I. TERMINOLOGY AND CONCEPTS

A. RISK MANAGEMENTRisk management consists of plans to protect personal and financial interests should an event undermine their security. The most common method is to transfer risk from a business or individual to an insurance company.

B. INSURANCE TERMINOLOGYAn insurance company is an underwriter or an insurer; the party covered by insurance is the insured; an insurance contract is a policy; consideration paid to an insurer is a premium; policies are obtained through an agent or broker.

C. RISK POOLINGInsurance companies spread the risk among a large number of people—the pool—to make the premiums small compared with the coverage offered.

D. CLASSIFICATIOINS OF INSURANCEInsurance is classified according to the nature of the risk involved.

E. INSURABLE INTERESTTo obtain insurance, one must have a sufficient interest in what is insured. 

1. Life Insurance One must have a reasonable expectation of benefit from the continued life of another. The benefit may be related to money or may be founded on a relationship (by blood or affinity).

a. Key-person InsuranceAn organization (partnership, corporation) can insure the life of a person who is important to that organization (partner, officer).

b. When the Insurable Interest Must ExistAn interest in someone’s life must exist when the policy is obtained.

2. Property Insurance One has an insurable interest in property when one would sustain a pecuniary loss from its destruction. An insurable interest in property must exist when the loss occurs.

II. THE INSURANCE CONTRACTPolicies generally are standard; in some states, this is required.

A. APPLICATION FOR INSURANCEThe application is part of the contract. Misstatements can void a policy, especially if the insurer shows that it would not have issued the policy if it had known the facts.

B. EFFECTIVE DATE OF COVERAGEA policy is effective when (1) a binder is written, (2) the policy is issued, or (3) a certain time elapses.

1. When a Policy Is Obtained from a BrokerA broker is the agent of the applicant. Until the broker obtains a policy, the applicant is normally not insured.

2. When a Policy Is Obtained from AgentAn agent is the agent of the insurer. One who obtains a policy from an agent can be protected from the moment the application is made (under a binder), or the parties may agree to delay coverage until a policy is issued or some condition is met (such as a physical exam).

C. PROVISIONS AND CLAUSESSome important clauses include—

1. Provisions Mandated by StatuteA court will deem that a policy contains such a clause even if it is not actually included in the language of the contract.

2. Incontestability ClauseAfter a life or health policy has been in force for a certain time (two or three years), the insurer cannot cancel the policy or avoid a claim on the basis of statements made in the application.

3. Coinsurance ClauseA standard provision in fire insurance policies; applies only in cases of partial loss. If an owner insures property up to a specified percentage (usually 80 percent) of its value, he or she will recover any loss up to the face amount of the policy. If the insurance is for less than this percentage, the owner is responsible for a proportionate share.

4. Appraisal and Arbitration ClausesIf insurer and insured disagree about the value of a loss, they can demand separate appraisals, to be resolved by a third party (umpire).

5. Multiple Insurance CoverageIf policies with several companies cover the same risk and the amount of coverage exceeds the loss, the insured collects from each insurer its proportionate share of the liability to the total amount of insurance.

6. Antilapse ClauseProvides grace period for insured to pay an overdue premium.

D. INTERPRETING PROVISIONSWords in an insurance contract have their ordinary meanings. If there is an ambiguity or uncertainty, it is interpreted against the insurer.

E. CANCELLATIONA policy may be canceled for nonpayment of premiums, fraud or misrepresentation, conviction for a crime that increases the hazard insured against, or gross negligence that increases the hazard insured against. An insurer may be required to give advance written notice.

F. BASIC DUTIES AND RIGHTSParties must act in good faith and disclose all material facts. If there is a claim, the insurer must investigate. Insurer and insured must fulfill the terms of the policy.

G. DEFENSES AGAINST PAYMENTFraud, misrepresentation, violation of warranties, and actions that are against public policy or that are otherwise illegal.

