CHAPTER 3

INSURANCE LAW (Part A)

| Introduction to Commercial Law | Foundation in Law |
 Outline
• Introduction
• What is Insurance?
• Classifications of Insurance
(1) the function
(2) the main classes of business
(3) the Financial Services Act 2013
• Contract of Insurance
• Terms
 Introduction

• Life is full of risks (e.g. accident, burglary, fire). Some risks

are too heavy for someone to bear.
• Insurance is introduced as an instrument to lessen the
risk an individual has to bear.
• The risk is transferred to the insurance.
• It will provide financial compensation in the event of
misfortune.
 Legislations

• In Malaysia, the Financial Services Act 2013

(replaced the Insurance Act 1996) is the main
legislation governing insurance.

• However, the law of contract still has a great

bearing on the subject of insurance, because
insurance is transacted via contracts.
WHAT IS INSURANCE?
WHAT IS INSURANCE?

• Insurance is a means for persons and

businesses to protect and compensate
themselves against the risk of loss.

• Insurance is taken to ensure that, in the event

of any misfortune, one would at least obtain
financial compensation.
WHAT IS INSURANCE?

• Misfortunes which are commonly covered by insurance

are fires, deaths, thefts, accidents and personal injuries.

• Businesses also commonly need to purchase insurance

products, insuring themselves against the many diverse
of risks of loss e.g. loss resulting from fire, theft, death
or injury of employees, frauds or even negligence.
WHAT IS INSURANCE?

Insurance may be classified according to:

(1) the function
(2) the main classes of business
(3) the Financial Services Act 2013
WHAT IS INSURANCE?
(1) Classification based on its function:-
a) Insurance of Person (e.g. life, health,
accident)
b) Insurance of Property (e.g. fire, theft, motor
vehicle insurance)
c) Insurance of Liability (e.g. professional
indemnity, lawyers, doctors)
d) Insurance of Financial Interest (e.g. mortgage
insurance)
(2) Classification based on main classes of business

• Life Assurance
(2) Classification based on main classes of business

• Marine Insurance
(2) Classification based on main classes of business

• Fire Insurance
(2) Classification based on main classes of business

• Accident Insurance
(2) Classification based on main classes of business

• Motor Insurance
(2) Classification based on main classes of business

• Aviation Insurance
(3) S.5 of Financial Services Act 2013:
 Contract of Insurance
Definitions:
A ‘contract of insurance’ is a contract wherein one
person (the insurer) agrees to indemnify another
person (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.
 INSURER INSURED

Indemnify To pay
against a OR definite sum
loss of money
• The loss which is being insured against is called the risk.
• The term ‘assurance’ has the same meaning as
insurance, but is generally used in relation to events
that will definitely happen at some time or another
(e.g. death), whereas insurance refers to events that
may or may not happen (e.g., fire, accident, chronic
disease etc).
 ESTABLISHMENT of the
Contract of Insurance

GIVES PROPOSAL FORM

INSURER INSURED

A contract of insurance is usually entered into in the

following manner:
• The insurer will send the person seeking the
coverage (the proposer) a proposal form to
complete.
PROPOSAL FORMS
Contract of Insurance
• This will usually contain certain questions
common to all forms of insurance, including:

a) the description of the proposed insured

b) the history of the proposed insured
c) subject matter to be insured; and
d) a description of anything that could make
the risk greater than usual.
 Contract of Insurance

OFFER

ACCEPTANCE

INSURER INSURED
(insurance company) (proposer)

• Thus the proposal form (the offer) sets out detail the
insurer needs to know for determining risks.
• The offer does not come from the insurer. It is made by
the person seeking insurance protection i.e. proposer.
• If the offer is accepted, the proposer becomes the
insured (‘assured’ in a contract of life assurance), while
the insurance company is known as the insurer.
 Contract of Insurance

• The insurer and the insured enter into a contract of

insurance, and the document containing the terms of
the contract is called the policy.

