CHAPTER 5

INSURANCE LAW

LECTURER: MADAM NURUL ATIQAH

 Introduction
 Main legislations governing insurance is
Financial Services Act 2013 which came into
effect in 30th June 2013.
 Legalprinciples applying to the formation of a
contract and common law principles also
governs the formation of an insurance
contract.
 Introduction
 Under Section 8 of the Financial Services Act,
 No person shall carry on any authorized business
unless it is—
 (a) licensed by the Minister, on the
recommendation of the Bank, under section 10 to
carry on banking business, insurance business or
investment banking business; or
 (b) approved by the Bank under section 11 to
carry on any of the businesses set out in Division
1 of Part 1 of Schedule 1.
 Introduction
 The Minister of Finance and Bank Negara Malaysia
are responsible for the issue of license authorizing
the holder to carry on insurance business.
 Section 20 of Financial Services Act 2013 sets out
the circumstances where the Minister, on the
recommendation of Bank Negara, may revoke the
license of a licensed insurer.
 Introduction
 A contract of insurance is a contract where one
person, ‘the insurer’ undertakes to indemnify another
‘the insured’ against a loss which may arise upon the
occurrence of some event or to pay a certain definite
sum of money on the occurrence of the particular
event.
 Loss which is being insured against is called risk.
 Risk include fire, accident or theft, or to pay a fixed
sum on the happening of certain event, such as
death.
 Premium of Insurance
 In consideration of this promise, the insured promises
to pay to the insurer a sum of money called
‘premium’.
 Under Section 2(1) of Financial Services Act 2013,
‘premium’ is defined as the amount payable to an
insurer under a policy as consideration for the
obligations assumed by the insurer.
 The premium may consist of a lump sum or of
periodic payments.
Example of premium in Allianz Insurance
 Policy of Insurance
 Document issued by the insurer to the insured setting
out the terms of the insurance contract is called ‘policy’
of insurance.
 Under Section 2(1) of Financial Services Act 2013,
‘policy’ is defined as an insurance policy and includes
a cover note or a contract of insurance, whether or not
embodied in or evidenced by an instrument in the form
of an insurance policy, and references to —
 Policy of Insurance

 issuinga policy shall be construed as entering

into a contract of insurance, whether or not a
formal contract has been issued; and
a policy of an insurer includes a policy or a bond
in respect of which the insurer is under any
liability, whether the policy was issued by the
insurer or the liability was transferred to the
insurer from another insurer;
Example of Insurance Policy
Financial Services Act 2013

Section 5 divides
insurance • (a) life business, which in addition to all
business into two insurance business concerned with life
classes, ie. life policies shall include any type of
insurance business carried on as
business and incidental only to the life insurer’s
general business business; and
(all insurance • (b) general business, which means all
business which insurance business which is not life
is not life business.
business).
Common Examples of Insurance
It is possible to insure against a great variety of
risks, and some of the common examples of
insurance are:
• life insurance,
• marine insurance,
• fire insurance,
• accident insurance,
• motor insurance,
• aviation insurance.
Two types of insurance
Contingency Insurance
• Involves payment on a contingent event and
in which the sum paid is not measured by the
loss but stated in the policy.
• The insurer’s liability is to pay certain fixed
sums specified in the policy, on the death,
accident or sickness of the insured.
• Eg life policy where insurer undertakes to pay
a certain sum of money on the death of a
specified person, or on his attaining a certain
age.
Two types of insurance
Indemnity Insurance
• Indemnity against loss in which the measure of
loss is the measure of payment.
• It binds the insurer to pay the amount of the
insured’s actual loss up to the amount covered
by the insurance policy.
• If the risk insured against does not occur, then
no payment is made to the insured.
• Eg: fire policy where the liability of insurer is only
to reimburse the insured for the loss he has
suffered during the event and no more
Insurance a special contract

