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Malayan Law Journal Articles/1995/Volume 2/INSURING THE INSURED ON THE AGENT'S PROPOSAL -A CASE FOR INSURERS? [1995] 2 MLJ xiii Malayan Law Journal Articles 1995

INSURING THE INSURED ON THE AGENT'S PROPOSAL -- A CASE FOR INSURERS?

Joanna Rasamalar Jeremiah LLB (Hons) (Lond), LLM (Lond); of Gray's Inn, Barrister-at-Law; Advocate & Solicitor, High Court of Malaya; Advocate & Solicitor, Supreme Court of Singapore; Teaching Fellow, Faculty of Business Administration, National University of Singapore and Stanley Jeremiah LLB (Hons) (Lond), LLM (Lond), ACI Arb, ACII; of Gray's Inn, Barrister-at-law; Advocate & Solicitor, Supreme Court of Singapore; Partner, Arthur Loke & Partners Introduction It is very common practice for an insurance agent to complete the application form on behalf of the proposer. There is specific legislation in Singapore, ie s 24(4) of the Insurance Act (Cap 142) (1994 Ed), requiring the insurer to prominently display on its proposal form a warning that if a proposer does not fully and faithfully give the facts as he knows them or ought to know them, he may receive nothing from the policy. Most proposers however, rely on their agent to fill up the forms and do not read the insurance contracts, and many will not realize the legal problems arising from material non-disclosure. In addition to this, many proposers find filling up insurance forms a trying experience. The agent is often eager to help or speed up the exercise, and often offers to complete the form for the proposer. In this situation, one has to consider the various possible permutations which are as follows:

(a) (b) (c)

correct answers were given by the proposer to the agent, but the agent either innocently, negligently or fraudulently entered an incorrect answer; the agent may have limited powers or he may have authority to complete the proposal form; and the proposal form may contain a proviso that, if an agent assists in completing the form, he is to be treated as acting as agent of the proposer, and not as agent of the insurer for this purpose.

The difficulty with the law in this area is that there is considerable conflict of judicial opinion in the cases. 2 MLJ xiii at xiv Knowledge of agent deemed to be knowledge of insurer The first case to be considered is that of Bawden v London, Edinburgh and Glasgow Assurance Co.1 In completing a proposal for accidental injury cover, the plaintiff stated that he had no physical infirmity and that there were no circumstances that rendered him peculiarly liable to accidents. In fact, the plaintiff was blind in one eye. The agent knew this but did not relay the information to the insurers. The court found for the

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plaintiff. Lord Esher MR said that the agent was the agent of the insurer. Knowledge that the agent possessed was deemed to be the knowledge of the company. The function of an agent was described as having to negotiate terms with a view to completing a contract, and not merely as an agent to take a piece of paper to the insurance company. In other words, he has implied or express authority to complete the contract with the customer. This is a common-sense description of the role of an insurance agent, and it is also a reflection of what the general public believes to be the situation. Agent deemed to be agent of the insured when completing proposal form at the request of the insured Unfortunately, Bawden's case was soon distinguished in later judgments.2 In England, the general rule as to the position of an agent filling up proposal forms is laid down in the Court of Appeal's decision of Newsholme Brothers v Road Transport and General Insurance Ltd Co.3 In this case, it was stated that an insurance agent in completing the proposal form is in fact regarded as a person 'employed to take dictation' by the insured, and so, any information acquired by him in doing so cannot be imputed to the insurer. It is important to study the reasoning of the Court of Appeal in arriving at this decision in order to know the exact scope of the decision. Three reasons were given by the Court of Appeal, and they are summarized as follows:

(a) (b) (c)

the agent when filling in the proposal form was acting in excess of his authority as the insurer's agent, and as such, the knowledge of the true facts by the agent could not be imputed to the insurer; the proposer had signed the proposal form which had a 'basis of contract' clause and a declaration that all the facts given therein were true; and the application of the parole evidence rule, ie the inadmissability of oral evidence to contradict the terms of a written contract.