• The insured pays the insurer a premium which is the

consideration paid by the insured either in the form of
a lump sum or a periodical amount.
 Contract of Insurance
• Where the insurers have accepted the premium, they
have accepted the proposal even if no policy has been
issued.

• Where this occurs, the insurers are liable if the insured

suffers any loss under the policy.

• Once the insurer has accepted the proposal, a

contract is completed.
 Canning v Farquhar
(1886) 16 QBD 727
Facts:
Canning applied for life assurance and was told by the
insurance company that no insurance contract could take
place until the first premium was paid. Before the
premium was paid, Canning fell over a cliff and died. The
company refused to accept the premium from Canning’s
agent because the change of risk has occurred.
 Canning v Farquhar
(1886) 16 QBD 727
Facts:

14 Dec 5 Jan 9 Jan

Canning’s proposal Canning’s agent
for life assurance Canning fell
over a cliff and tendered the premium
was accepted by to the company but
the insurance died
they refused to accept
company

The time of original proposal payment of the premium

 Canning v Farquhar
(1886) 16 QBD 727

Issue:
Whether the policy had lapsed because of the change in
risk between the time of the original proposal and the
payment of the premium.
 Canning v Farquhar
(1886) 16 QBD 727
Held:
Proposal was accepted at a specified premium, but upon the terms, that no
insurance should take effect till the premium was paid.
Before tender of the premium, there was a material alteration in the state
of the health of the proposer and the company refused to accept the
premium or to issue a policy, and it was held that the nature of the risk having
been altered at the time of the tender of the premium, there was no contract
binding the company to issue a policy.
• In short, a contract of insurance may be said to be a
contract where the insured is indemnified against
unforeseeable loss or damage which may or may not
occur, e.g. damage to property by fire.

• An insurance contract can be distinguished from an

ordinary business agreement.
 Terms

Policy
• The document containing the terms of the contract of
insurance (the contract).

Risk
• Risk is the loss which is being insured against in order to
reduce the risk. e.g. In fire insurance, the risk which is
protected is the risk of loss of property due to fire
accident.
 Terms

Insured
• The person who shall be indemnified
under an insurance contract (also
known as policy holder).
e.g. Mr. S bought fire insurance to
protect his house. Mr. S is the insured.
 Terms
Insurer
• The person/company who agrees to indemnify
another under the insurance contract.
e.g. Mr. S bought fire insurance from company C to
protect his house. Company C is the insurer.

Premium
• Premium can be understood as the consideration
paid by the Insured.
e.g. Mr. S bought fire insurance and paid some amount
on monthly basis, the money paid is the premium.
PRINCIPLES OF INSURANCE
 In the insurance industry, the applicable and
enforceable principles as follows:
1. Indemnity
2. Insurable interest
3. Utmost good faith
4. Material facts
1st Principle:
• There are two types of insurance: Indemnity
Insurance and contingency insurance.
Indemnity Insurance:
o Provides indemnity against loss and in which the measure
of loss is the measure of payment (for example, fire
policy).
o It binds the insurer to pay the amount of the insured’s
actual loss up to the amount covered by the insurance
policy.
o If the risk insured against does not occur, then of course
no payment is made to the insured.
Contingency insurance:
o It involves payment on a contingent event and in which the
sum paid is not measured by the loss but stated in the
policy.
o The insurer’s liability is to pay certain fixed sums as specified
in the policy, on the death, accident or sickness of the
insured.
o Life assurance are contracts of contingency, that is
undertaking to pay a certain sum of money on the death of a
specified person.
Contingency insurance:

• This is because for life assurance, there is no formula

can be used to tell the real or actual value of one’s life
or any part of his body.

• No matter how high the compensation offered,

nothing could fully compensate the loss of life or
physical disability. Thus, the amount is fixed to
correspond with each possible loss.
• Personal accident insurances are not strictly contracts
of indemnity, because it is clearly impossible to
compute exactly the monetary loss which is caused by
the death or disablement of an individual.