Two Components
Proponent is required to
There must be an demonstrate utmost
‘insurable interest’ good faith (uberrimae
to be insured fidei) in insurance
proposal
 Insurable Interest
• In every contract of insurance, the insured has to
have an ‘insurable interest’.
• Insurable interest is defined as an interest in the
subject matter of a contract of insurance which
provides the insured with the right to enforce the
contract.
• In Section 128 of Financial Services Act, the policy is
void if a person has no insurable interest in the
policy.
 Insurable Interest
• A person who suffer loss in the event of his property
being destroyed can be said to have an insurable
interest.
• Eg 1: The owner of a car has an insurable interest in
the car since he would suffer a monetary loss if the
car meets with an accident
• Eg 2: A house owner has an insurable interest in the
house since if the house catches fire or is damaged
by floods, the house owner would suffer a loss.
Insurable Interest
Case: Macaura v Northern Assurance Co Ltd
(1925)

• Macaura had no insurable interest as he had

assigned the plantation to the company.

Case: Nanyang Insurance Co Ltd v Salbiah &

Anor (1967)
• Lau Teck Siaw had an insurable interest in the car on
the date of the accident. The car was driven by Abdul
Karim with the permission of the insured.
Macaura v Northern Assurance Co Ltd (1925)

 Macaura owned a tree plantation. The plantation was covered by an

insurance policy. He subsequently sold the plantation to a company which
he was the only shareholder, though the purchase money remained owing
to him.
 After the sale, Macaura continued to insure the plantation in his own name.
 A fire broke out and destroyed the plantation. When Macaura attempted to
claim on the policy, the company refused to pay.
 The insurance co did not have to pay. The plantation company was a legal
entity in its own right, separate from its shareholder and while it was the
owner of the plantation & had an insurable interest, it had no policy.
 Macaura on the other hand, had a policy but because he had assigned the
plantation to the company he had no insurable interest.
Nanyang Insurance Co Ltd v Salbiah & Anor
(1967)

 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 was met with an accident. The issue before the court was
whether Lau Teck Siew had an insurable interest in the car.
 The court decided that Lau Teck Siew had an insurable interest in
the car on the date of the accident because he was the owner of
the car and the car was driven by Abdul Karim with the permission
of the insured.
Insurable Interest

Life insurance
• There must be an insurable interest at the time
the insurance was taken.

General insurance
• There must be insurable interest at the time the
insurance was taken and at time of a claim.
Insurable Interest in life policy
Section 128 of Financial Services Act

• Person shall be deemed to have insurable

interest in relation to another person if the other
person is
• his spouse
• his ward under the age of majority at the time
the insurance is effected
• his employee
• A person on whom he is wholly or partly
dependent for maintenance or education at
the time the insurance is effected
 Uberrimae Fidei/Utmost Good
Faith
• Insurance contracts are contracts of the utmost good
faith (Uberrimae fidei)
• Uberrimae fidei is applicable to describe a class of
contracts in which one party has a preliminary duty to
disclose material facts.
• In insurance contract, contracting parties are required
to disclose to each other all information (material facts)
which would influence either party’s decision to enter
into the contract, regardless of whether such
information was requested or not.
• This is because insurance contracts are based on
mutual trust and confidence between the insured and
the insurer.
 Uberrimae Fidei
 The person with the greatest knowledge of the
risk involved is the proponent.
 It follows that they should disclose all those
facts that could influence the insurance
company as to whether or not it will accept the
risk.
 Failure to disclose material information gives
the other party the right to regard the contract
as void.
Uberrimae fidei

Case: Goh Chooi Leng v Public

Life Assurance Co Ltd (1964)

• Assured’s answer in the declaration

was a deliberate lie. The contract of
insurance was therefore voidable.
Case :Goh Chooi Leng v Public Life
Assurance Co Ltd (1964)

