Post-contractual Good Faith and Claims Settlement
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This chapter evaluates the post-contractual duty of utmost good faith which primarily arises in relation to claims management and settlement practices. It looks at the implications of strict construction of contract terms by insurers, the prevalence of wide exclusions often contained in insurance contracts, as well as undesirable claims settlement practices that often cause undue delay, rejection and reduction of settlement sums by insurers. In this context, the making of improper and fraudulent claims by insureds is also examined and a comparative analysis of the English, Malaysian and Australian reforms pertaining to post-contractual good faith will be made.
KeywordsFinancial Service Good Faith Insurance Contract General Insurance Financial Service Authority
This chapter examines the post-contractual aspect of the duty of utmost good faith which arises in claims management and settlement practices. It looks at the implications of strict construction of contract terms and the reliance on wide exclusions in insurance contracts by insurers, as well as undesirable claims settlement practices that lead to undue delay, rejection and reduced settlements by insurers. The chapter also examines improper and fraudulent claims made by insureds.1
The justification and juridical basis for the continuing post-contractual duty of good faith has been set out in Chap. 2 of this book. In essence, although such a duty exists, it is not as extensive as once thought2; and owing to its different juridical basis from that of the pre-contractual duty of good faith,3 the remedies available in the event of breach would also differ.
This justification for the post-contractual duty is the prevalence of a lack of control in insurance contracts over the years, which has resulted in insurers freely dictating their own terms.4 The juridical basis for this can in turn be divided into two. With respect to the application of post-contractual terms and claims handling, it has been convincingly argued to be based on an implied term of the contract to that effect. This would give rise to the more proportionate remedy of prospective avoidance of the claim in question and/or damages rather than come within the purview of s17 of the Marine Insurance Act 1906 (UK)’s remedy of avoidance ab initio.5 The juristic basis for fraudulent claims on the other hand, has been held to be founded on the public policy reasoning that one should not benefit from one’s own wrongdoing, and hence, technically falls out of the ambit of the continuing duty of good faith.6
Based on this reasoning, there has been increasing support for invoking the post-contractual duty of utmost good faith to claims handling and management, where insurers deliberately delay paying genuine claims and act unfairly in rejecting or reducing valid claims, thereby causing unnecessary loss to insureds.7 A clear example of such an instance is Sprung v Royal Insurance Co (UK) Ltd,8 where Evans LJ in delivering the judgment of the Court of Appeal recognised the existence of an implied term of contract which required insurers to act fairly.9 It is in this vein that this chapter is written.
Upon the occurrence of the event insured under the policy, an insured is in principle entitled to make a claim against the insurer either for the sum insured or to the extent of the loss occasioned.10 It is imperative however, for the insured to strictly comply with the terms of the policy when making such a claim. To begin with, the insured must notify the insurer of the loss and then, go on to prove the truth of the claim, that the insured has in fact suffered a loss proximately caused by an insured peril.11 This is often a challenging task, as insureds generally tend not to read their policies until a loss arises or a claim is made and even then, many insureds end up not understanding the full extent of the terms. The insured is placed at a serious disadvantage as neither of these are a defence in law.
The insurer on the other hand, upon a claim being made, will ensure that the policy in question is examined thoroughly, in order to establish the existence of an insurable interest in the policy on the part of the insured; and strict compliance by the insured of the pre-contractual duty of disclosure as well as all the terms of the policy. There will also be a thorough investigation of the loss by the insurer to ensure that it falls within the scope of the risk insured, in order to eventually determine the actual amount of loss suffered.
The nature of claims handling in insurance, when viewed in totality, makes it clear how an otherwise genuine insured loss may end up being rejected or not indemnified in full. It is imperative to appreciate that this process is inherently fraught with conflict and therefore, requires utmost good faith to be observed by both parties. This is crucial in order to achieve the true objective of indemnifying a genuine insured (who has kept up with premium payments) for an insured loss suffered.12
Since the law concerning the post-contractual duty of utmost good faith in Malaysia has been largely based on English common law, the position in the United Kingdom right up to the recent amendments in the Insurance Act 2015 (UK) will first be set out before analysing the position in Malaysia and Australia.