• Other classes of accident insurance contracts are,

however, contracts of indemnity providing
compensation against loss or liability arising from a
variety of accidental occurrences. (e.g: motorcycle,
cars, building)
• A contract of insurance is basically one where the
insured is indemnified against unforeseeable loss or
damage which may or may not occur e.g. damage to
property by fire or loss by burglary.
• In a broad sense, insurance policies are indemnity
contracts.
• This means that in case of a loss, the insured is
entitled to be indemnified i.e. to be compensated for
his loss, but he cannot recover more than the actual
loss suffered by him.
E.g. :

Mr. S insures his house against fire for RM200,000 and

part of his house is subsequently burnt down.
RM100,000 is needed to restore it. Under the principle
of indemnity, he will be compensated for the amount
RM100,000 only and not more.
 DOCTRINE OF SUBROGATION
• For contracts of indemnity, such as fire and motor
vehicles insurance, the doctrine of subrogation applies.
• Subrogation is founded upon equitable principles and
puts the insurer into ‘the shoes’ of the insured.
• The effect of subrogation is that it gives the insurer all
the rights of the insured against any third party who
may have been responsible for the damage that give
rise to the claim.
DOCTRINE OF SUBROGATION
• This prevents the insured from making a profit on the
loss by also bringing a civil action against a negligent
third party.
• The insured must be careful not to do any act that
may harm the insurer’s right of subrogation (e.g by
making an admission of liability to another driver in
the event of a car accident.)
 2nd Principle: Insurable Interest

• In every contract of an insurance, the insured has to

have an “insurable interest”. Not all risks can be insured.

• The risk which can be insured must have an insurable

interest. If no insurable interest exists, then the contract
of insurance is void.
• An ‘insurable interest’ means an interest (financial or
otherwise) in the subject matter of a contract of
insurance, which provides the insured with the right to
enforce the contract.

• A person is said to have an insurable interest in the

risk if he will suffer a loss in the event of misfortune or
the property being destroyed.
• 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.

• 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.

• A person would purchase a life insurance

policy because he has an insurable interest
in his own life.
• The amount of the insurable interest is the amount of
the pecuniary loss which the insured would suffer as a
result of the occurrence of the event insured against.

• Insurable interest exists when an insured derives a

financial benefit from the continuous existence of the
insured object or suffers a financial loss from the loss of
the insured object.
 MACAURA V NORTHERN ASSURANCE CO LTD
[1925] AC 619
Facts:

• Macaura owned a tree plantation.

• The plantation was covered by an insurance policy.
• He subsequently sold the plantation to a company of which he
was the only shareholder, though the purchase money remained
owing to him.
• After the sale, Macaura continued to insure the plantation but in
his own name.
• A fire broke out and destroyed the plantation.
• When Macaura attempted to claim on the policy, the insurance
company refused to pay.
 MACAURA V NORTHERN ASSURANCE CO LTD
[1925] AC 619
Issue: Whether Macaura had an insurable interest at the time of the
loss?
Held:
• The insurance company did not have to pay.
• The plantation company was a legal entity in its own right, separate
from its shareholders.
• Macaura, had a policy, but because he had assigned the plantation
to the company, he no longer had insurable interest.
MACAURA V NORTHERN ASSURANCE CO LTD
[1925] AC 619

“No shareholder has any right to any item

of property owned by the company, for he
has no legal or equitable interest therein.”
- Lord Wrenbury
 Nanyang Insurance Co Ltd v Salbiah & Anor
[1967] 1 MLJ 94

Facts:
• Lau Teck Siew bought a car which was then registered and insured
in his name.
• He entered into an agreement to sell it to Abdul Karim.
• When Abdul Karim failed to pay for the car, it was agreed that the
car would be lent to Abdul Karim until he paid for the car by
means of instalments.
• While Abdul Karim was driving the car, he met with an accident.
Nanyang Insurance Co Ltd v Salbiah & Anor [1967] 1
MLJ 94

