I. TERMINOLOGY AND CONCEPTS B.

EFFECTIVE DATE OF COVERAGE

A policy is effective when (1) a binder is 
A. RISK MANAGEMENT written, (2) the policy is issued, or (3) a certain 
Risk management consists of plans to protect  time elapses.
personal and financial interests should an event 
undermine their security. The most common  1. When a Policy Is Obtained from a Broker
method is to transfer risk from a business or  A broker is the agent of the applicant. Until the 
individual to an insurance company. broker obtains a policy, the applicant is 
normally not insured.
B. INSURANCE TERMINOLOGY
An insurance company is an underwriter or  2. When a Policy Is Obtained from Agent
an insurer; the party covered by insurance is  An agent is the agent of the insurer. One who 
the insured; an insurance contract is a policy; consideration obtains a policy from an agent can be protected 
paid to an insurer is a premium;  from the moment the application is made 
policies are obtained through an agent or  (under a binder), or the parties may agree to 
broker. delay coverage until a policy is issued or some 
condition is met (such as a physical exam).
C. RISK POOLING
Insurance companies spread the risk among a  C. PROVISIONS AND CLAUSES
large number of people—the pool—to make  Some important clauses include—
the premiums small compared with the 
coverage offered. 1. Provisions Mandated by Statute
A court will deem that a policy contains such a 
D. CLASSIFICATIOINS OF INSURANCE clause even if it is not actually included in the 
Insurance is classified according to the nature  language of the contract.
of the risk involved.
2. Incontestability Clause
E. INSURABLE INTEREST After a life or health policy has been in force 
To obtain insurance, one must have a  for a certain time (two or three years), the 
sufficient interest in what is insured.  insurer cannot cancel the policy or avoid a 
claim on the basis of statements made in the 
1. Life Insurance  application.
One must have a reasonable expectation of 
benefit from the continued life of another. The  3. Coinsurance Clause
benefit may be related to money or may be  A standard provision in fire insurance policies; 
founded on a relationship (by blood or affinity). applies only in cases of partial loss. If an 
owner insures property up to a specified 
a. Key-person Insurance percentage (usually 80 percent) of its value, he 
An organization (partnership, corporation) can  or she will recover any loss up to the face 
insure the life of a person who is important to  amount of the policy. If the insurance is for 
that organization (partner, officer). less than this percentage, the owner is 
responsible for a proportionate share.
b. When the Insurable Interest Must Exist
An interest in someone’s life must exist when  4. Appraisal and Arbitration Clauses
the policy is obtained. If insurer and insured disagree about the value 
of a loss, they can demand separate appraisals, 
2. Property Insurance  to be resolved by a third party (umpire).
One has an insurable interest in property when 
one would sustain a pecuniary loss from its  5. Multiple Insurance Coverage
destruction. An insurable interest in property  If policies with several companies cover the 
must exist when the loss occurs. same risk and the amount of coverage exceeds 
the loss, the insured collects from each insurer 
II. THE INSURANCE CONTRACT its proportionate share of the liability to the total 
Policies generally are standard; in some states,  amount of insurance.
this is required.
6. Antilapse Clause
A. APPLICATION FOR INSURANCE Provides grace period for insured to pay an 
The application is part of the contract.  overdue premium.
Misstatements can void a policy, especially if 
the insurer shows that it would not have issued  D. INTERPRETING PROVISIONS
the policy if it had known the facts. Words in an insurance contract have their 
ordinary meanings. If there is an ambiguity or 
uncertainty, it is interpreted against the insurer.
E. CANCELLATION 1. Liability
A policy may be canceled for nonpayment of  Usually, recovery is limited to losses resulting 
premiums, fraud or misrepresentation,  from hostile fires. In some cases, the insured 
conviction for a crime that increases the hazard  must file proof of a loss as a condition for 
insured against, or gross negligence that  recovery. In most cases, premises must be 
increases the hazard insured against. An  occupied at the time of loss, unless the parties 
insurer may be required to give advance  agree otherwise.
written notice.
2. Assignment
F. BASIC DUTIES AND RIGHTS Not assignable without the consent of the 
Parties must act in good faith and disclose all  insurer (because it would materially change the 
material facts. If there is a claim, the insurer  insurer’s risk).
must investigate. Insurer and insured must 
fulfill the terms of the policy. C. HOMEOWNERS’ INSURANCE

G. DEFENSES AGAINST PAYMENT 1. Property Coverage

Fraud, misrepresentation, violation of  The garage; the house; other private buildings; 
warranties, and actions that are against public  personal possessions at home, in travel, or at 
policy or that are otherwise illegal. work. Includes expenses for living away from 
home because of a fire or some other covered 
III. TYPES OF INSURANCE peril.