III. TYPES OF INSURANCE

A. LIFE INSURANCEA fixed amount is paid to a beneficiary on an insured’s death.

1. Types of Life InsuranceBasic types—whole life: has cash surrender value that grows at a predetermined rate and can be used as collateral for a loan; term: provides protection for a specified period; has no cash surrender value.

2. LiabilityUnless excluded, any cause of death is the insurer’s risk. Typical exclusions: death by suicide, when the insured is a passenger in a commercial vehicle, in military action in war, or execution by the government.

3. Misstatement of Age This does not void a policy, but premiums or benefits are adjusted.

4. Assignment An insured can change beneficiaries, with notice to the insurer.

5. Creditors’ RightsGenerally, a judgment creditor can reach an insured’s interest in life insurance. The creditor cannot compel the insured to obtain cash surrender value or change the beneficiary to the creditor.

6. TerminationUsually occurs only on default in premium 

payments (policy lapses), payment of benefits, expiration of term, or cancellation by insured.

B. FIRE INSURANCEProtects the homeowner against fire, lightning, and damage from smoke and water caused by the fire or the fire department.

1. LiabilityUsually, recovery is limited to losses resulting from hostile fires. In some cases, the insured must file proof of a loss as a condition for recovery. In most cases, premises must be occupied at the time of loss, unless the parties agree otherwise.

2. AssignmentNot assignable without the consent of the insurer (because it would materially change the insurer’s risk).

C. HOMEOWNERS’ INSURANCE

1. Property CoverageThe garage; the house; other private buildings; personal possessions at home, in travel, or at work. Includes expenses for living away from home because of a fire or some other covered peril.

2. Liability Coverage Injuries occurring on the insured’s property; damage or injury by the insured to others or their property. Excludes professional malpractice.

D. AUTOMOBILE INSURANCE

1. Liability Insurance Covers bodily injury and property damage.

2. Collision InsuranceCovers damage to the insured’s car in any type of collision. Most people agree to pay a deductible before the insurer becomes liable.

3. Comprehensive InsuranceCovers loss, damage, and destruction by fire, hurricane, hail, vandalism, and theft.

4. Uninsured Motorist InsuranceCovers the driver and passengers against injury caused by any driver without insurance or by a hit-and-run driver. Some states require it of all automobile policies sold to drivers.

5. Other-Driver CoverageProtects vehicle owner and anyone who drives the vehicle with owner’s permission.

6. No-fault InsuranceProvides that claims arising from an accident are made against the claimant’s own insurer, regardless of whose fault the accident was.

E. MARINE INSURANCEProtects from the damage to or loss of a seaworthy vessel or its cargo due to perils at sea. (If the vessel is not seaworthy, the policy is usually void.)

CLAIMS

• GENERAL RULE Right to make a claim exist upon the occurrence of the insured event ie loss

• Who can make a claim?a. Life policy : Sec165 – 169 Insurance Act 1996

– Policy owner : Sec 2– Beneficiaries/ nominees– Assignees, Personal

representativesb. General insurance

- Insured - Third party claim ( motor policy)

• Beneficiary’s right to sue Insurer

B has no direct interest [ privity of contract] a] Common law position

Ins is entitled to make payment to a named Beneficiary. Duty is discharged upon paymentb] Malaysian positionB entitled to bring action against Ins to enforce the policy. Reason: B was privy to the consideration. Interest subsist at time of I’s death

• CLAIMANTSi. Manomani v Gt Eastern Life Insurance

[ 1991] 1 CLJ 141 ( Mother as B)ii. Perumal A/L Manickam v Msian Coop

Insu Soc [1995]2 MLJ 144 ( no named Beneficiary)

iii. Pushpa A/P Rajoo v Msian Coop Insu Soc [1995] 2 MLJ 652 ( whether marriage automatically revoked earlier nomination]

iv. Re Tan Hui Gan , dec ( Phang Siew Fa v Aw Kim Shiok)) [ 2006] 3 MLJ 663

v. Poominathan v Besprin Stationers Sdn Bhd [ 2003] 3 MLJ 249

vi. Wong Cheong Kong v Prudential Assurance[ 1998] 3 MLJ 72

• casesi. Manohmani v Gt Eastern Life Insurance [ 1991] 1 CLJ 141 Insured took life policy . Mother named asBeneficiary. I died. Def refused to releasethe money