Buy a car &

registered
insurance under his
name

Lau Teck Siew

AK failed to pay & it was

agreed that the car would
be lent to Abdul Karim until
he paid for the car by
Abdul Karim instalments.
 Nanyang Insurance Co Ltd v Salbiah & Anor
[1967] 1 MLJ 94
Issue:
Whether Lau Teck Siew had an insurable interest in the car.
Held:
Lau Teck Siew 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. The ownership has not been transferred from Lau Teck
Siew to Abdul Karim.
 Syarikat Pembinaan Lida Sdn Bhd v Talasco Insurance
Sdn Bhd [1993] 2 MLJ 121
• Fire occurred before the fire insurance policy was renewed.
Supreme Court held:
1. The insurer was not liable as there was no insurable interest
to insure and the terms of the policy did not cover such a
situation.
2. Policies on insurance against fire are made on the implied
condition that the description of the property inserted in the
policy is true at the time of making of the policy.
As seen from the case above, knowledge of the contract
is important as:
• it determines when the risk commences and ends;
and
• if a material misrepresentation is made, the insurer is
entitled to avoid the policy even after the happening
of the event insured against.
exception
• The general rule is that if a person has no insurable
interest, the policy is void.
• The exception to this rule is provided in S.128 & Para 3
of the Eighth Schedule of the Financial Services Act
2013 which refers to life policies.
 S 128 & Para 3 of Eighth Schedule
Of The Financial Services Act 2013
• S 128 of FSA: Eighth Schedule sets out provisions
relating to policies.
• Eighth Schedule, Para 3: insurable interest
• (1) A life policy insuring the life of anyone other than
the person effecting the insurance or a person
mentioned in subparagraph (3) shall be void unless the
person effecting the insurance has an insurable interest
in that life at the time the insurance is effected.
• (2) A group life policy shall not be void by reason only
that the group policy owner did not have, at the time
when the insurance was effected, an insurable interest
in the lives of the persons insured under the policy.
• (3) A person shall be deemed to have an insurable
interest in the life of another person if that other
person is—
- (a) his spouse or child;
- (b) his ward under the age of majority at the time the
insurance is effected;
- (c) his employee; or
- (d) a person on whom he is wholly or partly
dependent for maintenance or education at the
time the insurance is effected.
• (4) In this paragraph, insuring the life of a person
means insuring the payment of moneys on a
person’s death or on the happening of any
contingency dependent on his death or survival and
includes granting an annuity to commence on his
death or at a time referred to in the annuity.
• The effect of the said section is that notwithstanding the fact
that the insured has actually no insurable interest in persons
other than himself, the insured persons who are deemed to have
insurable interests are as follows:
1) his or her spouse (i.e. husband or wife)
2) his or her child or ward below the age of 18; &
3) any person who is dependent on him or her
4) a person on whom he is wholly or partly dependent for
maintenance or education at the time the insurance is
effected.
 3rd Principle: Utmost Good Faith
• Parties to an ordinary commercial contract need not reveal
to each other all they know about the proposed contract.

• However, insurance contracts require the contracting parties

to disclose to each other all information which would
influence either party’s decision to enter into the contract,
regardless of whether such information was requested or not.
 3rd Principle: Utmost Good Faith
• This is because insurance contracts are based on mutual
trust and confidence between the insured and the
insurer.
• In other words, insurance contracts are uberrimae fidei.
• Thus, unlike contracts for the sale of goods or provision
of services, insurance contracts are contracts of the
‘utmost good faith’ or uberrimae fidei.
 3rd Principle: Utmost Good Faith
• This is because the parties are not in an equal position with respect to
knowledge of the possible risk involved.
• The person with the greatest knowledge of the risk involved is the
proposer.
• They should have to 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.
• In particular, this duty must be fulfilled by the insured as he, not the
insurer, knows about himself or the subject matter of the insurance.
GOH CHOOI LENG V PUBLIC LIFE ASSURANCE CO LTD
[1964] 30 MLJ