4.2 Application of the Law in the United Kingdom
It is important to understand that an insurance contract is not a stand-alone contract but is instead made up of various documents. It comprises the insurance policy itself, the cover note, the proposal form which precedes the policy and any other document incorporated by reference in the proposal form. The most common of which are medical forms completed by the examining doctor in life insurance policies. The cover note is usually issued prior to the policy and lapses when the actual policy documentation is issued. In this context, insurance policies have also been described as being ‘often notoriously complex documents riddled with jargon, their layout is often muddled to the untrained eye, and the print, or some of it, may be very small’.13
Hence, it can be an insurmountable challenge for an insured to make a successful claim on the policy. First, the insured would have to give notice of the loss to the insurer in the exact manner and form required by the policy. The insured would then have to prove the actual claim being made. This would require the insured to show that the loss arose within the terms of the policy providing cover; was not caught out by any exclusion clauses in the policy; and was proximately caused by the peril insured against. It becomes clear when viewed from this perspective that the entire process relies substantially on the construction and interpretation of the words used in the insurance contract.14
4.2.1 Construction of Policies
The rules of construction applicable to the terms of an insurance contract are in essence the same as those applying to any other type of contract.15 The crucial difference however, stems from consumer insurance contracts being widely acknowledged as ‘contracts of adhesion.’ The significance of this is that the insured, who is normally the party not responsible for drafting the standard form contract, has in essence, no clout or opportunity for that matter, to influence the insurer in producing the insurance contract or incorporating any terms within.16
The basic rule of construction is that the terms of a written contract must be construed in the context of the contract as a whole. This is apparent from the English Court of Appeal’s decision in Hamlyn v Crown Accidental Insurance Co Ltd 17 where an insured who dislocated his knee whilst trying to pick up a marble dropped by a child was held to come within the cover of ‘bodily injury caused by violent, accidental, external and visible means’. This was on the basis that the term ‘external’ covered causes not arising from internal disease or weakness and therefore, fell outside the scope of the exclusion clause in the policy which prevented injury from ‘natural disease or weakness’. A more recent application of this principle can be seen in Rohan Investments Ltd v Cunningham.18
Written words in a contract must be given their plain and ordinary meaning where they are reasonably clear, unless they have acquired a more special meaning as a result of trade usage.19 Where there is a conflict between printed and written words, the written word must take precedence as being representative of the specific intention of the parties.20 When the terms of a policy are reasonably clear, the courts are required to give effect to them even though the requirement itself or the result they bring about is unreasonable. On the other hand, when there is ambiguity in the words of a policy which is capable of giving rise to more than one meaning, the courts would apply the contra proferentum rule and construe the term against the party seeking to rely on it.21 The rule however, cannot be used to create or magnify an ambiguity where the terms of contract are clear.22
In Harris v Poland 23 for example, an insured who took out a householder’s comprehensive policy which covered ‘loss or damage caused by fire’ was held to be entitled to claim for the loss of her pearl necklace. She had wrapped and hidden the necklace in her fireplace when she left home and accidentally destroyed it later that day upon her return, when she absent-mindedly lit a fire therein. The court decided that the coverage was for unintentional loss by fire, irrespective of whether the ‘fire comes to the insured property or the insured property comes to the fire’.24 However, it is not always clear whether a term is indeed ambiguous and judicial disagreement on the matter is not uncommon.25
As explained, the contra proforentum rule is of no assistance where there is no ambiguity on the face of the contract even if it results in an unreasonable outcome. In such instances, the courts in the United States have been more willing to construe policy terms so as to fulfil the ‘reasonable expectations of the insured’.26 The Supreme Court of New Jersey in Gerhardt v Continental Insurance Companies 27 for instance, held the insurer of a householder’s comprehensive insurance policy providing indemnity against third party liability, not to be entitled to rely on an otherwise clear exclusion. This was on the basis that an exclusion of third party liability in the form of bodily injury to the insured’s domestic employee is not that which an average insured would expect of third party liability coverage.
