Insurer Must Conduct Due Diligence During Policy Porting Under IRDAI Regulations: Bombay High Court

The Burden of Diligence: Insurers Cannot Blame Technology for Failure to Vet Ported Policies

In a landmark ruling that clarifies the obligations of insurance companies during the "portability" of health policies, the Bombay High Court has affirmed that insurers cannot cite technical glitches as a shield to evade their due diligence responsibilities. Justice Somasekhar Sundaresan, presiding over the case of Care Health Insurance Ltd. vs. Manjula Haresh Joisar , held that when an insurer accepts a request to port a policy, they do so as an informed party, and must be held accountable for the risk they knowingly take on.

A Case of Migrated Risks

The dispute arose when the husband of the respondent, who had a history of carcinoma and had undergone previous medical procedures covered by Star Health and Allied Insurance, sought to migrate his policy to Care Health Insurance. Upon the transfer of the policy (the "porting" process), the new insurer subsequently repudiated a claim for the insured's hospitalization, citing non-disclosure of his medical history.

Care Health contended that the Indian Insurance Bureau (IIB) portal was dysfunctional, preventing them from accessing the claimant’s full history. They argued that they were entitled to assume "utmost good faith" from the insured regarding fresh disclosures.

The Regulatory Mandate

The High Court turned to the Insurance Regulatory and Development Authority of India (Health Insurance) Regulations, 2016. Under these regulations, portability is designed to allow customers to move between insurers without losing their coverage benefits.

Justice Sundaresan noted that the regulatory framework provides a clear window for insurers to review the risk profile of an applicant. If an insurer claims that the IIB portal is dysfunctional, they have the option to reject the porting request entirely before accepting premiums. Once they accept the premium and the porting process, they cannot later disclaim knowledge of a history that it was their professional duty to verify.

Key Observations

The judgment underscores the professional standard expected of insurance companies:

• "The insured is entitled to believe that the new insurer had taken an informed decision on accepting the porting request."
• "Having accepted the request for porting and having happily accepted the premium, the breakdown in the IIB portal cannot be the reason for excusing Care Health from exercise of diligence."
• "The proposition is that when the insurer accepts the porting request, he does so with eyes open and it is presumed to be an informed decision."

Precedents and the Doctrine of Utmost Good Faith

The Petitioner relied upon established Supreme Court precedents— Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod and Aditya Birla Sun Life Insurance Co. Ltd. v. The Insurance Ombudsman —to invoke the doctrine of uberrima fide (utmost good faith) against the insured.

However, the Court distinguished these cases, noting that they did not involve the specialized context of portability, where two mature financial institutions are expected to transfer information seamlessly. The Court clarified that shifting the burden of disclosure entirely to the insured in a portability scenario contradicts the regulatory intent of a "hassle-free migration."

Implications for the Healthcare Sector

By dismissing the petition, the Bombay High Court has sent a clear message to the insurance industry: the regulatory objective of portability is centered on protecting the policyholder, not alleviating the insurer's underwriting burden. For insurance companies, the ruling serves as a stern reminder that internal failures, whether technical or administrative, do not override the fiduciary duty to verify risks before issuing a policy. For policyholders, this decision provides a significant safeguard against being blindsided by insurers who fail to perform their due diligence during the migration of coverage.

The Court concluded that since Care Health had consciously accepted the risk and the premiums, they are bound by the underlying duty to have full knowledge of the policy history they were acquiring.