Law updates - Insurance (Malaysian law unless otherwise stated)

*Abbreviations 

HC = high court 

COA = court of appeal 

FC = federal court  

The Great Eastern Life Assurance Company Limited v Indra Janardhana Menon (dilantik menurut Perintah bertarikh 17-1-2005 untuk mewakili harta pusaka NVJ Menon, Si Mati) [FC] 

The court of appeal was correct to hold that Menon was entitled to the overriding commission as paragraph II(A)(I) of the circular makes provision for the payment of overriding commission to an immediate superior at the rate of 10% of the group scheme agent's commission. In the circumstances of the case, Menon was Indrani's immediate superior as he was the one who recruited Indrani. From the facts, there was no evidence identified by the court of appeal to establish the parties intention that the obligation to pay overriding commission was a continuous one and not from time to time as and when payment became due. There was also nothing to show in any of the agreements that the parties had agreed to prolong the obligation to some date in the future. As such, there was no basis for the court of appeal to make a conclusion that the parties had intended it to be so. As far as the issue of the action being time barred was concerned, the law is well settled. A cause of action founded on contract accrues on the date of its breach and time begins to run from that breach. In the circumstances, the appellant's obligation to pay and Menon's entitlement to overriding commission arose in 1986 when premiums payable to the appellant on the group insurance scheme secured by Indrani was received by the appellant. When the appellant refused payment of the overriding commission as demanded by Menon, the appellant was in breach of its obligation. It is at that point of time that time began to run. The suit instituted by Menon in 1993 was thus time barred. In allowing the appeal, the court of appeal failed to appreciate that Menon's claim was not maintainable as it related to the sale of a group insurance scheme in 1986, whereas his entitlement for overriding commission was governed by the circular, which only came into effect on January 1, 1987. 

 

Ramli bin Shahdan & Anor v Motor Insurer's Bureau of West Malaysia & Anor [COA] 

When a contract as in this case, is made between the first and second respondents for the benefit of the appellants, the second respondent can sue on the said contract for the benefit of the appellants, and recover all that the appellants would have recovered as if the contract had been made by the appellants themselves. If the second respondent were to fail in his duty, the appellants as beneficiaries under the implied trust may successfully maintain an action against the first and second respondents as joint defendants. For the purposes of the appeal, the issue of locus of the appellants to sue is cadit questio. The second agreement, in the words of the preamble thereto, was a substitute to the first agreement and was deemed to have rescinded the first agreement. That there was an unequivocal intention of the contracting parties to mutually rescind the first agreement, was also clearly laid out in clause 1(b) of the second agreement. The effect of such a rescission by mutual agreement would mean that the first agreement was extinguished. Consequently, there was no obligation on the respondents to perform any bargain or obligation under the first agreement. Pursuant to clause 2 of the first agreement and clauses 2 and 3 of the second agreement, what was imperative for the purposes of enforcement against the first respondent was, a judgment. However, the judgment that was obtained by the appellants was dated September 3, 1993, and was obtained after the first agreement had been deemed ineffective. The said judgment thus fell outside the sphere of the first and second agreements bearing in mind the termination of the first agreement on December 31, 1991 and clause 3 of the second agreement which provides that the said agreement shall be applicable to all claims preferred against the first respondent, excluding any court awards remaining unsatisfied as at January 1, 1992. The submitting of the claim forms by the appellants pursuant to the second agreement, against the backdrop of correspondence produced by the appellants clearly showed that the appellants were in no way labouring under any impression held out by the respondents, that they were entitled to their claims under the first agreement. 

 

Poh Siew Cheang v American International Assurance Co Ltd [HC] 

On the available evidence, the plaintiff had disclosed the fact that he was diabetic and that he held other insurance policies to the defendant's agent, which knowledge was deemed to be that of the defendant's pursuant to s 44A of the Insurance Act 1963 (the Act). The defendant is a company incorporated in Hong Kong with branches in Singapore and Malaysia. The fact that the plaintiff disclosed his diabetic condition to its branch in Singapore would be sufficient to constitute constructive notice to its branch in Malaysia. It was not sound commercial practice for a corporation like the defendant's not to have a common computer system. The concept of constructive notice can also be imputed to the facts of the instant case and when so imputed, it may be shown that the defendant had such knowledge. Given the fact that the plaintiff subsequently obtained insurance from a different insurer, where he made the same disclosures, there was no reason for the plaintiff not to have made the same disclosure to the defendant. SP3's evidence carried with it an element of truth in it and weighed in favour of the plaintiff. There was therefore no reason to doubt that the plaintiff had consistently disclosed the fact of his diabetes and that he was otherwise also insured overseas. The defendant's agent filled out the proposal form and being the defendant's agent, it was the defendant who should have called him to give evidence. There was no reason for the plaintiff to risk calling the agent bearing in mind that the agent could have turned "turtle". Further, the court would have construed the agent as being in collusion with the plaintiff and the weight to be attached to his evidence would have been minimal. In any event, s 44A of the Act was invoked. The plaintiff's evidence was based on what he told the agent and what the agent said to him in return, likewise with SP2. That being the case, their evidence was direct evidence of what they had heard from the agent, to which both testified in court. There was therefore no issue as to reliance on hearsay evidence. Applying the decision in STU v The Comptroller of Income Tax [1937-1978] AMTC 176, the plaintiff's testimony was "worthy of credit" and there was "nothing improbable" therein and likewise, with SP2's testimony. The authorities relied on by the defendant to support their submissions as to the basis clause of the contract contained within the policy had all been decided before the introduction of s 44A of the Act. Since the plaintiff's and SP2's testimony had been accepted as credible, there was no breach of the basis clause. It was the defendant's agent who was guilty of impropriety by not disclosing the plaintiff's condition and his other policy coverage. Diabetic or otherwise, the injuries were sustained by the plaintiff as a direct result of the accident. The accidental fall was the direct and independent cause of the removal of the lens of the plaintiff's left eye. Prospective policyholders are at the mercy of their insurance agents. Recalcitrant agents who failed to record all disclosures made by the policyholder in the proposal forms are not held accountable. The courts therefore exist to protect, inter alia, prospective policyholders. By virtue of s 44 of the Act, what the defendant's agent knew must be imputed to the defendant insurer and therefore permitted the court, on the facts of the instant case, to invoke the same.  

