Insurers Must Exercise Due Diligence During Policy Porting; Cannot Rely on 'Utmost Good Faith' After Ignoring Data: Bombay High Court

Insurers Must Do Their Homework: Bombay High Court Rejects 'Portal Dysfunction' Defense in Porting Dispute

In a significant ruling for policyholders, the Bombay High Court has affirmed that health insurance companies cannot dodge their responsibility to investigate an applicant's claim history during the "porting" process. Justice Somasekhar Sundaresan, presiding over Care Health Insurance Ltd v. Manjula Haresh Joisar , held that if an insurer agrees to port a policy, it is expected to have performed its due diligence—regardless of whether the industry-wide data portal was functioning at the time.

The Porting Dispute

The case involved Mr. Haresh K. Joisar, an insured individual who had previously been treated for carcinoma while covered by Star Health and Allied Insurance. Upon migrating his policy to Care Health Insurance Ltd in January 2022, a claim was later filed following his hospitalization. Care Health rejected the claim, citing the insured's failure to disclose his medical history.

Care Health argued that the Indian Insurance Bureau (IIB) portal, intended to share medical and claim data, was dysfunctional at the time of migration. They contended that, under the doctrine of uberrima fide (utmost good faith), the burden of disclosure rested solely on the insured.

A Regulatory Framework for Seamless Migration

Justice Sundaresan’s bench examined the IRDA (Health Insurance) Regulations, 2016, which govern the migration of policies. The court noted that these regulations were specifically designed to allow policyholders to move between insurers without the "hassle of opening a new risk assessment all over again."

The Court clarified that the portability framework provides a structured timeline. If the previous insurer fails to transmit data, or if the system is down, the new insurer has a choice: either wait for the information or exercise their right to reject the proposal before accepting premiums.

Court’s Reasoning: An Informed Risk

The turning point for the Court was Care Health’s decision to accept the policy and the premiums despite the alleged lack of information.

"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 exercising diligence before taking a decision," Justice Sundaresan observed. The Court emphasized that an insurer’s acceptance of a porting request is legally presumed to be an "informed decision" made with "eyes open."

Key Observations

The judgment provides clear guidance for the insurance industry moving forward:

• On Duty of Diligence: "In these circumstances, considering the intensity of the promise that insurance companies hold to society, it is must be legitimately and reasonably expected that insurers would exercise the highest degree of professionalism and back to back, diligence in vetting the policy particulars and claim history."
• On the Doctrine of Utmost Good Faith: "The proposition is not that the insured has no responsibility whatsoever in providing the information. Instead, 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."
• On Regulatory Objectives: "The claim that the IIB portal was not functioning and therefore, the insured can be blamed... cannot be accepted since it would be a reading that directly conflicts with the very specific regulatory objective of permitting hassle-free migration for the insured."

Implications for the Future

By dismissing the petition, the Court has sent a stern message: institutional insurers possess far greater resources to verify risk than the individual consumer. The onus is on the insurance provider to utilize the regulatory tools at their disposal to assess risk before finalizing a contract. Future disputes involving policy migration will likely refer to this judgment to ensure that insurers do not use bureaucratic interface failures as a shield against their contractual obligations to policyholders.

The petition was dismissed, upholding the earlier award by the Insurance Ombudsman that favored the claimant.