgment, the Insurance Regulatory and Development Authority of India (IRDAI) issued a circular on 19th March 2018. The circular affirmed that general and health Insurance companies cannot reject any claim based on genetic disorders. It stated, “In pursuance to the directions of Hon’ble High Court all insurance companies offering contracts of Health lnsurance are hereby directed that no claim in respect of any existing health insurance policy shall be rejected based on exclusions related to ‘Genetic Disorder’.”

It further stated that, “All insurance companies are directed not to include, Genetic Disorders as one of the exclusions in new health insurance policies issued in respect of all their existing health insurance products and also in the new products launched and/or filed under the provisions of Guidelines on product Filing in Health Insurance Business”.

Impact of the Verdict

The verdict rendered by the High Court will certainly have a large and lasting impression on insurance policies in the country. Few of the major impacts are:

  1. The insurance companies shall not be able to contest existing health claims (pending in consumer litigation) specifically being defended on the ground of genetic disorder as an exclusion in policy wordings.
  2. Further, no claim of health shall be repudiated on the ground of genetic disorder.
  3. There might be instances where insurers may receive consumer complaints wherein claim is solely repudiated on the ground of exclusion of genetic disorder. (Provided complaint is within limits as per section 24A of Consumer Protection Act 1986)
  4. As per the above excerpt is taken from the circular, all policies shall not exclude genetic disorders in the exclusion clause.

Conclusion

The judgment of the court has brought a change in the way the insurance companies frame their exclusionary clauses. The implications of the directions and the claims which will be arising in the future may lead to a national debate. Many insurance companies may show reluctance in complying with the directions or they come up with other ambiguous terms in their policies.

The judgment aims to protect the interests of the insured or policyholders and surely promotes the public interest. Genetic disorders, included in exclusionary clauses, were so usual and ordinary that a huge part of the country’s population suffered from such disorders and if every such claim was refused by insurance companies, it would surely have had a negative impact on the health and interest of the people of the country.

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