Don't punish policyholder for hospital's lapses, court tells insurer

Time of India

01-07-2025

Bengaluru: An insurance company cannot punish a policyholder for the alleged lapses of a hospital, the Bengaluru Urban District Consumer Disputes Redressal Commission has said, pulling up Navi General Insurance for rejecting a hospitalisation claim and cancelling a policy without due process.
"If the insurer believed the hospital reports were unauthentic, it should have acted against the hospital, not the insured," the commission said, directing Navi to compensate 29-year-old Veeresh Rathod and restore his policy after branding him fraudulent and denying his Rs 14,500 claim without evidence.
Rathod, a Bengaluru resident, had bought a group health policy from Navi in 2022 to cover himself and his elderly parents.
Over three years, he paid Rs 67,606 in premiums without making a single claim. In April 2024, his mother was admitted to Sharavathi Hospital for acute gastroenteritis. After her discharge, Rathod submitted a reimbursement claim for 14,500.
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However, Navi not only rejected the claim but also cancelled his policy, citing procedural discrepancies and suspected fraud.
The company alleged that broad-spectrum antibiotics (Piptaz) were administered without a culture sensitivity test, that five doses were bought when only three were used, that the discharge summary lacked a doctor's authentication, and that blood reports were signed by a technician, not a pathologist.
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Invoking the fraud clause, the firm terminated the policy and even issued an internal industry alert labelling Rathod as a fraudulent claimant — a move the commission deemed reputationally damaging and disproportionate.
Rathod's appeals to the Insurance Regulatory and Development Authority and insurance ombudsman went unanswered. He then approached the consumer forum on June 24, 2024, alleging deficiency in service.
Navi defended its actions, claiming the complaint was unfounded and that the discrepancies pointed to deliberate manipulation.
But the commission, after examining the evidence, ruled otherwise. It said treatment decisions such as choice of antibiotics or minor documentation issues could not be pinned on the insured. Buying five vials instead of three, it said, did not amount to fraud. Importantly, Navi had neither issued Rathod the mandatory 15-day notice for policy termination, nor initiated action against the hospital for the alleged irregularities.
The commission noted with concern the insurer's aggressive stance over a low-value claim and warned against turning procedural gaps into grounds for claim rejection. "Consumers, despite paying premiums, are being pushed into prolonged legal battles over small sums," the bench observed, finding Navi's objections unconvincing and unsupported by proof of fraudulent intent.
On May 16, the forum ordered Navi to pay Rathod Rs 1 lakh as compensation for mental agony, Rs 14,500 towards the rejected claim with interest, Rs 10,000 as litigation costs, and Rs 50,000 as punitive damages to the Consumer Welfare Fund.
The insurer was directed to issue a fresh policy for the remaining period and to honour renewals thereafter. It must also remove Rathod's name from the fraud alert database.
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