The Burden of Diligence: Bombay High Court Clarifies Rules on Insurance Portability

In a significant ruling for health insurance policyholders, the Bombay High Court has affirmed that insurers cannot sidestep their duty of diligence when accepting "ported" insurance policies. Justice Somasekhar Sundaresan, presiding over a dispute between Care Health Insurance Ltd and its insured, underscored that once an insurance company accepts a request to migrate a policy, they do so with "eyes open," and cannot later cite a lack of information to justify repudiating a claim.

A Legacy of Dispute: The Case Background

The controversy arose when Mr. Haresh K. Joisar, a policyholder with a history of carcinoma, migrated his health coverage from Star Health and Allied Insurance Co. Ltd. to Care Health Insurance Ltd. While Mr. Joisar had previously disclosed his condition and received treatments covered by Star Health, the new insurer, Care Health, repudiated a subsequent claim for hospitalisation in 2022. The grounds for refusal? Material non-disclosure of the pre-existing carcinoma.

Care Health argued that the portal maintained by the Indian Insurance Bureau (IIB)—intended for sharing medical records during porting—was dysfunctional at the time, leaving them in the dark about the patient's full history. They maintained that the insured was bound by the doctrine of uberrima fide (utmost good faith) to disclose all material facts, regardless of whether the portal was working.

The Regulatory Framework: A Two-Way Street

The Court’s analysis centered on the IRDA (Health Insurance) Regulations, 2016. Justice Sundaresan noted that the regulatory framework for porting is not a passive process. Paragraphs 10, 11, and 12 of Schedule-I explicitly outline a system where the existing insurer must provide data, and the incoming insurer is, in turn, empowered to underwrite that information.

Crucially, the law provides the new insurer 15 days to communicate an acceptance or rejection of the porting request upon receipt of data . The Court observed that if the portal was truly dysfunctional, nothing prevented Care Health from exercising its right to reject the business proposition. Instead, the insurer chose to accept the premium and the risk.

Key Observations

Highlighting the professional standards expected of insurers, the Court noted:

• "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 before taking a decision on porting the policy."
• "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..."

Distinguishing Precedents

While the petitioner invoked landmark cases like Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod to argue for the insured's duty of disclosure, the Court distinguished this from the context of policy porting. The Court clarified that while the duty of utmost good faith remains, it cannot be used as an excuse for the insurer to perform a "lazy" underwriting process. Portability is designed to provide a "hassle-free migration" for the policyholder, and the administrative burden of verifying history rests on the professionals—the insurance companies themselves.

Final Decision: A Win for Policyholders

The High Court dismissed the petition, refusing to interfere with the Insurance Ombudsman’s original award. The ruling establishes a vital precedent: an insurance company that accepts a ported policy effectively inherits the obligation to have performed due diligence. By accepting the premium while knowing or having the capacity to obtain full history, the insurer waives the right to later claim ignorance as a basis for rejection.

This judgment serves as a reminder to the insurance sector that regulatory shortcuts and technological failures of support systems cannot be shifted onto the shoulders of the consumer.