Facts:
• The defendants contended that they were not
liable to the policy since the declaration by
the assured on the policy contained false
statements, misrepresentations, concealment
and suppression of the truth.
• There was medical evidence that the assured
had been treated for pulmonary tuberculosis.
• However, in his declaration when applying for
insurance, in answer to the question, ’Have
you ever had advice about your heart or lung
or for cough?’, he answered 'No’.
 GOH CHOOI LENG V PUBLIC LIFE ASSURANCE CO LTD [1964] 30
MLJ 5
Held:
• In view of the fact that the assured had not long before the
date of declaration been in hospital for treatment for
pulmonary tuberculosis, his answer in the declaration was a
deliberate lie.
• The contract of insurance was therefore voidable.
 ROZANES V BOWEN [1928] 32 LI LR 98
Scrutton LJ:
“…As the underwriter knows nothing and the man who comes to
him to ask him to insure knows everything, it is the duty of the
assured, the man who desires to have a policy, to make a full
disclosure to the underwriters without being asked of all the
material circumstances, because the underwriters know nothing
and the assured knows everything. This is expressed by saying that it
is a contract of the utmost good faith-uberrimae fidei…”
 LOOKER V LAW UNION AND ROCK INSURANCE CO LTD
[1928] 1 KB 554

Facts:
• Looker stated in his proposal form for life
assurance that he was free from any disease or
ailment.
• In fact, at the time of acceptance of his proposal
he was suffering from pneumonia and shortly after
the company accepted his proposal, he died.
LOOKER V LAW UNION AND ROCK INSURANCE CO LTD [1928] 1
KB 554
Issue:
Whether the insurer was liable to the policy.
Held:
The insurance company was not liable to the policy as
the proposer was under an obligation to inform the
insurers of any material change occurring before the
contract was made in relation to the risk undertaken by
them.
 4th Principle: Material Facts
• A person is not expected to disclose all facts. He is only required
to disclose material facts.
• In the context of law on insurance, a material fact is a fact that
would influence the mind of a prudent insurer in deciding
whether to accept the risks, and if so, at what premium.
• If a person fails to disclose a fact which is not material, the
contract is still valid.
ABU BAKAR V ORIENTAL FIRE & GENERAL INSURANCE CO LTD
[1974] 1 MLJ 149

Facts:
• In his application for fire insurance, the insured
answered the question, 'For what purposes are
the premises occupied?’, he answered: ‘Sundry
shop downstairs, dwelling first floor’.
• Fire broke out. It appeared that there were four
grinding mills for grinding curry powder at the
back of the shop.
• The insurer denied liability on the ground that
the appellant had failed to disclose the
presence of the four grinding mills at the rear
portion of the shop.
 ABU BAKAR V ORIENTAL FIRE & GENERAL
INSURANCE CO LTD [1974] 1 MLJ 149

Sessions Court & High Court held:

The insurers were not liable under the insurance
policy. The insured appealed.
Court of Appeal:
• The insurers had not been misled as to the
nature of the insurance the appellant wished to
take and in respect of what goods, and there
was no evidence to show in what way the
presence of the grinding mills was considered
to increase the risks with respect to the
property insured.
• Therefore, the insurers were liable under the
insurance policy.
 ABU BAKAR V ORIENTAL FIRE & GENERAL
INSURANCE CO LTD [1974] 1 MLJ 149

Azmi L.P:
‘…if the fact even though material is one which the
proposer did not and could not, in particular
circumstances, have been expected to know, or if its
materiality could not have been apparent to a
reasonable man, his failure to disclose should not be
regarded as a breach of his duty…’.
• There is no duty on a person to disclose facts he does
not know or facts which he cannot reasonably expected
to know.