• Perumal A/L Manickam v Msian Coop Insu Soc [1995] 2 MLJ 144

Ratio: Where no named Beneficiary isnamed in the policy, Ins is entitled to make payment to the proper claimant Facts:

Pl’s son took out life policy. No beneficiary was named. He died & Pl made a claimHeld1. Proof of the correctness of Dec’s date of birth as per the proposal form was a condition precedent to payment of the policy money

• cont2. Sec 44 Insurance Act 1963 gave Ins discharge when payment was made to a proper claimant. Insurer is then absolved from further liabilities.Sec 44(5) : ‘ proper claimant ‘ includes

• Executor of Deceased• Widower /widow• Parents• Child• Brother / sister/nephew /niece• cases

iii. Pushpa A/P Rajoo v Msian Coop Insu Soc [1995] 2 MLJ 652 Issue: whether marriage automatically revoked earlier nominationI , a bachelor took out a life insurance policy. Father was nominated as sole Beneficiary in 1986. I married Pl 3 years later but did not revoke the nomination. I died in 1992.

• K C Vohrah, J at p 660‘ … as the law stands, the spouse and the children …may be unjustly deprived…because …forgot to include, or renominate or procrastinated in renominating…or…failed to revoke the nomination made before marriage. It is , however, for Parliament to change the law if Parliament deems the circumstances justify such change.’Question: Position after 1996?

• INSURANCE ACT 1996i. Sec 165 : where policy owner has made a nomination >> Insurer shall pay the policy moneys of the deceased policy owner according to the direction of the nominationii. Sec 169: where there is no nomination>> Insurer shall pay… to the applicant who produce Grant of Probate or Letters of Administration

• Vaswani R. Anilkumar v Vaswani L. Challaram [2003] SLR CA

• I bought 3 policies & named his parents as Beneficiaries. Did not revoke nomination after marriage to App.

• After his death, Insure willing to pay to Beneficiaries . Did not do so because of Widow’s claims. I died intestate & money formed as part of the estate

• Appeal against District Courts order to pay to parents/ Beneficiary

• Held:1. No statutory trust created as named

beneficiaries were parents, and not spouse or child.

2. By naming a beneficiary, Insured had expressly authorised insurer to make payment to persons named

• NOTICE1. Was the loss covered by the risk insured?

2. Notice of loss > by proper claimant.> oral vs written?> given within time stipulated in the

policy ie within reasonable time or as soon as possible

• Breach of duty to cooperate• a. Duty to notify Insurer of the loss /

claim. Effect of limitation period to make a claim?.

• Notice of loss by proper claimant.: when must notice be given?

– given within the time stipulated in the policy

– within reasonable time or as soon as possible

• b. Waiver of notice• NOTICE OF CLAIM• Requirement:

a] written / request /application for payment in accordance with Ins.’s promise to pay for loss incurred by the Insured as provided in the policy.b] within reasonable time from date of notice of lossc] convey clear indication that a claim is being made under the policy

• Note• Notice of the loss

> in writing if contract requires; otherwise oral notice is sufficienti. Where the policy did not contain any provision on giving notice, Insured is required to give notice within reasonable time [ ‘as soon as possible ‘]Case: Public Insurance v Lee Chau [1969] Sa NR p127I gave notice 5 mths after the accident & 4 days before trialHeld: notice was not given ‘as soon as possible’

• NOTE ii Where the policy impose a duty to give notice to Insurer of any accident which may give rise to a claim, the duty arise when the accident is serious & sufficient to give rise to a claim [not any trivial accident]

• NOTE iii Where the policy imposes a duty to give written notice of loss, strict compliance is mandatory.Case : Lee Seng Heng v.Guardian Assurance (1932)

• To whom must notice be given?• Notice to insurance agent

Whether equivalent to notice to Insurer?