The court distinguished Bawden's case by arguing that it did not apply where the agent completed the proposal at the request of the customer. 2 MLJ xiii at xv Whilst the case of Newsholme clearly favoured the insurer, what is the legal position where the agent has complete authority from the insurer to complete the proposal form? In the case of Keeling v Pearl Assurance Co Ltd,4 the court found that the agent had authority from the company to negotiate and complete the proposal forms and was, therefore, the agent of the insurer for this purpose. However, insurers can still get round this decision by stating on the proposal form that when an agent helps to complete a proposal, he is to be regarded as the agent of the customer. The form must be signed by the customer and thus, he assents to this role of the agent. This is what happened in the case of Facer v Vehicle and General Insurance Co Ltd.5 Marshall J found that the Bawden case had not been followed in the English cases, and had also been criticized in Scotland, Ireland and America. Newsholme, on the other hand, had been accepted as correctly stating the law. Furthermore, the signed agreement stating that the agent was to be regarded as the customer's agent put the matter beyond doubt, causing the insured's claim to fail. The only inroad into the Newsholme rule has been made by the Court of Appeal in Stone v Reliance Mutual Insurance Society.6The appellant in this case insured his flat against fire and theft with the respondent insurer and the premiums were paid weekly to the collectors. A year later, a fire occurred and the appellant was indemnified. The policy later lapsed and an inspector visited the appellant with a view to revive the policy. He convinced the appellant to complete the proposal form. However, he did not record the earlier claim and that the original policy had lapsed. When a theft occurred later, the appellant declared on his claims form both the earlier claim and the lapse of the policy. Premiums were collected for another three

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months before the respondent insurer rejected the claim on the grounds of non-disclosure. To avoid the negligence of their own inspector, the insurer argued that the proposal form contained a declaration as in Facer's case. Strangely enough, Facer was not referred to in the judgment. The Court of Appeal rejected the defence and found for the appellant. Lord Denning MR found that the mistake was that of the inspector. He had not asked any question about earlier claims nor had he checked the company's records. The appellant's wife was also at fault in not reading the proposal before signing. However, this was excused by Lord Denning on the grounds that she was poorly educated and she assumed that the agent would have known about it. The method used to distinguish Newsholme was to say that the agent, by his conduct, implicitly represented that he had filled in the form correctly and, therefore, he needed no further information from her. The wife relied 2 MLJ xiii at xvi on these representations and signed without reading over the answers on the form. The judge in this case thought that it would be most unfair to poorly educated consumers that they should be caught by a clause purporting to shift the agent's mistakes from the insurer's shoulders onto those of the customer. The problem with regard to answers filled in erroneously by insurance agents still remains in the present state of law in Singapore. Although the decision in Stone's case seems to favour the consumer, it is limited to the particular circumstances when the agent has authority to complete the answers, and this is often not the case. Statutory intervention in New Zealand and Australia In New Zealand and Australia, some changes were introduced in 1977 and 1984 to get round this particular difficulty and to provide more consumer protection. Section 10 of the New Zealand Insurance Law Reform Act 1977 states as follows:

(1)

(2)

A representative of an insurer who acts for the insurer during the negotiation of any contract of insurance, and so acts within the scope of his actual or apparent authority, shall be deemed as between the insured and the insurer and, at all times during the negotiations until the contract comes into being, to be the agent of the insurer. An insurer shall be deemed to have notice of all matters material to a contract of insurance known to a representative of the insurer concerned in the negotiation of the contract before the proposal of the insured is accepted by the insurer.

While this provision goes some way towards remedying the unsatisfactory approach in Newsholme's case, it is not all encompassing as it does not cover the following situations:

(a)

Information which is acquired by an agent of the insurer who is totally unconnected with the relevant transaction is not imputed to the insurer.7 (The New Zealand Contracts and Commercial Law Reform Committee in their report on Aspects of Insurance Law (1), April 1975, at para 25, observed that it would be quite unfair for an insurer to be put at risk, if one of its employees, perhaps in another part of the country, has some relevant knowledge but is unaware of the negotiation of the policy.) The requirement that the representative must act for the insurer during negotiations would presumably rule out a broker who is 2 MLJ xiii at xvii approached by a prospective insured to arrange insurance cover on his behalf.8

(b)