It is interesting to note that the Canadian courts have adopted a more restrictive version of the ‘reasonable expectation of the insured’ approach to construction. For instance, in Wigle v Allstate Insurance Co of Canada,28 the Ontario Court of Appeal noted that there were three versions of the reasonable expectations doctrine in the United States, with only the first being applied in Canada. One was used to resolve ambiguity in some cases; the other a means to impose coverage reasonably expected to be provided except in the face of clear exclusion; and lastly, to give effect to the reasonable expectation of an insured addressed objectively, irrespective of any policy terms to the contrary.29
Most rules of construction are generally uncontroversial and subscribe to legal formalism in retaining traditional respect for the sanctity of contract. The doctrine of reasonable expectations however, subscribes to legal functionalism in order to provide relief to parties based on what they would have reasonably expected.30 Although there have been glimpses of the application of this doctrine in a few cases in the United Kingdom, it has not gained much momentum.31
Its more subtle influence perhaps, may be observed in modern English cases where the aim of construction of documents has leaned somewhat towards finding the meaning which the document would convey to a reasonable person based on the information available at the time of the contract. This is apparent from cases like Investors Compensation Scheme v West Bromwich Building Society 32 and Rohan Investments Ltd v Cunningham. 33
In order to illustrate the complexities of policy construction, it may be useful at this juncture, to consider the construction of some commonly used terms in insurance contracts. The term ‘accident’ for example, indicates an event which happens unexpectedly or fortuitously and causes injury or damage to the insured or insured property.34 Hence, the English Court of Appeal in Re Deep Vein Thrombosis Litigation 35 held that deep vein thrombosis suffered by passengers of the insured air carrier arising from cramped seating arrangements and insufficient oxygen and fresh air supply in the cabin, was not recoverable because it was not caused by an ‘accident’.
The term ‘loss’ can in turn, be of many kinds and happen under diverse circumstances.36 The voluntary parting with the insured property under a sale which turns out to be fraudulently perpetrated by the purchaser with a worthless cheque has not been held to be a ‘loss’37 whereas the voluntary handing of possession of the insured property to an agent for sale, who turned out to fraudulently misappropriate the proceeds, has.38
Likewise, in life and personal accident policies, the success of a claim can hinge entirely on the construction of terms such as ‘loss,’ when it comes to injuries sustained. In the Malaysian case of Chiew Swee Chai v British American Insurance Co Sdn Bhd, 39 the insured made a claim against the insurers upon completely losing the use of his arm after a road accident. His life policy had included coverage for loss of limb by accidental means, with the term ‘loss’ being defined in the policy as ‘dismemberment by severance at or above the wrist or ankle joint’. As a result, the insured was denied coverage because he had refused to have the non-functioning arm amputated. Nevertheless, the court felt bound to apply the clear policy meaning accorded to the term ‘loss’, although the insurer’s good faith in refusing coverage was in itself questionable.
In this context, the lack of clearly and comprehensively drafted policy documentation has resulted in many insureds being ‘bemused by their policies and find it difficult if not impossible without expert advice, to work out what cover they are afforded and what their obligations are’.40 Hence, it is crucial that plain language policies are developed. These policies should be required to comply with a prescribed layout covering essential terms and be made subject to the approval of a statutory body.41
4.2.2 Exclusions and Proximate Cause
Insurance policies commonly contain exclusion clauses that are inserted by insurers in order to limit the coverage provided by such policies. In principle, where a loss suffered by the insured falls within the words of the policy as well as comes within an exclusion provision in the policy, the exclusion is deemed to have priority. As a result, the insurer’s liability is negated by the exclusion.42
The burden of proof is however, on the insurer to establish that the loss was within the exclusion clause sought to be relied on.43 To satisfy this, the insurer need not in principle, show the existence of a causal link between the excluded peril and the loss in question.44 However, the matter ought to be viewed from a construction as well as a causation angle to ascertain if the policy in fact covers an insured loss. This is based on the common law principle codified in s55 (1) of the Marine Insurance Act 1906 (UK) that the insurer is only liable for losses proximately caused by the insured peril.45
In a practical sense however, this only poses a problem where there is more than one cause which contributes to the loss in question. Where two or more dominant causes operate towards causing a loss, the insurer is not liable for the loss if one of them is an excluded peril.46 On the other hand, if one of the dominant causes is an insured peril whereas the other is not an excluded peril, the insurer would be liable for the loss. It is a question of fact as to whether any cause of the loss amounts to a dominant cause or otherwise.47 Be that as it may however, the proximate cause rule may be expressly displaced by the terms of the policy where insurers go so far as to exclude liability even for losses indirectly caused by an excluded peril.48
4.2.3 Claims Settlement Practice
Utmost good faith is central to the claims settlement practices of both insurers and insureds, in addition to its role in the construction of policy terms and exclusion clauses in claims handling.
