CONFIDENTIAL Candidate Examination Number :

FINAL EXAMINATION
OCTOBER 2016 SESSION

SUBJECT CODE : 401

SUBJECT TITLE : INSURANCE LAW

LEVEL : AMII LEVEL 2

TIME / DURATION : 9:30 A.M. to 12:30 P.M. (3 HOURS)

DATE : 18 OCTOBER 2016

INSTRUCTIONS TO CANDIDATES

1. Three hours are allowed for this paper.

2. Do not begin writing until the invigilator instructs you to do so.
3. Read ALL instructions carefully before answering any questions.
4. Read the questions carefully.
5. Please indicate clearly the question number that you are responding to on the answer
booklet.
6. Provide ALL the information requested in the answer booklet.
7. You must NOT write your name anywhere on this question paper and the answer
booklet.
8. You must personally hand over this question paper and answer booklet to the invigilator
before you leave the examination room. If you do NOT comply with this regulation, your
paper will NOT be marked and you may be prevented from entering this examination in
the future.
9. If you have any enquiries pertaining to any questions or regarding this question paper,
the Invigilator cannot give you any guidance beyond the instructions on this examination
paper. However if you believe a question is ambiguous or defective, you can bring this to
our attention by filling up the Examination Feedback Form which you can request from
the Invigilators.
10. The Malaysian Insurance Institute reserves the right to withdraw or invalidate results at
any time in case of or pertaining to any alleged breach of examination regulations and
procedures.
Information on examination

Read the information below before answering any questions.

1. Three hours are allowed for this paper which carries a total of 200 marks, as follows:

Part I 5 compulsory questions 50 marks

Part II 1 compulsory question 50 marks
Part III 2 questions selected from 3 100 marks

2. You should answer:

(a) ALL questions in Part I;

(b) Compulsory Question in Part II; and

(c) TWO out of the three questions in Part III.

3. The number of marks allocated to each question part is given next to the question and you
should spend your time in accordance with that allocation. Read through the paper once
and then re-read each question.

4. Divide your time according to the number of questions to be answered. You are advised to
spend no more than 45 minutes on Part I.

5. Read carefully all questions and information provided before starting to answer.
Your answers will be marked strictly in accordance with the questions set.

6. Please write legibly in black or blue ink. Use ballpoint pens to answer all questions.
Red or green ink must not be used. Pencils may be used for diagrams and maps only if
indicated in the question paper.

7. You may find it helpful in some places to make rough notes in the answer booklet.
If you do this, you should cross through these notes before you hand in the answer
booklet.

8. In answering calculation questions, it is important to show each step in the calculation,

even if you have used a calculator. If you bring a calculator into the examination room,
it must be a silent battery or solar-powered non-programmable calculator.

9. Use of mobile phone and programmed calculator is strictly prohibited in the

examination. The use of electronic equipment capable of being programmed to hold
alphabetic or numerical data and/or formulae is prohibited.

10. Answer each question on a new page. If a question has more than one part, leave four
lines blank after each part.
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PART I (Total: 50 marks)

INSTRUCTION: Answer ALL questions.

Please use the answer booklet provided.

Question 1

(a) State five important terms that must be clearly agreed upon by the parties
to make a valid insurance contract.
[5 marks]

(b) List the persons who are competent to contract under Section 11 of the
Contracts Act 1950.
[3 marks]

(c) State two circumstances whereby a contract can be discharged by

ʹoperation of lawʹ.
[2 marks]

Question 2

In relation to the law of insurance explain briefly the following principles:

(a) Insurable interest; [5 marks]

(b) Utmost good faith (ʹUberrimae fideiʹ).

[5 marks]

Question 3

Explain briefly the following terms in the law of insurance:

(a) Indemnity;
[2 marks]

(b) Betterment;
[2 marks]

(c) Average clauses;

[2 marks]

(d) Excess;
[2 marks]

(e) ʹNew for oldʹ cover.

[2 marks]

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Question 4

(a) Explain the difference between ʹdamagesʹ and ʹrescissionʹ as remedies

for breach of contract.
[5 marks]

(b) State five types of damages available for parties due to a breach of
contract.
[5 marks]

Question 5

(a) What is an assignment and who are the parties to an assignment?

[5 marks]

(b) List the two forms of assignment for a contract of insurance.