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Section 10 of the New Zealand Insurance Law Reform Act 1977 applies from the beginning of the negotiations until the formation of the contract. The insurer is deemed to have notice of material matters that come to the knowledge of his representative during this period and if he issued a policy with the imputed 'knowledge' of these facts which on strict principles of non-disclosure of material facts would have entitled him to repudiate or to decline acceptance, he would be prevented from doing so because of this 'knowledge'. In other words, he would be estopped from relying on those facts. This principle of imputing an agent's knowledge to his principal is perhaps not a new one as it was established in 1766 in the case of Carter v Boehm,9whereby it was state10that if it was a matter of which the insurer would be informed in various ways, it would not amount to a concealment or non-disclosure by the insured so as to avoid the policy. This statutory rule of imputing an agent's knowledge to that of its principle seems to be an endorsement of common law and equitable principles. An example of a case where this principle was reiterated in New Zealand is the case of Blackley v National Mutual Life Association of Australasia Ltd.11In this case, Turner P stated as follows:

The imputation to a principal of the knowledge of an agent when that knowledge has been disclosed to him in reliance upon his ostensible authority to receive it is an application of the principles of estoppel. Though the agent may not in fact have the principal's authority to receive the disclosure so as to bind the principal as if the latter had knowledge of it, yet the principal may not aver that he was not notified of the facts disclosed, for by holding out the agent he must be deemed, as against that third party, to have given the authority which in fact the contract of agency may not have conferred ...

Turner P in this case, however, identified one important exception. He emphasized that it was always an answer to a plea of estoppel that the representee in fact knew the true position or did not believe the representation, and that therefore, he did not do what he did in reliance upon the representations of the party sought to be estopped. The rationale for this rule was clearly stated by MC Reynolds J in a decision of the Supreme Court of the United States in Mutual Life Insurance Co of New York v Hilton-Greene,12ie that an innocent third party may properly presume the agent will perform his duty and report all facts which 2 MLJ xiii at xviii affect the principal's interest. However, this general rule does not apply when the third party knows that there is no foundation for the ordinary presumption -- when he is acquainted with circumstances plainly indicating that the agent will not advise his principal. The reason for this exception is that the rule is intended to protect those who exercise good faith and not as a shield for unfair dealing. An important question as far as the insurer is concerned would be, what types of conduct by the insurer would amount to the giving of ostensible authority to the agent to receive information from the insured, which would subsequently be imputed to the insurer. There are two important New Zealand cases that give some indication as to this matter. The first case is Derham v Amev Life Assurance Co Ltd.13In this case, an agent armed with business cards, letterheads, memo pads and notification forms supplied by Amev and bearing its name persuaded the plaintiffs to cancel their existing life insurance policies in favour of policies with Amev. An interim receipt in respect of a premium payment was issued by the agent, and this receipt was headed with Amev's name and place of incorporation. At the relevant time, the agent was working in a company employed by Amev as its general agent in the life insurance business. In his endeavours to persuade the plaintiffs to change their life insurance policies, he fraudulently represented that certain investment benefits were to be gained through Amev's policies. The plaintiffs sought to recover, inter alia, the money they had paid in respect of the policies they had taken out with Amev. They asserted that Amev, by its words or conduct had represented that the agent had authority to act on its behalf, and was therefore bound by the acts of the agent to the same extent as if he had authority. This argument was accepted by Kelly J, who held that Amev, in arming the agent with

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indicia of authority, such as forms, business cards and interim receipt book, had represented or permitted to be represented that the agent had authority to act on its behalf to solicit and obtain life insurance business, and to receive money in connection therewith. In conferring such authority, Amev became bound by all relevant and reasonable inducements made by the agent in soliciting the proposals. Given that the fraudulent representation as to investment benefits fell within this category, the learned judge had no hesitation in holding that Amev as principal, was liable to make good the plaintiffs' losses sustained through the agent. Notwithstanding the fact that the plaintiffs had received life insurance cover for a 12-month period, during which time premiums were paid, the court ordered that the plaintiffs were entitled to recover all the premiums. However, this case has to be compared to the case of Gaunt v Gold Star Insurance Co Ltd.14 In this case, it was argued that possession of proposal forms belonging to the insurer by the broker was an indication to the 2 MLJ xiii at xix insured or an outsider that the insurer had a sufficient relationship with the broker to make it reasonable for an insured/outsider to assume that there was an actual agency. Gallen J, whilst accepting that most members of the public would assume that the broker did have the necessary authority for the principle of ostensible authority to apply, it was necessary that the insurer had in some way acted so as to lead to a misconstruction on the part of the insured or outsider, and would amount to an estoppel. In his view, this is what that would amount to an estoppel in terms expressed by Diplock LJ in Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd.15However, an examination of Lord Diplock's judgment in Freeman's case will show that perhaps Lord Diplock had not meant that his exposition of 'apparent' or 'ostensible' authority was to be interpreted in this narrow sense. He described the representation that created apparent authority as follows:16

The representation which creates 'apparent' authority may take a variety of forms of which the commonest is representation by conduct, ie by permitting the agent to act in some way in the conduct of the principal's business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal's business has usually 'actual' authority to enter into.

