The Burden of Due Diligence: Lessons in Insurance Portability from the Bombay High Court

In a significant ruling for policyholders, the Bombay High Court has clarified the responsibilities of insurance companies when migrating health policies. Justice Somasekhar Sundaresan, presiding over Care Health Insurance Ltd. vs. Manjula Haresh Joisar , held that an insurer cannot escape its liability to honor claims by pleading non-disclosure after it has accepted the porting of a policy without exercising due diligence.

The Backdrop: A Dispute Over Ported History

The case began when the respondent attempted to port her husband’s health insurance policy from Star Health and Allied Insurance to Care Health Insurance Ltd. The insured individual had a recorded history of carcinoma and had previously undergone chemotherapy.

When the insured required hospitalization after the migration, Care Health denied the claim, arguing that the medical condition was not adequately disclosed by the insured. The insurer claimed that because the pertinent data portal managed by the Indian Insurance Bureau (IIB) was dysfunctional at the time, they were essentially operating in the dark. The Insurance Ombudsman disagreed, ruling in favor of the policyholder, which led Care Health to appeal the decision to the High Court.

The Legal Tug-of-War

Care Health contended that the doctrine of uberrima fide (utmost good faith) places a primary obligation on the insured to disclose all material medical facts. They argued that the system failure of the regulatory portal prevented them from accessing the policyholder's full medical and claims history, justifying their subsequent rejection of the claim.

The respondent, conversely, relied on the structure of the IRDA (Health Insurance) Regulations, 2016 . The legislation ensures that portability allows for a seamless transition between insurers. The court found that the regulatory framework provides a structured timeline for the outgoing insurer to share data and for the incoming insurer to evaluate the risk within a 15-day window specifically designed to prevent "blind" underwriting.

The Court’s Reasoning: Informed Decisions

Justice Sundaresan’s analysis pierced through the argument of "system failure." The Court reasoned that if an insurance company finds a portal dysfunctional, it is within their power and duty to demand the necessary information from the previous insurer or outright reject the porting request—not accept the premium and later cry foul upon the occurrence of a claim.

The Court emphasized that the act of accepting a ported policy is an informed corporate decision based on the risk appetite of the insurer. By accepting the premium, the insurer is presumed to have conducted the necessary assessment, and shifting the burden of record-keeping entirely onto the shoulders of the policyholder defeats the purpose of the regulatory, hassle-free migration framework.

Key Observations

The judgment is marked by clear, firm language regarding the professional obligations of insurance providers:

• "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."
• "When the insurer accepts the porting request, he does so with eyes open and it is presumed to be an informed decision."
• "[I]t is a 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 of an applicant."

Implications for the Future

The High Court’s decision serves as a pivotal warning to insurers: the regulatory framework for porting policies is not a shortcut for insurers to bypass their underwriting obligations. When an insurer accepts a ported policy, they effectively inherit the risk history of that profile. Future cases involving claims after portability will now undoubtedly be measured against this standard of diligence, ensuring that "systemic issues" do not become a mask for avoiding liability after a policyholder has dutifully paid their premiums. The petition filed by Care Health was dismissed, reaffirming the validity and reasoning of the Insurance Ombudsman’s initial award.