A. LIFE INSURANCE 2. Liability Coverage 

A fixed amount is paid to a beneficiary on an  Injuries occurring on the insured’s property; 
insured’s death. damage or injury by the insured to others or 
their property. Excludes professional 
1. Types of Life Insurance malpractice.
Basic types—whole life: has cash surrender 
value that grows at a predetermined rate and  D. AUTOMOBILE INSURANCE
can be used as collateral for a loan; term: 
provides protection for a specified period; has no cash 1. Liability Insurance 
surrender value. Covers bodily injury and property damage.

2. Liability 2. Collision Insurance

Unless excluded, any cause of death is the  Covers damage to the insured’s car in any type 
insurer’s risk. Typical exclusions: death by  of collision. Most people agree to pay a 
suicide, when the insured is a passenger in a  deductible before the insurer becomes liable.
commercial vehicle, in military action in war, or 
execution by the government. 3. Comprehensive Insurance
Covers loss, damage, and destruction by fire, 
3. Misstatement of Age  hurricane, hail, vandalism, and theft.
This does not void a policy, but premiums or 
benefits are adjusted. 4. Uninsured Motorist Insurance
Covers the driver and passengers against injury 
4. Assignment  caused by any driver without insurance or by a 
An insured can change beneficiaries, with  hit-and-run driver. Some states require it of all 
notice to the insurer. automobile policies sold to drivers.

5. Creditors’ Rights 5. Other-Driver Coverage

Generally, a judgment creditor can reach an  Protects vehicle owner and anyone who drives 
insured’s interest in life insurance. The  the vehicle with owner’s permission.
creditor cannot compel the insured to obtain 
cash surrender value or change the beneficiary  6. No-fault Insurance
to the creditor. Provides that claims arising from an accident 
are made against the claimant’s own insurer, 
6. Termination regardless of whose fault the accident was.
Usually occurs only on default in premium 
payments (policy lapses), payment of benefits,  E. MARINE INSURANCE
expiration of term, or cancellation by insured. Protects from the damage to or loss of a 
seaworthy vessel or its cargo due to perils at 
B. FIRE INSURANCE sea. (If the vessel is not seaworthy, the policy 
Protects the homeowner against fire, lightning,  is usually void.)
and damage from smoke and water caused by 
the fire or the fire department. 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 representatives
b. 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 payment
b] Malaysian position
B 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
• CLAIMANTS
i. 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
• cases
i. Manohmani v Gt Eastern Life Insurance
[ 1991] 1 CLJ 141
Insured took life policy . Mother named as
Beneficiary. I died. Def refused to release
the money
• Perumal A/L Manickam v Msian
Coop Insu Soc [1995] 2 MLJ 144
Ratio: Where no named Beneficiary is
named 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 claim
Held
1. 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
• cont
2. 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 nomination
I , 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 1996
i. 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 nomination
ii. 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
• NOTICE
1. 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 loss
c] 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 sufficient
i. 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 p127
I gave notice 5 mths after the accident & 4 days
before trial
Held: 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 authority
Lee Seng Heng v Guardian Assu Co [1932]
Notice to A who issued the policy is notice to
Insurer if notice was transmitted / communicated to
Ins
See NR p131
• Effect of failure to comply with time
Whether 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 void
Note:
 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 into
account.
2. A condition in a policy which had the effect of cutting
down 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 1
Whether death was the direct result of the
accident? Whether Insurer’s liability was
excluded by the operation of exclusion
clause?
• 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 claim
Case: 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
• Issue: Cause of fire ?
Burden of proof
• Beyond reasonable doubt
whether 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 Insu
Decision
• 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 claim
ASEAN 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
• 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 policy
Case
K/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