Payer-Policyholder addendum

Guidelines on enhancement of Payer-Policyholder agreements

Approach

The HCX network initiative is also an opportunity to review the relationships between other stakeholders in the health claims ecosystem and take advantage of the capabilities of the network to further improve these relationships. One such relationship is the one between a Payor and a Policy Holder. The proposed addendum is an endeavour to optimise the relationship between a Payor and Policy holder by making a few changes to the contract between them so as to make the contract FTA friendly.

In addition to the guidelines metioned in this document (specially the guidance for grievance redressal) the template is based on a sample Health Insurance Contract from SBI. A link to the sample contract can be found here.

This section discusses potential disputes that could arise between a payor and policy holder, along with some suggested resolution mechanisms.

Based on the guidelines for dispute resolution and the sample contract, the following disputes could potentially arise between a payor and policy holder:

1. Claim denial due to exclusions or non-inclusions

2. Claim denial for failure to disclose pre-existing disease

3. Approved claim amount dispute

However, before going into detail about the potential disputes, it would be important to highlight that the arbitration clause itself restricts what kind of disputes can be referred to arbitration.

Under the sample contract, arbitration is not available in cases where the insurance company denies or disputes its liability under the policy. The arbitration clause in the contract specifically excludes disputes arising out of denial or dispute of the claim from the scope of arbitration. This appears to be standard practice across various types of insurance contracts.

In the context of a property insurance contract, the scope and validity of this kind of arbitration clause was considered by the Supreme Court in Oriental Insurance Company Vs M/S Narbheram Power & Steel Ltd, [2018 (6) SCC 534]. The Court held that if the arbitration clause excluded disputes over denial of claim, then the policy holder’s only remedy would be to file a civil suit.

While in the above case, the only remedy for the policy holder was to approach the civil court, in the case of a health insurance contract, the policy holder could also approach the Insurance Ombudsman as it is a statutory remedy, or the Consumer Court, as it is a remedy in addition to all other remedies.

However, as mentioned above, going by the current sample contract(s), the matter cannot be referred to arbitration. Therefore, in order to make insurance contracts FTA friendly, it is recommended that the arbitration clause in the contract be amended to bring any dispute that arises from the contract under the scope of the clause, including those arising out of a denial of claim. This will require a fundamental shift in the current industry practice.

Claim Denial For Treatments Specifically Excluded Or Not Specifically Covered By The Contract

A claim will be denied if it is made in respect of a treatment either specifically excluded from coverage under the policy (for any of the reasons mentioned in the contract), or if the claim is in respect of a treatment not explicitly covered under the policy.

It is important to note that insurance contracts are required to be interpreted strictly. Therefore if a treatment is not specifically covered by the contract, the interpretation will be that it is excluded.

Therefore, disputes arising out of claims that are denied on account of specific exclusions or non-inclusions can be quickly resolved through arbitration, provided the arbitration clause in the contract covers such disputes.

Claim Denial For Failure To Disclose Pre-existing Disease:

Under the contract a claim will be denied if it is in respect of a pre-existing disease.

However, there are cases where a patient, unaware of any pre-existing condition, seeks treatment for a different issue and files a claim and, during treatment, the pre-existing condition may be detected.

When this happens, it is possible that the insurance company refuses the claim, contending that the policy holder failed to disclose the pre-existing disease.

Furthermore, the policy itself is sometimes repudiated for failure to disclose the pre-existing disease, even though the policyholder may not have been aware about the condition.

In such cases, one possible solution could be to modify the pre-existing disease exclusion so that such kinds of diseases, which are likely to remain undiagnosed, are not covered by the exclusion. In the event of a dispute, the opinion of the treating doctor who first diagnosed the disease could be used to decide whether or not the policyholder was, in fact, unaware of the existence of the pre-existing condition.

However, as mentioned above, such disputes can be resolved through arbitration only if the arbitration clause in the contract covers such disputes.

Claim Amount Dispute:

Disputes relating to the claim amount are already arbitrable, as per the arbitration clause in the sample contract. Furthermore, the contract already provides a detailed break-up of the policy holder’s coverage and the maximum amounts the Insurer will be liable to pay in respect of various claims.

In the event the amount paid is less than the claim, though the policyholder did claim less than the maximum coverage for a particular treatment, the dispute would be arbitrable, even with the existing arbitration clause, and the relevant clause in the contract would be used to adjudicate.

However, the arbitration clause itself needs to be modified to be FTA friendly.

Template - Addendum Payer-Policyholder contract

Payers may execute addendums in the case of existing contracts. For new contracts, Payers may simply incorporate the clauses mentioned in the addendum into their drafts.