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When hearing complaints, the Insurance Ombudsman performs quasi-judicial functions and the award can be contested under Article 227: Bombay High Court

The Bombay High Court on 18th August observed that the Insurance Ombudsman acts like a tribunal while resolving a complaint and decided that an insurance company can contest the Insurance Ombudsman’s award before the High Court under Article 227 of the Constitution, through the single bench of Justice G. S. Kulkarni in the case of Aditya Birla Sun Life Insurance Co. Ltd. vs Insurance Ombudsman & Anr. (Writ Petition No. 7804 of 2021).

 

FACTS OF THE CASE:

According to the facts of the case, the bench was hearing a petition filed under Article 227 brought by an insurance company challenging the Insurance Ombudsman’s judgement awarding relief to the complainant in an insurance complaint.

Dr Fakhruddin Chhatriwala (insured) acquired a life insurance policy from the petitioner via HDFC Bank. He said he had no pre-existing conditions. When he died while undergoing treatment, the hospital noted that he had Diabetes Mellitus/Hypertension. His wife filed an insurance claim for Rs. 75 lakhs. The petitioner learned that the insured was being treated for schizophrenia and hypertension. The petitioner refused the insurance claim, claiming that he withheld pertinent details regarding his medical history on purpose. The wife appealed to the Grievance Redressal Committee (GRC), which affirmed the decision of the petitioner.

The insurance company argued on merits that any failure by the deceased insured to provide information to the insurer would render the insurance contract void under Section 45 of the Insurance Act of 1938. The material facts do not have to be connected to the cause of death. The insured’s wife claimed that the diagnosis of hypertension was established after the insurance was already in effect. Furthermore, schizophrenia does not correspond with the insured’s actual cause of death. Not every nondisclosure entitles the insurer to cancel the insurance.

The insurance company further contended that the Ombudsman lacked jurisdiction since the claim exceeded the pecuniary jurisdiction. Chhatriwala’s wife stated that she was willing to settle the claim for Rs. 30 lakhs.

 

JUDGEMENT:

The reliance was placed on the 2017 Rules to establish that an Insurance Ombudsman, like a tribunal, exercises quasi-judicial powers while adjudicating a complaint. The court noted that the term “tribunal” in Article 227 of the Constitution must be liberally defined to encompass all statutory authorities vested with quasi-judicial authority, even if they are not labelled as such.

The bench paid reliance on the case of M/s Amrit Versha Udyog Pvt. Ltd v. Uttaranchal Power Corporation Ltd. [2016 SCC OnLine Utt 2384], in which the Uttarakhand High Court had stated that when an authority is obligated to act judicially under the legislation, its decisions are often considered quasi-judicial. The court based its conclusion on the Apex Court decision in Columbia Sportswear Company v. Director of Income Tax [(2012)11 SCC 224], in which the Authority for Advance Rulings was held to be a tribunal under Articles 136 and 227 of the Constitution. The court decided that the precedent set in Columbia Sportswear would apply to the present case as well.

The court held that the Insurance Ombudsman lacked jurisdiction to hear the case in the first place since the demand of 75 lakh rupees considerably exceeded the Insurance Ombudsman’s pecuniary jurisdiction of 30 lakh rupees under Rule 17(3) of the 2017 Rules. The intention to settle for a lower amount does not constitute a change to the complaint’s claim amount.

Accordingly, the award passed by the Insurance Ombudsman was set aside.

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JUDGEMENT REVIEWED BY NIDHI KUMAR

 

 

Read the full judgement.

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