Gallen J in Gaunt's case was of the view that the mere possession of proposal forms could not constitute a sufficient representation for the estoppel to operate. He was also of the view that a broker might very well have proposal forms for a number of companies. The fact that it was a proposal form would tend to suggest that it is an initiation of negotiations for the cover rather than the provision of the cover itself, and is not enough. One has to query whether the decision would have been different if the agent was a tied agent with the insurer rather than a broker. Furthermore, with due respect to the learned judge it is difficult to see why there should be a distinction made between initiation of negotiations for cover and the provision of cover. Surely, if the agent had been armed with proposal forms belonging to the insurer, would this not be a representation to the consumer that the agent had authority not only to negotiate but to provide cover on behalf of the principal? The decision in Gaunt's case is a difficult one as it seems not to accord with the normal expectations of the consumer. 2 MLJ xiii at xx In Australia, the problems in Newsholme's case was solved by a more far-reaching legislative provision than that of New Zealand. The relevant legislation is s 11 of the Insurance (Agents and Brokers) Act 1984 ('the Act') which provides for responsibility of an insurer for the conduct of its agents, and it is summarized as follows:

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An insurer is responsible, as between the insurer and an insured or intending insured for the conduct of his agent or employee, being conduct -upon which a person in the circumstances of the insured or intending insured could reasonably be expected to rely; and upon which the insured or intending insured in fact relied in good faith, in relation to any matter relating to insurance and is so responsible notwithstanding that the agent or employee did not act within the scope of his authority or employment, as the case may be.

The difficulty with this provision is what type of 'conduct' will be encompassed or encapsulated by the Act.17 Clearly the following will be caught by the provision:

(a) (b)

misrepresentations by an insurer's agent as to policy benefits, conditions or premiums; and any errors by the agent in completing a proposal on behalf of the insured.

One has to query whether the term 'conduct' covers receipt of information by the agent. Facts material to the insurance transaction may be communicated to the insurer's agent, but not passed on by the agent to the insurer. If the Act does not resolve this situation, then recourse must still be to the common law position. The expression 'in the circumstances of the insured' takes account of the personal weaknesses or idiosyncrasies of the particular insured such as background, illiteracy, lack of education and blindness of the insured. Whilst the New Zealand provision limits the notice attributed to the insurer to matters material to a contract of insurance, the Australian provision is wider, in that the kind of conduct caught by s 11(1) of the Act is limited only by the words 'in relation to any matter relating to insurance'. This provision, it seems, would make an insurer responsible for his agent's advice on subsidiary matters such as investment and tax advantages associated with life insurance.18A very important aspect of s 11 of the Australian provision is that the concluding words to s 11 provide that the insurer is responsible notwithstanding that the agent or employee did not act within the scope of his authority or employment, as the case may be. This represents a total departure from the common law position. 2 MLJ xiii at xxi The Australian Law Commission, in recommending this change in the law, took a practical standpoint. They were of the view that in dealing with an insurance agent, a member of the public is likely to rely exclusively upon the agent's knowledge and experience. He is not in a position to know, or to become informed of, the mysteries relating to the scope of an agent's authority. What is within their knowledge and experience is what an insurance agent represents to them as being within his authority. To place restrictions by reference to an agent's actual and apparent authority is necessarily to discriminate against those persons in the community who, by reason of their background, education and training, are lacking in knowledge, are most in need of advice and assistance, and are most likely to rely uncritically on the advice of the insurer's agent. In their view, this is likely to constitute a large number of the insuring public. Under s 11(4) of the Act, the contractual provisions designed to limit or exclude the insurer's responsibility for the conduct of his agent are ineffective or void. Finally, not only is any attempt to contract out of the responsibilities allocated by s 11(4) ineffective, it is an offence under s 11(5) to seek to avoid such responsibilities through an agreement or contractual stipulation. This provision will certainly make insurers' liability to potential insureds very far-reaching and in order to limit their potential liability, insurers will have no option but to exercise greater care in the selection and training of their agents. Judicial position in Malaysia The judicial position in Malaysia is the same as that expounded in Newsholme's case. The local cases have adopted the reasoning expressed in the English cases.