On the insured’s part, utmost good faith has to be observed in the procedural sense of strictly complying with the requirements of the policy terms; as well as substantively, in having to act honestly and refrain from making fraudulent claims. Failure to do so would entitle the insurer to avoid the claim.49
Instances where an insured would be deemed to have put forward a fraudulent claim is where the insured has not suffered a loss or has deliberately caused the insured event or in the case of indemnity policies, has exaggerated the quantum of loss suffered.50 Where the insured puts forward a claim with the intention to defraud the insurer, the insurer is entitled to avoid the claim, provided it can discharge its burden of proving fraud.51 This is because it satisfies the definition of fraud which is making a representation either knowingly without belief in its truth or recklessly without caring whether it is true or false.52
However, an inflated claim per se is not in itself conclusive proof of fraud. Often it is merely used as a means to facilitate bargaining,53 in order to counter insurers’ general reluctance to settle claims submitted without contesting, rejecting or reducing the claim where possible. This essentially comes down to a question of proving fraudulent intent. Should a claim be found to be fraudulent, it would fall outside the ambit of the continuing duty of utmost good faith and be disallowed on the basis of public policy instead.54
In order to make a successful insurance claim therefore, the insured would in addition to having a strong substantive case, also have to satisfy the procedural requirement of strict compliance with the terms of the insurance policy or face avoidance of the claim by the insurer. This would be the case even if the insured has suffered a genuine loss. The insured’s first obligation when an insured loss occurs is to give written notice to the insurer of the loss within the time frame expressly stipulated in the policy. In the absence of such an expressed provision, it is implied that the insured must notify the insurer within a reasonable time.55
Express terms requiring the insured to give notice of loss may take various forms. The insured has more flexibility where notice is required to be given as soon as possible after the insured event occurs, as it would require the courts to consider the surrounding circumstances in determining the time-frame to do so.56 Where however, notice is required to be given within a specified time-frame, for instance within 14 days from the occurrence of the insured event, it must be strictly complied with even if the loss only manifested itself later.57 It is worth noting that Malaysia has in fact taken a more positive construction of such notice requirements, and shall be discussed later in this chapter.
On the part of the insurer in turn, to be able to disclaim or avoid liability for non-compliance by the insured, the term requiring notice must have been a condition precedent to liability.58 Failing which it would only amount to a mere condition entitling the insurer to damages alone, provided there has been a loss or prejudice suffered.59 It should be noted that the lack of a clear description as a condition precedent would also result in a contra proferentum construction of it being made, as a mere condition warranting damages in the event of loss.60
In addition to this, insurance contracts may also require the insured to give a written notice of loss directly to the insurer. Failure to strictly comply with this requirement can entitle the insurer to avoid liability, where for example notice is given orally and/or to the agent who sold the policy to the insured.61 However, where notice of loss is given to a duly appointed officer of the insurer like its district manager, as in Ayrey v British Legal and United Provident Assurance Company Ltd,62 it may be imputed to the insurer and suffice.
Furthermore, some policies may require the insured to provide additional information when giving notice of loss as a condition precedent to liability, so as to enable the insurer to assess the loss in question. The insurer would have another ground to avoid liability, should this requirement not be complied with,63 unless of course the insurer had nevertheless obtained the said information from a third party, as no prejudice would have then been suffered as a result.64 Where an insurer however, delays in rejecting a claim despite knowing of the insured’s breach of policy terms, it only operates as a bar to rejection if the delay was such as to unduly prejudice the insured.65
Insureds usually have a limitation period of up to six years from the insurer’s rejection of a claim to bring an action for breach of contract.66 However, insurers have often found ways to reduce this six year limitation period to commence an action in contract by contractually reducing or limiting it to about 12 months for the claim to be referred to arbitration. This poses yet another obstacle to insureds.
