INSURANCE LAW
INTRODUCTION ❤
Risk include fire, accident or theft, or to pay a fixed sum on the happening of certain event, such as death.
Loss which is being insured against is called risk
In consideration of this promise, the insured promises to pay to the insurer a sum of money called ‘premium’.
One person ‘the insurer’ undertakes to indemnify another ‘the insured’ against a loss which may arise upon the occurrence of some event or to pay a certain definite sum of money on the occurrence of the particular event.
The premium may consist of a lump sum or of periodic payments
Document issued by the insurer to the insured setting out the terms of the insurance contract is called ‘policy’ of insurance.
Main legislation governing insurance is Insurance Act 1996 which came into effect 1st January 1997.
Legal principles applying to the formation of a contract also governs the formation of an insurance contract
Insurance Act 1996 ⭐
Section 4 divides insurance business into two classes, ie. life business and general business (all insurance business which is not life business).
It is possible to insure against a great variety of risks, and some of the common examples of insurance are
life insurance
marine insurance
fire insurance
accident insurance
motor insurance
aviation insurance
Two types of insurance ⭐
Contingency Insurance
Involves payment on a contingent event and in which the sum paid is not measured by the loss but stated in the policy.
The insurer’s liability is to pay certain fixed sums specified in the policy, on the death, accident or sickness of the insured
Eg life policy where insurer undertakes to pay a certain sum of money on the death of a specified person, or on his attaining a certain age
Indemnity Insurance ⭐
Indemnity against loss in which the measure of loss is the measure of payment
It binds the insurer to pay the amount of the insured’s actual loss up to the amount covered by the insurance policy.
If the risk insured against does not occur, then no payment is made to the insured
Eg: fire policy where the liability of insurer is only to reimburse the insured for the loss he has suffered during the event and no more
Two Components ⭐
There must be an ‘insurable interest’ to be insured
Proponent is required to demonstrate utmost good faith (uberrimae fidei) in insurance proposal
Insurable Interest ⭐
In every contract of insurance, the insured has to have an ‘insurable interest’.
Insurable interest is an interest in the subject matter of a contract of insurance which provides the insured with the right to enforce the contract
A person who suffer loss in the event of his property being destroyed can be said to have an insurable interest.
If a person has no insurable interest, the policy is void.
Eg 1: The owner of a car has an insurable interest in the car since he would suffer a monetary loss if the car meets with an accident
Eg 2: A house owner has an insurable interest in the house since if the house catches fire or is damaged by floods, the house owner would suffer a loss.
👥Case: Macaura v Northern Assurance Co Ltd (1925)
Macaura had no insurable interest as he had assigned the plantation to the company
👥Case: Nanyang Insurance Co Ltd v Salbiah & Anor (1967)
Lau Teck Siaw had an insurable interest in the car on the date of the accident. The car was driven by Abdul Karim with the permission of the insured
Section 152 (2) Insurance Act 1996
Person shall be deemed to have insurable interest in relation to another person if the other person is his spouse, child, employee etc
Life insurance
There must be an insurable interest at the time the insurance was taken.
General insurance
there must be insurable interest at the time the insurance was taken and at time of a claim
UBERRIMAE FIDEI ⭐
The person with the greatest knowledge of the risk involved is the proponent
It follows that they should disclose all those facts that could influence the insurance company as to whether or not it will accept the risk
Failure to disclose material information gives the other party the right to regard the contract as void.
👥Case: Goh Chooi Leng v Public Life Assurance Co Ltd (1964)
Assured's answer in the declaration was a deliberate lie. The contract of insurance was therefore voidable
Material facts/Information ⭐
Section 147 (5)
A person is not expected to disclose all facts
“Material fact” means a matter or fact which, if known by the licensed life insurer, would have led to its refusal to issue a life policy to the policy owner or would have led it to impose terms less favorable to the policy owner than those imposed in the life policy.
He is only required to disclose material facts
Material fact is a fact that would influence the mind of a prudent insurer in deciding whether to accept the risk, and if so at what premium
If a person fails to disclose a fact which is not material, the contract is still valid.
Section 150 (1) and Section 150 (2)
Before a contract of insurance is entered into, a proposer shall disclose to the licensed insurer a matter that—
He knows to be relevant to the decision of the licensed insurer on whether to accept the risk or not and the rates and terms to be applied
A reasonable person in the circumstances could be expected to know to be relevant
The duty of disclosure does not require the disclosure of a matter that is of common knowledge
👥Case: New India Asurance Co Ltd v Pang Piang Chong & Anor (1971)
The first defendant answer to the question did not constitute a non-disclosure of a material fact or representation of a fact which was false in some material particular
👥Case: Abu Bakar v Oriental Fire & General Insurance Co Ltd (1974)
No evidence to show that the grinding mills was considered to increase the risks with respect to the property insured. Insurers were liable under the insurance policy
Condition and Warranties ⭐
When the insured commits a breach of condition or warranty, the insurer is entitled to disclaim liability.
👥Case: Suhaimi bin Ibrahim v United Malayan Insurance Co Ltd (1996)
Plaintiff engagement of more than six employees, contrary as what stated in the proposal form, amounts to breach of warranty
There was also breach of condition when the Plaintiff failed to refer the dispute to arbitration within 12 months.
Exemption Clause ⭐
It is common for insurance contracts to contain exemption clauses to be exempted/excluded from some liability.
👥Case: Tan Keng Hong & Anor v Fatimah binti Abdullah (1974)
A lorry was insured under a third party policy which exempted liability for death caused to any person carried on the vehicle (other than a passenger carried by reason of contract of employment).
It was held that the deceased was getting a free lift on the lorry, therefore the insurers were not liable under the policy to indemnify the appellants
Completion of Proposal Form by Agent ⭐
Proposal form is the basis of the contract.
Agent insurance company is acting as insured’s agent and not on behalf of the company
👥Case: Ong Eng Chai v China Insurance Co Ltd (1974)
The proposal form had been filled in and signed by an agent of the defendant’s company and it contained untrue answers
It was held that the untrue answers to the questions entitled the defendant company to avoid the contract