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In Abu Bakar v Oriental Fire and General Insurance Co Ltd,19the Federal Court decided that Stone represented only an exception to the general rule which was laid down in Newsholme's case. The fact that an insured had signed at the foot of the proposal form a declaration that the particulars therein were true and would be the basis of the contract between the parties, was held to be crucial in United Malayan Insurance Co Ltd v Lee Yoon Heng.20The court held that the insurance policy was void for non-disclosure, despite the fact that the insured had disclosed this particular fact to the agent who had helped him fill in the proposal form. In National Insurance Co Ltd v Joseph,21the court held that by signing the proposal form the insured would be taken to have read and adopted its contents. This is despite the fact that the insured relied upon the agent to fill up the form, and all relevant information had been given to the agent. 2 MLJ xiii at xxii Position where insured is illiterate A long line of Malaysian cases have held rigidly to the rule that once a person signs a proposal form he is bound by its contents.22 This is so, even in a situation where the proposal form was in English and the insured could neither read, write nor understand the language.23A similar approach seems to be adopted in Australia in Jumna Khan v Bankers and Traders Insurance Co,24 where the Supreme Court of New South Wales held that the insured's illiteracy did not in any way relieve him from the duty to see that no untrue statements were put before the company. One possible way of persuading the courts in these circumstances to take account of the insured's illiteracy is by the plea of non est factum. So far, this plea has not been used in any of the reported cases involving proposal forms or other contractual documents in insurance.25 In England, the courts have not adopted what seems to be a rather harsh approach towards illiterates. One of the factors that justified the decision in Bawden's case,26 was the fact that the insured in that case was a one-eyed man. Freer LJ in Newsholme's case,27 in commenting on Bawden's case, stated that it was an application of the rule that in construing any written instrument, the court is entitled to take into account the surrounding circumstances to enable the courts to put a special meaning on the words used in the contract. In Bawden's case, the surrounding circumstances were that the proposal was negotiated and settled by the agent with a one-eyed man. The insurer was fixed with notice of what the agent saw at the interview, as the agent had authority to see the proposer and to get a proposal form from him. It is arguable that in a situation where the proposer is blind or illiterate, the agent has implied or ostensible authority to fill up the proposal form.28 An interesting recent development to the legal question as to the extent to which the fact that the insured is illiterate is relevant to his position as far as the contract of insurance is concerned, was considered in the Privy Council decision (on appeal from Hong Kong) of Chan Woon-Hung (trading 2 MLJ xiii at xxiii as Ocean Plastic Factory) v Associated Bankers Insurance Co Ltd.29 In this case, the appellant was a Chinese resident in Hong Kong. He spoke no English and was the proprietor of a small plastic factory. In July 1990, he effected a policy of employer's liability insurance with the respondent, and thereafter renewed the policy annually for a number of years, receiving on each occasion a new policy with the same conditions. Each policy was written in English and headed "Employees' Compensation Policy". Immediately above this heading were Chinese characters which provided a similar description. The policies contained ten conditions, and underneath there was a box which contained the following words in English:

For your own protection, you are requested to read the policy and its conditions in order to ascertain that it is in accordance with your intentions and, if it is incorrect, return it immediately for alteration.

Within the box and immediately below the English words, were Chinese characters which spelled out a similar message. Each policy had attached to it a note in Chinese headed 'Procedure for handling employee's compensation claim'.

