8

Insurance
 OBJECTIVES

This chapter:
• lays down some basic principles of law relating
to insurance

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 PREVIEW

• Types of Insurance
• Nature of a Contract of Insurance
• Conditions and Warranties
• Exemption Clauses
• Completion of Proposal Form by an Agent

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 TYPES OF INSURANCE

• the law on insurance is provided for in the Financial

Services Act 2013 (FSA) and the relevant common law
principles
• Islamic insurance (takaful) is governed by the Islamic
Financial Services Act 2013 (IFSA)
• the repealed Insurance Act 1963 divided insurance
business into two types:
1. Life business
2. General business
− The Act is repealed by the Financial Services Act
2013
• life business concerns life policies whereas general
business includes all other insurance business
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 TYPES OF INSURANCE
(cont.)
• the common types of insurance are:
1. Life insurance 5. Motor insurance
2. Marine insurance 6. Aviation insurance
3. Fire insurance 7. Travel insurance
4. Accident insurance
• to summarize, there are two main types of insurance,
namely life insurance and general insurance
• there are two categories of general insurance products:
– Commercial Lines offered to businesses or
corporations
– Personal Lines, designed specifically for the public
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 TYPES OF INSURANCE
(cont.)
• three Islamic concepts used in Islamic insurance (takaful):
‒ Mudharabah—commercial profit sharing contract
between the provider or providers and the entrepreneur
for a business venture
‒ Tabarru’—participant shall agree to relinquish as
donation all or certain portion of his contribution thus
enabling him to fulfil his obligation of mutual help and
joint guarantee
‒ Wakalah—an agency relationship is agreed between two
parties to conduct a certain business undertaking

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 NATURE OF A CONTRACT OF
INSURANCE

• contract of insurance is usually entered into in the

following manner:
1. Cover note – to provide temporary cover during
which time the insurance company may consider
the proposal
2. Proposal form (the offer) – sets out details 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

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)

• 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
• see Batty v Pearl
• ‘contract of insurance’ – 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
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 NATURE OF A CONTRACT OF
INSURANCE (cont.)

• the loss which is being insured against is called the risk

• the insurer and the insured enter into a contract of
insurance, and the document containing the terms of
the contract is called the policy
– section 2(1), Financial Services Act 2013, defines the
term policy
– section 128, Financial Services Act 2013, provides for
Schedule 8 to set out certain provisions relating to
policies

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)

• the consideration for a contract of insurance is the

premium
• see Canning v Farquhar
• in an insurance contract, the party taking out the
insurance coverage is known as the ‘insured’ or
‘assured’ while the company who takes on the risk is
known as the ‘insurer’
• two classes of persons make up the category of insurer:
a) insurance companies
b) underwriters

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)

Contracts of Indemnity
• a contract of insurance is basically one where the
insured is indemnified against unforeseeable loss or
damage which may or may not occur
• for contracts of indemnity, such as fire and motor
vehicle insurance, the doctrine of subrogation applies
• see Newfield Peninsula Malaysia Inc v The Owners of
the Ship or Vessel, Teoh Kim Kien & Ors v Lai Sen &
Anor, Dato' Othman bin Hashim v KKW Auto Centre

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)
Insurable Interest
• the risk which can be insured must be an ‘insurable
interest’
• a person is said to have an insurable interest in a
property if he will suffer loss in the event of the property
being destroyed – see Macaura v Northern Assurance
Co Ltd, Dato' Othman bin Hashim v KKW Auto Centre,
Ketua Pengarah Hasil Dalam Negeri v Shiuh Dong
Industries Sdn Bhd
• if a person has no insurable interest, the policy is void –
Paragraph 3(1), Schedule 8 of the Financial Services
Act 2013
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 NATURE OF A CONTRACT OF
INSURANCE (cont.)
• exception to this rule – Paragraph 3(3), Schedule 8 of
the Financial Services Act 2013
• 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 is deemed to
have insurable interests in the following persons:
1. his spouse (that is, husband or wife); or child
2. his ward under the age of majority (below the age of
18) at the time the insurance is effected
3. his employee
4. a person on whom he is wholly or partly dependent
for maintenance or education at the time the
insurance is effected
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 NATURE OF A CONTRACT OF
INSURANCE (cont.)