• He is only expected to disclose facts which he actually

knows or facts which he reasonably ought to know.
KATHIRVELU V PACIFIC & ORIENT INSURANCE CO SDN BHD [1990]
3 MLJ 312

Held:
The insurance company was not entitled to repudiate the
policy on the ground of non disclosure of material facts
since there was no evidence that the plaintiff was
suffering from the illnesses or knew or had reason to
know that he was suffering from them when he signed
the proposal form.
 DAWSONS LTD V BONNIN
[1922] ALL E.R REP 88
Fact:
• The proposer for an insurance policy of a lorry
against fire stated that it was kept at ‘46 Cadogan
Street, Glasgow’.
• In actual fact, the lorry was kept in the outskirts of
the city.
• The lorry was destroyed by fire.
 DAWSONS LTD V BONNIN
[1922] ALL E.R REP 88

Held - House of Lords:

The insurers were entitled to repudiate liability since the
misstatement, although not material, was made a ‘basis’
of the contract.
Where there is any misstatement in the proposal form,
the insurers may avoid liability on this basis.
 NATIONAL INSURANCE CO LTD V S. JOSEPH
[1973] 2 MLJ 195
Facts:
• The plaintiffs applied for a declaration that a policy of insurance is
void on the ground that there was misrepresentation and non-
disclosure of material facts.
• In the proposal form the defendant had stated that no company
had cancelled his policy of insurance in respect of any motor
vehicle controlled or owned by him, and that he had not met
with any accident whilst driving.
• In fact, he had taken out a policy of insurance which has been
cancelled as a result of a motor accident involving his car.
 National Insurance Co Ltd v S. Joseph
[1973] 2 MLJ 195

Held:
• An insurance agent who fills up a proposal
form and completes it with false and untrue
particulars, for the purpose of getting the
policy of insurance for the applicant and a
commission for himself is not acting within the
scope of his authority and in so doing he is
NOT acting as the agent of the insurance
company.
 National Insurance Co Ltd v S. Joseph
[1973] 2 MLJ 195

• On the facts, the defendant had not disclosed

to the plaintiffs or their agent that he had a
policy of insurance which had been cancelled
nor did he disclose to them that he had a
motor accident.
• The plaintiffs were therefore entitled to an
order declaring the policy of insurance void.
An insurance contract is usually preceded by a
proposal form, which contains questions that the
proposed insured is required to answer.

Insurance policies have commonly provided that the

policy is issued strictly based on the proposal form.
The answers in the proposal form are incorporated
into the policy and made the ‘basis’ of the insurance
contract.
The effect is that they are treated as equivalent to
conditions in other types of contract, and the general
rule is that a breach of condition gives rise to a right to
repudiate.

Thus, an insurer could escape liability if an answer

given by the proposed insured was incorrect, no matter
how immaterial to the insurer’s decision to accept the
risk or to fix the premium.
• It is important for businessmen and other proponents
of insurance to understand that it is in their own
interests that they should ensure the insurance
proposal forms are filled in with complete frankness and
conclusive detail.

• If an insurance proposal form is not completed in this

way, the insured will pay his premiums perhaps for
years thinking that he is covered only to find that when
he suffers a loss and makes a claim, the insurer checks
the proposal form against the true facts and seizes on a
discrepancy as a basis for denying liability.
 Completion of Proposal Form By An Agent

A person who wishes to effect insurance would be required to

fill in a proposal form. Frequently, the insurer’s agent fills in
the form for the proposer either for reasons of convenience
or because the person is illiterate. However, the agent is
contracted by the insurer to receive proposals but not for
completing a proposal form.

In reality, most contracts of insurance are arranged through

intermediaries who can be the employees of insurance
companies, agents or brokers.
 Insurance agent vs insurance
broker:

oAn insurance agent is appointed by a

particular insurer (e.g. insurance
company);

oAn insurance broker acts as an

independent advisor, not tied to any
insurer
• So, what happens if an inaccuracy or mistake is made
by the agent?