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On 10 October 1983, an employee of the appellant sustained an injury to his right hand while operating a pressing machine. The appellant sent to the respondent's agents a notice of accident and complied with all the other procedural requirements in the Chinese note. However, he failed to inform either the agents or the respondent of his subsequent plea of guilty to the statutory offence of failing to provide an effective guard for dangerous machinery. The respondent subsequently repudiated the contract for non-disclosure. One of the arguments put forward by the appellant was that the respondent, knowing that the appellant did not understand English had, by attaching the Chinese note to the policy, misled him into thinking that it contained exhaustive instructions as to what he must do in the event of a claim by an employee. Their Lordships held that it must always be a question of circumstances as to what extent, if at all, ignorance of the language of a contract is relevant to the position of one of the parties thereto. The fact that the appellant had in his possession for a prolonged period (in this case three years) all the contract documents and that he could at any time have obtained a translation, must negative any disability from which he suffered by his lack of understanding of English. What was crucial in this case was that in the circumstances of this case, their Lordships held that the respondent had done all it was required to do, and could not reasonably have done anything more. The act that was regarded as sufficient by the respondent was as follows: 2 MLJ xiii at xxiv

The respondents had given him the contract and had drawn his attention in Chinese to the need to read the policy and conditions. Thus, they were entitled to assume that if he could not read English, he could reasonably obtain a translation.

The Chan Woon-Hung case is an important one, as it seems to take the principle in Bawden's case a step further. In Bawden's case, the surrounding circumstances, ie the disability that the insured was under, was taken into consideration in interpreting the policy. In Chan Woon-Hung's case, other circumstances besides the disability of the insured were taken into account. On the facts of that case, the prolonged period the insured had the policy was crucial to the decision. It is thus now an open question as to what other circumstances are relevant in interpreting a policy when one is dealing with an insured who is illiterate or blind. Statutory intervention in Malaysia In Malaysia, the problems posed by Newsholme's case were recognized, and s 18E of the Insurance Amendment Act 1975 was passed. Section 18E is reproduced below and states as follows:

Where any agent or servant of an insurer writes or fills in any particulars in a proposal for a home-service policy with the insurer, then, notwithstanding any agreement to the contrary between the proposer and the insurer, any policy issued in pursuance of the proposal shall not be avoided by reason only of any incorrect or untrue statement contained in any such particulars so written or filled in unless the incorrect or untrue statement was in fact made by the proposer to the agent or servant for the purposes of the proposal. The burden of proving that any such statement was so made shall lie upon the insurer. Nothing in this section shall be deemed to allow the avoidance of any policy for any reason or in any circumstances for or in which the policy could not have been avoided apart from the provisions of this section.

This provision is limited in that it relates exclusively to agents filling in a proposal form for a home-service

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policy. A home-service policy is defined in the First Schedule of the Insurance Act 1963 as a life policy in respect of which premiums are contracted to be paid at intervals of less than two months and are or have been ordinarily collected in the course of door-to-door collection. The other limitation in s 18E of the Insurance Act 1963 is that the opening phrase refers to 'an agent or servant of the insurer' who fills in the proposal form. According to Newsholme's case, an agent who does this is not the agent of the insurer but is the agent of the insured. This provision does not prevent an insurer from raising the defence that the agent has no authority to fill in the proposal form on behalf of the insurer.30 2 MLJ xiii at xxv The loopholes in s 18E were resolved by s 44A of the Insurance Act 1963. The section reads as follows:

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 shall in every such instance be deemed for the purpose of the formation of the contract to be the agent of the insurer and the knowledge of such person relating to any matter relevant to the acceptance of the risk by the insurer shall be deemed to be the knowledge of the insurer. Any statement made or any act done by any such person in his representative capacity shall be deemed, for the purpose of the formation of the contract, to be a statement made or act done by the insurer notwithstanding any contravention of section 16A or any other provision of this Act by such person. This section shall not apply -where there is collusion or connivance between such person and the proposer in the formation of the contract; or where such person has ceased being its agent and the insurer has taken all reasonable steps to inform or bring to the knowledge of potential policy owners and the public in general the fact of such cessation.

This provision was based on the recommendations of the English Law Reform Commission,31 which have yet to be implemented in England. Section 44A is much wider in its scope than s 18E. The wider aspects of s 44A are as follows:

(i)

(ii) (iii)

(iv)