• Non-compliance where claimant gives oral notice or gives notice to the insurance agent.

– Authority of A to receive the notice?

Chong Kok Hwa v Taisho Marine & Fire Insu(1977)Held: Ordinary agent did not have authorityLee Seng Heng v Guardian Assu Co [1932]Notice to A who issued the policy is notice to

Insurer if notice was transmitted / communicated toInsSee NR p131

• Effect of failure to comply with timeWhether a claim is time-barred if not submitted within the stated period in the insurance contract? Validity of the clause? Cases:i. Chop Eng Thye v MNI [1977] : ratio

• Limitation Act : 6 years• Application of Sec 29 Contract Act, 1950:

restraint against legal proceeding is voidNote:

Chop Eng Thye v MNI was overruled by

Corporation Royal Exchange v Teck Guan ( 1921) was followed

• Ong Choo Lin v NZ Insu [1991] ; [1992] 1 SCR 177

• Cl 19.’ In no case …shall the company be liable for any loss / damage after the expiration of 12 months from the happening of the loss or damage…’

• Held:1. Chop Eng Thye was wrongly decided.

Neither S29 Contracts Act nor Corporation Royal Exchange v Teck Guan ( 1912) decision of Ct of App of FMS were taken intoaccount.2. A condition in a policy which had the effect of cuttingdown the period which I might bring an action …to a period less than that allowed by the law of limitation is void…’

• Avoidance of the policy• Construction of policy• Fraudulent claim• Illegality & public policy• Construction of policy • Exclusion clause & effect on claim

Case: i. Amanah Raya Bhd v Jerneh Insurance [ 2005] 4 MLJ 1Whether death was the direct result of theaccident? Whether Insurer’s liability was excluded by the operation of exclusionclause?

• NAZA MOTOR SB v. Msian Motor Insu Pool [2011] 1 CLJ 332  CA

• Loss of car - Car stolen while being test driven by potential buyer - Whether defendant could deny liability under the insurance policy

• claim for RM263,779.34 on loss of vehicle, a Mercedez Benz E230 .

• procured from the Resp/ Def Motor Trade Policy providing cover for, inter alia, loss of vehicle by theft

• Car was test-driven by a potential buyer, & stolen, presumably by the said

potential buyer as he vanished with the car on the day it was test-driven on 20 November 1998.

• P's claim for the loss was rejected by the Insurer. Repudiated liability solely on the exclusion cl. B of the policy,

ie the loss was due to cheating and not theft

• DECISION Mohamed Apandi Ali JCA • Intention & purpose of policy was to

provide coverage for loss of vehicle during test-driving by potential customers. No valid reason for the plaintiff's salesman to doubt or disbelief the intention of the potential customer to test drive and probably purchase the vehicle

• any such reasonable precaution should not be repugnant to the commercial purpose of contract between I & Insurer

• There was not a single element to show that the plaintiff's salesman was deliberately courting danger. He also could not be said to have thrown caution to the winds. the circumstances leading to the situation where the potential buyer of the test-car had driven off with the car, was beyond any reasonable expectations. [ Note the rebuttal of negligence !!! ]

• Deceit by the potential buyer was indicative of dishonest intention to take the car out of the possession of the salesman, without the latter's consent. This situation was similar, by analogy, to Illustration (b) of s. 378 of the Penal Code.

• was a theft per se of the Mercedes Benz, by the potential buyer. Under the insurance policy, Insurer could not deny liability and were liable to the insured App/ Pl.

• FRAUDULENT CLAIM• Application of doctrine “ utmost good

faith”• Duty of utmost good faith in making a

claimCase: Tuong Aik ( Sarawak) Sdn Bhd v Arab Msian Eagle Assurance[1996]

• Conduct of Claimant > Reasonable claimant is to ensure the claim is true & honest ie no deception on Insurer> Not to make profit from the loss ie to make an honest claim

Claim must be real. …”wrong to overstate a claim..”