 The insured took out a life policy on his own life, but
failed to disclose that he had been treated for
pulmonary tuberculosis (lung infection). When the
insured died, the insurer refused to make any payment.
 The plaintiff (wife) to whom the policy was assigned,
fled an action for the non payment.
 Court held that the non disclosure resulted on the
contract become voidable.
 Material facts/Information
• Section 129 of Financial Services Act 2013 -
“Material fact” means a matter or fact which, if
known by the licensed life insurer,
• would have led to its refusal to issue a life
policy to the policy owner or
• would have led it to impose terms less
favorable to the policy owner than those
imposed in the life policy.
 Material fact
• Section 129(4)(1) of Financial Services Act – Before a
contract of insurance other than a consumer insurance
contract is entered into, varied or renewed, a proposer
shall disclose to the licensed insurer a matter that
• (a) he knows to be relevant to the decision of the insurer
on whether to accept the risk or not and the rates and
terms to be applied; or
• (b) a reasonable person in the circumstances could be
expected to know to be relevant.
 Material fact
• Section 129(4)(2) of Financial Services Act - The
duty of disclosure shall not require the disclosure of
a matter that
• (a) diminishes the risk to the licensed insurer
• (b) is of common knowledge
• (c) the licensed insurer knows or in the ordinary
course of his business ought to know, or
• (d) in respect of which the licensed insurer has
waived any requirement for disclosure.
Material fact
Case: New India Asurance Co Ltd v
Pang Piang Chong & Anor (1971)
• The first defendant answer to the question did not
constitute a non-disclosure of a material fact or
representation of a fact which was false in some
material particular.

Case: Abu Bakar v Oriental Fire &

General Insurance Co Ltd (1974)
• No evidence to show that the grinding mills was
considered to increase the risks with respect to the
property insured. Insurers were liable under the
insurance policy.
Abu Bakar v Oriental Fire &
General Insurance Co Ltd (1974),
 In the case of Abu Bakar v Oriental Fire & General Insurance Co Ltd
(1974), plaintiff applied for fire insurance for the purpose to protect his
sundry shop downstairs and dwelling purpose for the first floor. Fire
occurred and there were four grinding mills for grinding curry powder at
the back of the shop. The insurer denied liability on the ground that the
insured had failed to disclose the presence of the four grinding mills at
the rear portion at the shop. Court held that the insurers had not been
misled as to the nature of the insurance. 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. Insurers were liable under
the insurance policy.
New India Asurance Co Ltd v Pang Piang Chong
& Anor (1971)

 New India Assurance Co Ltd v. Pang Piang Chong, the insurer

refused to pay an insured claim when he caused the accident. The
insured denied that he or persons he permitted to drive his vehicle
was once convicted for driving offences. In fact, the insured was
once convicted for driving without a licence and not displaying the
"L" mark.
 The court held that the answers given was not deception or non
disclosure of material facts.
 Condition and Warranties
 When the insured commits a breach of condition or
warranty, the insurer is entitled to disclaim liability.
Case: Suhaimi bin Ibrahim v
United Malayan Insurance Co Ltd
(1996)
• Plaintiff engagement of more than six employees,
contrary as what stated in the proposal form,
amounts to breach of warranty
• There was also breach of condition when the Plaintiff
failed to refer the dispute to arbitration within 12
months.
 Exemption Clause
• It is common for insurance contracts to contain
exemption clauses to be exempted/excluded from some
liability.
• Case: Tan Keng Hong & Anor v Fatimah binti Abdullah
(1974)
• A lorry was insured under a third party policy which
exempted liability for death caused to any person
carried on the vehicle (other than a passenger carried
by reason of contract of employment).
• It was held that the deceased was getting a free lift on
the lorry, therefore the insurers were not liable under
the policy to indemnify the appellants.
 Completion of Proposal Form by
Agent
 A person who wishes to effect an insurance would be
required to fill up the proposal form himself.
 Proposal form is the basis of the contract.
 If there is any inaccurate statement in the insurance
proposal, the insurer may avoid liability.
 It is important to know who fills up the form.
 Agent of an insurance company in completing a proposal
form for a proposer/insured is acting as his agent and not on
behalf of the company.
Completion of Proposal Form by
Agent
Case: Ong Eng Chai v China
Insurance Co Ltd (1974)
• The proposal form had been filled in and
signed by an agent of the defendant’s company
and it contained untrue answers
• It was held that the untrue answers to the
questions entitled the defendant company to
avoid the contract