Whilst s 18E refers to 'an agent or servant of the insurer', s 44A refers to 'any person who has at any time been authorized as its agent by an insurer' and deems such person to be the agent of the insurer for the purpose of the formation of the contract. All that an insured is required to prove under this section is that the person he was dealing with has at any time been the agent of the insurer. Section 18E applies exclusively to home-service policies; s 44A applies to all types of policies as there are no specific words of limitation in that section. Section 18E deals with the specific act of the agent filling in the proposal form. However, s 44A has no specific limitation as it uses the phrase 'an agent ... who solicits or negotiates a contract of insurance ...'. In other words, it covers the entire pre-contract stage inclusive of the specific act of filling in the proposal form. Section 44A deems the knowledge of the agent to be that of the insurer in respect of matters relevant to the acceptance of the risk by the insurer. Section 44A covers not just the agent's knowledge of material 2 MLJ xiii at xxvi facts but also of other facts made relevant by the 'basis of contract' clause.32 In the recent case of Lim Geak Liang v East West-UMI Insurance Bhd,33 the High Court held that the insurer could not avoid a policy of insurance on the ground that the insured failed to disclose a material fact in the proposal form, as the insured had informed the agent of the true facts and the agent's knowledge shall be deemed to be knowledge of the defendant. The judge at first instance relied on the 'basis of contract' clause drafted in the proposal form as well as on the authority of Newsholme's case, as the insured had signed the proposal form that

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(v)

contained the inaccurate statement. However, the High Court judge concluded that s 44A had overridden both these reasons for justifying repudiation of the policy by the insurer. Section 44A(2) places the responsibility for false, deceptive or misleading statements made by agents, upon the insurers. This provision will force insurers to keep a close check on their agents, and impose strict guidelines on them in respect of marketing their products.

Conclusion In Singapore and England, there is no statutory provision as in Malaysia, Australia and New Zealand in order to overcome the difficulties caused by Newsholme's case. There should be a clear trend towards imposing greater civil responsibility on insurers for the conduct of agents, through whom they market their products. In this market, insurance agents perform important functions in many classes of domestic insurance. It is recognized that many members of the public place complete reliance on the agents with whom they deal. Proposal forms usually need interpretation and explanation. The average policy holder believes that the person through whom he obtained the policy is the representative of the insurer, no matter what his label may be. It is often the case that the insured believes that information communicated to the agent is sufficient or adequate communication to the insurer, and that information communicated by the agent is information communicated by the company. 2 MLJ xiii at xxvii There should be legislation in this area in Singapore as otherwise the reasonable expectations and assumptions on the part of the policy holder will be completely denied by the law. Insurers should not be allowed to use contractual devices to limit their responsibility for their agents, as it will be contrary to the requirement of good faith in insurance contracts. A contract of insurance is well recognized as a contract uberrimae fidei (of the utmost good faith). The principle of good faith applies to the insurer as well as the insured.34The insistence of the law that the insured should check information recorded by an agent appears to be unreasonable, as it pays no attention to the normal habits of mankind.35 Many people do not in fact read or understand many of the documents put before them. Not much has been done to make these forms readily intelligible, particularly in the field of insurance. Those who are illiterate or blind are often worst affected. To place responsibility on the insured for the errors of an insurance agent is to ignore commercial and social reality. It seems not unreasonable for the errors of an insurance agent to be shared by the insuring public than for it to be borne by a small number of unfortunate individuals who have acted in good faith, and for whom the burden may well be too heavy to bear. The codes or regulations of the insurance industry should specifically prohibit agents from completing an application form, in whole or part, for the purchase of the insurance, unless the client has specifically asked him to do so. Where the agent does complete the form, in whole or part, for the client, he should ask the client to check that what he has written is correct and ensure that the client reads the form through before signing. An important drawback of the present law of agency with respect to insurance agents is that the rights of the insurer and the insured are determined partly by reference to the arrangements between the insurer and the agent, and partly by reference to the authority which a person in the agent's position normally has. The mysteries of the law of agency are not within the knowledge and experience of many members of the public. Often, what an insurance agent represents to them as being within his authority is accepted as such by the public to be the true position. To place 2 MLJ xiii at xxviii restrictions on an insurer's responsibility by reference to an agent's actual and apparent authority is necessarily to discriminate against a substantial portion of the members of the public who lack knowledge of technical legal concepts of agency, are most in need of advice and assistance and are most likely to rely uncritically on the advice of the insurance agent. For these reasons, it is proposed that Singapore should provide for specific legislation in this area so that responsibility be imposed on an insurer for its agents' conduct, irrespective of any limitation which might be suggested by the present requirement of actual or

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apparent authority. There should also be specific legislation in Singapore making it an offence for an agent, wilfully and with intent to deceive, to misrecord information on a proposal form, to omit to disclose to the insurer matters material to the proposal or claim, or to advise an insured to misrecord or omit to disclose information. Perhaps legislation which encompasses a combination of s 11 of the Insurance (Agents and Brokers) Act 1984 in Australia and s 44A of the Insurance Act 1963 in Malaysia would be beneficial.