[2 marks]

(c) List the conditions that need to be fulfilled under section 4(3) of the
Civil Law Act 1956 for absolute assignment of insurance policies to be
legally enforceable.
[3 marks]

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PART II (Total: 50 marks)

COMPULSORY question.

Please use the answer booklet provided.

Question 6

On 15 January 2014, Mohd Farid Bin Hanafiah goes on a weekend holiday

with his best friend Ali. While surfing, Ali is bitten by a shark. He loses a leg due to
the accident and he now suffers permanent disability. Because of the accident, Ali
loses his job as a soccer player and ends up with no income and has to live with
his parents.

After what happened to Ali, who lost his income after the accident, Mohd Farid
makes the decision that he wants to purchase a personal accident individual
insurance so that he can protect himself and his loved ones financially in the
event that he dies or suffers disability due to an accident.

On 17 February 2014, Mohd Farid searches on the internet to find a policy that
will meet his need. On YouCARE General Insurance Bhd.’s website, Mohd Farid
reads about a personal individual accident policy named ʹYouCARE VIP PAʹ
and feels that the policy is suitable for his need and he can afford to pay for the
policy monthly. The advertisement on the website reads as follows:

YouCARE VIP PA
Secure your family's future with a personal accident insurance that provides
comprehensive benefits and extra protection. Get the financial assistance you need
from YouCARE VIP PA so you and the loved ones are well covered!

How much you can claim for YouCARE VIP PA:

 Accidental Death
The coverage amount paid to your closest family members in the event you die in
an accident is from RM15,000 up to RM2,000,000
 Permanent Disablement
Cash payout following an accident if you are no longer able to work or perform day
to day tasks is from RM60,000 up to RM2,000,000
 Temporary Total Disablement
Cash compensation if you are unable to work temporarily because of total disability
is from RM10,000 to RM1,000,000
 Medical Expenses
Your medical expenses which include medical and hospitalization expenses are
covered to the amount of up to RM1,000,000
 Medical Evacuation Or Repatriation
Insured cost for emergency medical evacuation, or return of mortal remains if you
pass away while traveling abroad is from RM5,000 to RM100,000
 Personal Liability
Coverage if you're required to pay for damages to another person's property and
their injuries is from RM50,000 up to RM400,000

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GET COVERED NOW WITH YouCARE VIP PA:

1.) Only RM100 a month for protection of a lifetime
2.) Starts paying for the policy on the seventh month, the first six are FREE!

I WANT TO GET A PERSONAL ACCIDENT INSURANCE from YouCARE

GENERAL INSURANCE BHD.
NAME:
TELEPHONE NO:

GET COVERED NOW!

By typing your contact information, you agree to our terms & conditions. We respect
your privacy and are committed to handle your personal information safely and
responsibly. You will be contacted by one of our agents for assessment for your
eligibility of the said policy.

Mohd Farid tickes on the box and types in his name and contact information.
He then presses on the blue button ʹGET COVERED NOWʹ failing to read the fine
print under the button.

On 2 March 2014, fearing that one policy would not be enough, Mohd Farid, who
turned 18 years of age on 1 March 2014, goes to Caring General Insurance Bhd.
and purchases a personal accident individual insurance under 'SupremeCare
VIP-Plan 1 (Class 1)' Policy. On 11 March 2014, Mohd Farid pays the first annual
premium.

On 1 May 2014 at about 4 pm, Mohd Farid has an accidental fall from a tree while
gardening at home. He was holding a pair of pruning shears which struck his right
eye during the fall. Due to the unfortunate event, he suffers loss, pain and is
incapacitated from work and general activities and has to undergo a surgery.

In June 2014, after the surgery, he goes to both companies to make a claim on
his personal accident insurance. YouCARE General Insurance Bhd. refuse to pay
anything to Mohd Farid claiming no offer has ever been made to Mohd Farid for
the YouCARE VIP PA policy and there is no valid contract between the company
and Mohd Farid. On the other hand, Caring General Insurance Bhd.
is questioning Mohd Farid’s legal capacity when he entered into the contract with
the company.

(a) Explain the essential elements that need to be fulfilled to form a valid
contract in Malaysia.
[20 marks]

(b) Discuss whether the advertisement on the website of YouCare

General Insurance Bhd amounts to an offer.
[15 marks]

(c) Discuss whether Mohd Farid had the legal capacity to enter into the
insurance contract with Caring General Insurance Bhd.
[15 marks]

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PART III (Total: 100 marks)

INSTRUCTION: Answer TWO questions.