• cases on insurable interest – Serac Asia Sdn

Bhd v Sepakat Insurance Brokers Sdn Bhd,
Ramatex Textiles Industrial Sdn Bhd & Anor v
Hong Leong Assurance Bhd, Nanyang
Insurance Co Ltd v Salbiah & Anor, Syarikat
Pembinaan Lida Sdn Bhd v Talasco Insurance
Sdn Bhd, Looker v Law Union and Rock
Insurance Co Ltd

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)

Renewal of the Policy

• before the expiration of the policy, the insurer will
send the insured a renewal notice, usually 28 days
prior to the policy lapsing
• the insured is entitled to a return of their premium if
they can establish that there was a total failure of
consideration in the sense that the risk was never
attached
• see Strickland v Turner

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)

• section 129(1), Financial Services Act 2013 – provides

for Schedule 9 to set out the pre-contractual duty of
disclosure and representations and the remedies for
misrepresentation relating to contracts of insurance
• paragraph 5(7), Schedule 9, Financial Services Act
2013 – states that a licensed insurer shall, before a
consumer insurance contract is entered into, varied or
renewed, clearly inform the consumer in writing of the
consumer’s pre-contractual duty of disclosure. This duty
of disclosure shall continue until the time the contract is
entered into, varied or renewed.

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)

Utmost Good Faith

• insurance contracts are uberrimae fidei – of the
‘utmost good faith’
• see Goh Chooi Leng v Public Life Assurance
Co Ltd

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)
Material Facts
• a material fact is a fact that would influence the mind of
a prudent insurer in deciding whether to accept the risk,
and if so, at what premium; see Maxi Development Sdn
Bhd & Ors v Allianz General Insurance Malaysia Bhd
• if a person fails to disclose a fact which is not material,
the contract of insurance is still valid
• exception to the aforesaid rule that if the insured fails to
disclose material facts, the contract of insurance is void

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)
• the age of the person so being insured is a material fact.
However, paragraph 1 (1), Schedule 8, Financial
Services Act 2013 provides that “a licensed life insurer
shall not avoid a life policy or refuse a claim under a life
policy by reason only of a misstatement of the age of
the life insured”
• there is also no duty on a person to disclose facts he
does not know or facts which he cannot reasonably be
expected to know – see Kathirvelu v Pacific & Orient
Insurance Co Sdn Bhd
• where there is any misstatement in the proposal form,
the insurers may avoid liability on this basis

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 NATURE OF A CONTRACT OF
INSURANCE (cont.)
• Section 129(1), Financial Services Act 2013, provides
for Schedule 9 to set out the pre-contractual duty of
disclosure and representations and the remedies for
misrepresentation relating to contracts of insurance
• steps in obtaining a contract of insurance:
1. Cover note
2. Proposal
3. Issue of the policy
4. Renewal notice

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 CONDITIONS AND
WARRANTIES

• when the insured commits a breach of condition or

warranty, the insurer is entitled to disclaim liability
• in the insurance contract, certain terms may be deemed
as conditions or warranties; the breach of which would
entitle the insurer to repudiate liability and avoid the
policy
• see Suhaimi bin Ibrahim v United Malayan Insurance
Co Ltd, Public Insurance Co Ltd v Muthu

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 CONDITIONS AND
WARRANTIES (cont.)

• Any representation made before a consumer insurance

contract was entered into, varied or renewed shall not
be converted into a warranty by means of any provision
of the consumer insurance contract or of any terms of
the variation or of any other contract, whether by
declaring the representation to form the basis of the
contract or otherwise – paragraph 10 of Schedule 9,
Financial Services Act 2013

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 EXEMPTION CLAUSES

• it is common for insurance contracts to contain

exemption clauses which seek to exempt the
insurer from some liability which he would
otherwise be under
• if the insurer is so exempted from liability, he would
not be liable under the insurance policy
• see Tan Keng Hong & Anor v Fatimah binti
Abdullah & Ors, Union Insurance (M) Sdn Bhd v
Chan You Young

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 COMPLETION OF PROPOSAL
FORM BY AN AGENT

• the agent of an insurance company in

completing a proposal form for a proposer is
acting as his agent and not on behalf of the
company

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 COMPLETION OF PROPOSAL
FORM BY AN AGENT (cont.)

• duties of an agent or broker:

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 and nothing else

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 REVIEW

• Types of Insurance
• Nature of a Contract of Insurance
• Conditions and Warranties
• Exemption Clauses
• Completion of Proposal Form by an Agent

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