1 [1892] 2 QB 534, CA. 2 Biggar v Rock Life Assurance Co [1902] 1 KB 516; M'Millan v Accident Insurance Co Ltd [1907] SC 484. 3 [1929] 2 KB 356; [1929] All ER Rep 442. 4 [1923] All ER Rep 307. 5 [1965] 1 Lloyd's Rep 113. 6 [1972] 1 Lloyd's Rep 469. 7 See AA Tarr, Insurance Law in New Zealand at p 86; AA Tarr 'Insurance Intermediaries -- Some Recent Developments' [1984] NZLJ 154. 8 See Sutton, Insurance Law in Australia and New Zealand (1980) at p 199. 9 (1766) 3 Burr 1905. 10 At p 1167 of judgment. 11 [1972] NZLR 1038 at p 1049. 12 241 US 613 at p 622. 13 (1982) 2 ANZ Insurance Cases 60-459. 14 (1990) 6 ANZ Insurance Cases 61-006. 15 [1964] 2 QB 480; [1964] 1 All ER 630; [1964] 2 WLR 618. 16 [1964] 2 QB 480 at pp 503-504; [1964] 1 All ER 630 at p 644; [1964] 2 WLR 618 at p 636. 17 See AA Tarr, Australian Insurance Law at p 107. 18 Ibid at p 108. 19 [1974] 1 MLJ 149. 20 [1964] MLJ 453. 21 [1973] 2 MLJ 195. 22 See United Malayan Insurance Co Ltd v Lee Yoon Heng, supra n 20; Wong Lang Hung v National Employees' Mutual General Insurance Association Ltd [1972] 2 MLJ 191; China Insurance Co Ltd v Ngan Ah Kau [1972] 1 MLJ 52; Tan Kang Hwa v Safety Insurance Co [1973] 1 MLJ 6; National Insurance Co Ltd v S Joseph [1973] 2 MLJ 196 and Ong Eng Chai v China Insurance Co Ltd [1974] 1 MLJ 82. 23 United Malayan Insurance Co Ltd v Lee Yoon Heng, supra n 20. 24 (1925) 37 CLR 451 at p 454. 25 Nik Ramlah Mahmood, Insurance Law in Malaysia.

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26 Supra n 1. 27 [1929] 2 KB 356 at p 381; [1929] All ER Rep 442 at pp 453-454. 28 See MacGillivray & Parkington on Insurance Law (8th Ed) at p 359 para 865. 29 [1993] 2 HKLR 127. 30 Nik Ramlah Mahmood, Insurance Law in Malaysia. 31 The Law Commission, Conditions and Exceptions in Insurance Policies, Cmnd 62, HMSO, London 1957, para 14. 32 See Dawsons Ltd v Bonnin [1922] 2 AC 413; [1922] All ER Rep 88, where it was stated that the effect of the 'basis of contract' clause is to make every answer in the proposal form, though immaterial, relevant. See also MacGillivray & Parkington on Insurance Law (8th Ed) at p 600, para 602, where it is stated that if the policy contains a recital that the proposal referred to shall be the basis of the contract, the truth of the statement contained in the proposal is thereby made a condition of the liability of the insurers, and any inaccurate answer will entitle the insurer to repudiate liability apart from any question of materiality. 33 [1994] 2 CLJ 405. 34 See the judgment of Lord Mansfield in Carter v Boehm (1766) 3 Burr 1905; judgment of Farwell LJ in Re Bradley and Essex and Suffolk Accident Indemnity Society [1912] 1 KB 415 at p 430; [1911-13] All ER Rep 444 at p 452, Banque Financiere de la Cite SA v Westgate Insurance Co Ltd [1989] 2 AC 249; [1989] 2 All ER 952. 35 The Singapore Insurance Brokers' Association (SIBA) Code of Conduct states that in the completion of a proposal form, claim form or any other material document, members shall make it clear that all the answers or statements are the client's own responsibility. Whenever practical, the client should be asked to check the details and told that the inclusion of incorrect information may result in a claim being repudiated.