• The importance of who fills up the forms is due to

the fact that in most insurance contracts, the
proposal form is the ‘basis’ of the contract.
• Therefore, if there is any inaccurate statement or any
misstatement in the proposal, the insurer may avoid
liability.
• The general rule is that in this case, the agent is acting
as the insured’s agent and not acting on behalf of the
insurer.
• Thus the insurer may be able to avoid liability by
relying on inaccuracies or mistakes found in the
proposal form.
 Agent

Insured

Insurance company

The duty of insured party to ensure

all information in proposal form is
TRUE & ACCURATE.
 ONG ENG CHAI V CHINA INSURANCE CO LTD [1974] 1
MLJ 82
Facts:
• The plaintiff claimed under a policy of insurance in respect of his
car.
• The defendants pleaded that the policy was void as the proposal
form contained untrue statements and answers.
• The proposal form had been filled in and signed by an agent of
the defendant’s company and it contained untrue answers to the
question whether any previous insurance had been declined,
refused or cancelled.
 ONG ENG CHAI V CHINA INSURANCE CO LTD
[1974] 1 MLJ 82
Held:
1) The untrue answers to the questions entitled the
defendant company to avoid the contract.

2) In the circumstances the agent of the company,

when he signed the proposal form, did so as the
agent of the plaintiff and therefore the plaintiff
was bound.

Action dismissed.
 NATIONAL EMPLOYER’S MUTUAL GENERAL INSURANCE
ASSOCIATION LTD V GLOBE TRAWLERS PTE LTD [1991] 2 MLJ
92
Facts:
• The respondents (plaintiffs) were trawler builders.
• Whilst they were in the process of building two trawlers, they
applied to the appellants for the issue of a fire policy and burglary
policy in respect of ‘one complete unit of wooden fishing trawler’
on two occasions.
• An insurance broker was the one who had completed the
proposal forms but the respondents had read and signed them.
 NATIONAL EMPLOYER’S MUTUAL
• A fire broke out at one of the
GENERAL INSURANCE ASSOCIATION LTD
V GLOBE TRAWLERS PTE LTD [1991] 2 trawlers and substantially
MLJ 9
destroyed it while the other
trawler sustained cracks.
• The respondents made a claim for
both vessels. The trial judge give
judgment in favour of the
respondents. The appellants
appealed to the Court of Appeal,
Singapore.
 NATIONAL EMPLOYER’S MUTUAL GENERAL
INSURANCE ASSOCIATION LTD V GLOBE
TRAWLERS PTE LTD [1991] 2 MLJ 9
Held:
1) There was material misdescription in the proposal form when
the incomplete trawlers were described as complete units of
wooden fishing trawlers.

2) The general rule is that a broker who completes the proposal

form is not acting as an agent for the insurer but for the insured.
The courts have departed from the general rule only when there
have been some unusual circumstances. In this case, as the
respondents had read and signed the proposal form, the
respondents should not be allowed to hide behind the broker.
 Agent Issuing Cover
• Agent that is commonly understood by the layperson
whose primary function is to forward proposals to the
insurer for acceptance.
• Agent is given possession of interim cover note ready
for issue by him, it maybe implied that he has
ostensible authority to grant temporary insurance
cover pending final acceptance or rejection by the
insurer.
• *Cover note : Summary document issued by an
insurer as an interim cover for the period before a
formal insurance policy is issued.
 Agent Issuing Cover
• Unless it is made clear to the proposer prior to the
making of the contract that such agent does not have
authority to make contracts on behalf of the insurer or
to accept premiums, the insurer is bound under the
cover note, even if his agent issues cover notes and
fraudulently appropriates the premiums to his own use.
• The duties of an agent or broker are largely determined
by the express and implied terms that make up the
agency agreement.
• Duties of an insurance agent or broker include:
1) Following the principal’s instructions
2) Acting in person
3) Acting in good faith
4) Exercising reasonable care, skill and diligence in
performing the terms of the contract
5) Keeping proper accounts
6) Maintaining confidentiality of information
7) Accepting only the agreed or customary
remuneration
THE END OF CHAPTER 3