Please use the answer booklet provided.

Question 7

Robert has been working as an agent for Alpha Insurance Berhad for the past
20 years. He has been very hard working, has closed many cases and has helped
many customers with their insurance policies. As Robert was under pressure to
meet his sales target, he tried to close a case urgently for a customers, Mary.
He helped Mary to fill up her form for the purpose of taking a motor insurance
policy.

Mary runs a bakery and delivers freshly baked cakes in and around
Kuala Lumpur using her only car for her business. To ensure that
Alpha Insurance Berhad accepts the proposal, Robert states in the proposal form
that the purpose of the car is for ʹprivate useʹ. Mary accordingly signs the proposal
form. Mary meets with an accident while delivering her cakes and makes a claim
on her motor insurance policy. However, Alpha Insurance Berhad refuses to make
payment to her on the grounds of the misrepresentation in the proposal form in
relation to the purpose of use of the car.

Based on the above facts:

(a) Explain Mary’s position in relation to her signing the proposal form and
stating that the car is for ʹprivate useʹ.
[20 marks]

(b) What are the ingredients of the duty of care of disclosure that Mary must
fulfil under paragraph 4 of Schedule 9 of the Financial Services Act
in relation to her insurance contract?
[20 marks]

(c) State the main duties owed by Robert to Alpha Insurance Berhad.
[10 marks]

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Question 8

Monison Sdn Bhd has a factory in Shah Alam and is involved in the business of
manufacturing specially designed chairs only. On 15 August 2016,
Monison Sdn Bhd received an order from Supreme Berhad to supply 500
specifically designed chairs for a Hotel Supreme a new five star hotel to be
opened in Port Dickson on 1 October 2016.

Each chair costs RM300. Supreme Berhad pays a deposit of RM50,000 to

Monison Sdn Bhd. The chairs are to be delivered to Supreme Berhad on
20 October 2016 at the latest in view of the grand opening of the hotel on
1 November 2016, which is expected to be attended by royalties and other
dignitaries.

However, owing to a lightning strike on 30 September 2016, a major portion of the

factory is burnt down and some of the special equipment required for the
manufacture of the chairs is damaged. It would take one month to repair the
equipment as the parts need to be obtained from Indonesia.

(a) Explain to Monison Sdn Bhd their position in this matter.

[25 marks]

(b) Assuming Monison Sdn Bhd is not able to deliver any of the chairs to
Supreme Berhad on 20 October 2016 due to some financial problems
and internal management disputes faced by Monison Sdn Bhd.

Explain to Monison Sdn Bhd and Supreme Berhad on their respective

rights under the circumstances.
[25 marks]

Question 9

Nizam Sdn Bhd had purchased an oil rig from a Tokyo company and the oil rig
was transported in the vessel ʹThe Genesisʹ from Tokyo to Port Klang, Malaysia.
Nizam Sdn Bhd had taken a marine insurance policy with
XYZ Insurance Berhad (ʹXYZʹ) the marine insurance policy had incorporated the
relevant Institute Cargo Clauses (A), which basically covered ʹall risks of loss or
damage to the subject matter insuredʹ. However, there was a specific clause in
the policy which excluded liability for any ʹloss, damage or expense caused by
inherent vice or nature of the subject matter insuredʹ.

Just a day before reaching Port Klang, a storm broke out and due to strong waves
and movement of the vessel, the leg of the oil rig broke and the oil rig crashed into
the sea. Nizam Sdn Bhd made a claim with XYZ on the basis that the loss was
caused by perils of the sea but XYZ rejected the claim. XYZ claimed that the loss
was actually due to poor structure (legs) of the oil rig which caused the loss of the
oil rig and on that basis they refused to compensate Nizam Sdn Bhd.

(a) State at least five factors an insurer would take into account in
determining whether a claim is payable to an insured?
[5 marks]

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18 OCTOBER 2016 CONFIDENTIAL

(b) Explain to Nizam Sdn Bhd on the issue relating to their claim if they wish
to proceed with a court action against XYZ Insurance Berhad.
[25 marks]

(c) Advice Nizam on the possible advantages of arbitration proceedings

rather than court proceedings.
[20 marks]

>>> End of paper <<<

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