Reason: I cannot hold Ins to a risk other than that accepted by Insurer

• Proof of fraud? • Tender of false information by claimant

> Overstated claim supported by false info / altered invoice, or claim for non existent goods, cost of new goods substituted for old goods

• Reckless disregard for honesty n truth of statements

•Burden of proof

• Beyond reasonable doubtwhether too high a burden?

• Burden on party alleging fraud ie Insurer> Has to prove that exaggeraton was made with a view to defraud Insurer

• Intention to mislead Case: Ong Choo Lin v NZ Insu I made police report 5 days after the fire . Estimated loss RM 300,000. Adjuster’s estimate : RM 101,996.Ins alleged I made a fraudulent claim.

• Ong Choo Lin v NZ InsuDecision

• Ins had not proven fraud beyond reasonable doubt

Court took into consideration the circumstances under which the statements were made ie

> Making a guess with all the documents burnt

> Potential tendency of adjusters to play down the value as he was retained by the Insurer

• Exaggerated claim here was not fraudulent

• FRAUDULENT CLAIM• Elements of fraud? Is a false statement

= a fraud? • Standard of proof? • Exaggerated claims? Whether

exaggeration of a claim = fraud?Note: question of fact

• Commercial Union Assu v ng Chek Hung [ 1997] CA

• Premises and goods insured with the App, under two policies of insurance.

• On 11 October 1984, the amounts insured under both policies were increased.

• On 30 November a fire broke out as a result of which the premises and the goods were damaged.

• Claims made to Insurer • Rejection by insurer • Resp/ claimant had secreted away

household and other goods from the premises shortly before the fire. Amount of loss claimed was fraudulent

• HC judge : Judgemt for claimant> most of the material in proof of the

alleged loss had perished in the fire which took place close to the date when the premises and contents were last inspected

• Held : Gopal Sri Ram JCA • these appeals are without merit. • Close proximity in time between the

inspection by the appellant's agent and the fire -- taken together with the destruction of supportive documents -- well entitled the learned judge to conclude that the loss as claimed had been established

• Effect on the insurance contract

• Effect of fraud on the claimASEAN Securities Paper Mills Sdn Bhd v

CGU Insu Bhd [ 2007] 2 MLJ 301 [FC], [2006] 3 MLJ 1 CA [ allegation of arson ]Question: Do you agree with the FCt’s judgement or the Ct of Appeal? Reason?

• ASEAN Securities Paper Mills v CGU Insu Bhd [ 2006] CA

• Facts: Fire policy on paper stored in warehouse. Claim for RM 16mInsurer denied the claim. Fraudulent claim. Reason: arson by persons acting for Insured

Issue: Cause of fire ?• Accident > combustion of security

papers or• Arson by persons acting on I’s instruction• ASEAN Securities Paper Mills • Gopal Sri Ram overruled HC. Arson was

cause of fire• Error of law. Misdirection of evidence of

eye witness as to time of the fire. Evidence of arsonist that they were directed to burn the papers by Balasundram

• Decision overruled by FC>>>WHY?

• Effect on the insurance contract• General rule: The whole policy is

voidable• NOTE :

Growing view in UK that the claim is avoided, not the policyCaseK/S Merc –Skandia v Lloyds Underwriters [2001]Direct Line Insu v Khan [ 2002 ]

• In a joint insurance taken by more than one insured, the fraud of an insured does not prevent the other policyholder who was innocent from recovering

• Determine whether I’s fraudulent act is partly on behalf of 2nd insured?

• Defence against I is also available against TP including avoiding policy for nondisclosure or breach of warranty . Applied to liability insurance ,excluding motor insurance

• Settlement agreement is not binding / null & void

• Claim made to I in ignorance of true facts

> Ins is entitled to recover payment from I as payment made under a mistake of fact

• Disclosure of existing policies• Can failure to disclose other existing

policies defeat a claim?Case: Leong Kum Whay v QBE Insu [ 2006] 1 MLJ 710 CA