Leong Kum Whay v QBE Insurance (M) Sdn Bhd v QBE Insurance (M) Sdn Bhd & 3 Ors [COA]

  When as in this case, a policy of insurance for a fixed period is renewed by mutual consent, the original proposal form becomes incorporated into the renewed policy and continues to form the basis of the contract. More so in this instance where the renewal certificate expressly states that the renewal is "subject to all terms and conditions and endorsements in your original policy". This would include the declarations in the original proposal form which formed the basis of the contract. Bearing in mind the provisions of clause 6.3 of the original policy, the appellant's statement to the first respondent that he did not have any life insurance policy, was a material fact, though it was untrue. In the circumstances the first defendant was clearly within its contractual rights to refuse payment. Once it is accepted that the appellant's other life policies are a material fact and that the appellant was obliged to inform the first respondent of the same, the matter is at an end. The question of a fresh proposal form cannot arise when the renewal certificate specifically states that the renewal is on the same terms and conditions as contained in the original policy. In the circumstances the High Court was entirely correct in upholding the award dismissing the appellant's claim against the first respondent. The duty is on the insured to make full and frank disclosure of material facts within his knowledge. Whether a particular fact is material, is a question of fact. However, the duty to make full disclosure of all material facts is not an implied terms of a contract of insurance. There is in fact no contract at the point at which the duty arises; the parties being still at the stage of negotiations. Such duty is a pre-contractual duty imposed by the common law. It is without a doubt that the original policy and the second policy issued by the second respondent are two different contracts. On the authorities, the appellant was duty bound to disclose his other personal accident policies to the second respondent prior to it issuing the second policy. The appellant must, as a reasonable man be taken to have known the importance that the second respondent attached to the existence of other personal accident policies. Accordingly, the materiality of the fact not disclosed by the appellant was inferentially established before the arbitrator, who was therefore entirely correct as a matter of law in rejecting the appellant's claims against the second respondent. At common law, where an insurer's agent either fills in or assists in the filling in of a proposal form, he acts in that instance as the agent of the insured and not the insurer. It does not matter that the proposer was illiterate. Pursuant to s 44A(1) of the Act however, where an insurer holds out that a person is its agent, then the knowledge of the agent is deemed to be the knowledge of the insurer, except in the circumstances mentioned in sub-section (3) i.e. where there is collusion or connivance between the agent and the insured, and cessation of agency of which the insurer has taken reasonable steps to inform the public at large. Section 44A of the Act, without a doubt therefore targeted the reversal of the common law. In this instance, the words "a person who has at any time been authorised as its agent by an insurer and who solicits or negotiates a contract of insurance in such capacity" in s 44A of the Act were construed by the arbitrator as enabling an insurer to place limits on the agent's authority whereas the section in fact speaks of the authority in general terms. By adopting such a narrow and restrictive interpretation on the said provision, the arbitrator was introducing a further exception to those already provided by subsection (3) and this would amount to unauthorised legislation. In the circumstances, the award in respect of the appellant's claim against the third respondent was fatally flawed by an error of law and must be set aside. The general rule in a claim for a debt is that interest must run from the date on which the debt became due and payable. The arbitrator therefore should have awarded interest on the sum claimed from the date of the accident because that is when the debt accrued. By awarding instead interest calculated from the date of the award, the arbitrator had thereby departed from the established practice having the force of law. He would have been entitled to do so only if he thought that there were reasons for depriving the appellant of interest for the relevant period. Having delivered a "speaking award" i.e. an award which deals with all issues of fact and law and the findings of fact being final and conclusive, the arbitrator was obliged to give his reasons for refusing to award interest in the usual way. By failing to do so, his award is liable to be set aside for misconduct in that there had been some irregularity of action which was not consonant with the general principles of equity and good conscience. Pursuant to s 69(4) of the Courts of Judicature Act 1964, the Court of Appeal is empowered to "make any order which ought to have been given or made, and make such further or other orders as the case requires". There are also no provisions in the Arbitration Act 1952 which prohibit the Court of Appeal from making such an award of interest in a case such as the present case and it is silent as to what should happen where an arbitrator dies. In the circumstances, and so as to meet the ends of justice, it was ordered that the award in respect should bear interest at the rate of 8% per annum from the date of the accident. 

 

Malaysia & Nippon Insurance Berhad v Low Buck Ngoh & Anor [HC] 

Pursuant to s 96(2)(a) of the RTA, an insurer, such as the defendant in this case, who has notice of the proceedings, is liable to pay a third party who is entitled to the benefit of a judgment obtained against an insured person by way of an exception to the doctrine of privity of contract. On the facts, the statutory notice had been duly and legally served on the defendant and there was no dispute by the defendant with regards to the service of the summons having been effected on it at the exact same address as stated in the statutory notice. In the circumstances, the defendant did in fact have notice of the said proceedings in which the judgment was given. Further, and as there was in this instance no order for stay of execution of the judgment, the judgment was therefore binding on the parties thereto. Any attempt to set aside the same must perforce be made by the driver and his employer in the proceedings in which the judgment was obtained. The defendant as insurer is not at liberty to reopen the matter by way of a collateral issue in this recovery action.