It should be noted that as far as the insurer’s duty of utmost good faith is concerned, it would cover having to act fairly and reasonably when assessing the insured’s compliance with the requirements of the policy; processing and settling claims without delay; refraining from reducing and rejecting claims without good reason; and in essence, not acting in bad faith.67
It is important to note that, where the insured is required to prove the loss to the insurer as a ‘condition precedent’ to recovery, it involves the insurer’s exercise of discretion. Since the insurer is an interested party in the matter, it would invariably be acting as a judge in its own cause. This would in turn give rise to doubts as to procedural and substantive propriety in its decision making. English courts have generally accepted that insurers must when exercising their discretion, act honestly, in good faith, for a proper purpose and not arbitrarily.68 That which is not universally accepted however, is whether the insurer is required to act reasonably as well.
The apprehension in introducing the additional possibly objective requirement of reasonableness is apparent in the English Court of Appeal’s decisions in Nash v Paragon Finance plc 69 and Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2).70 They did not wish to extend ‘the concept of reasonableness beyond whether the insurer’s decision was reasonable [in comparison to a range of reasonable decisions open to insurers], to a consideration of what the reasonable person on the ‘Clapham omnibus’ would decide’ (clarification added).71
The processing and settlement of claims on time is yet another important obligation on the insurer’s part. Non-compliance with this would amount to a breach of the insurer’s post-contractual duty of utmost good faith and also cause unnecessary additional anxiety and hardship to an already affected insured.72
A further issue arising from this is the question of availability of indemnity, damages and interest in the event of late payment or improper non-payment or reduced payment of claims by the insurer. English law has long recognised the availability of an action in breach of contract, against the insurer to recover damages in the sum of the indemnity and interest calculated from the date of the loss. The Court of Appeal in Sprung v Royal Insurance (UK) Ltd 73 however, made it clear that additional damages for further loss caused by any delay in the insurer’s claims settlement would not be available, on the basis that damages is not available as a result of failure to pay damages.74 The decision was despite a three and a half year delay by the insurer to indemnify, on questionable grounds which resulted in the insured being put out of business and suffering a further loss of £75,000.75 This has been the unfortunate state of affairs in the United Kingdom prior to the recent reforms where an insurer delays unjustifiably, and is not the case in Malaysia and Australia.76
… is one of fair and open dealing [which necessitates that insurers]…should not whether deliberately or unconsciously, take advantage of the consumer’s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any other factor listed (clarification added).
Malcolm Clarke also pointed out that the Financial Times on 28 March 1994 carried an article which reflected the United Kingdom as having one of the worst records in Europe for delay in claims settlement, which had not changed much.80 It is worth noting that in the United States on the other hand, delay in claims settlement by insurers without proper justification would give rise to bad faith, that made insurers liable for punitive damages ‘even where the policy does not, in fact, cover the claim’.81
A more balanced approach would be to apply the duty of utmost good faith in the handling and settlement of claims, where there is undue delay without justification and indiscriminate reduction and rejection of claims. This is in tandem with the justification for the imposition of the duty on insureds at the pre-contractual stage of insurance contracts, owing to the information imbalance existing in favour of insureds at that stage of the contract. A corresponding duty should therefore, be imposed on insurers with respect to claims handling, as insureds’ are vulnerable to insurers’ claims handling techniques. More so since insurance contracts are contracts of adhesion which justifies the imposition of a duty to act in utmost good faith, on insurers. This would therefore, facilitate claims being processed and settled fairly and in a timely manner, with recourse to damages being available in the event of breach.82
4.2.4 English Proposals for Law Reform
The unsatisfactory state of the law on post-contractual good faith and claims settlements in particular, in the United Kingdom was subject to a major review by the English and Scottish Law Commissions which commenced in 2006. This has since resulted in the reforms introduced in the Insurance Act 2015 (UK) for both consumer and non-consumer insurance contracts.
It is interesting to note that the Insurance Contracts Bill 2014 (UK) (“the Bill”) which was eventually passed as the Insurance Act 2015 (UK) in February 2015 had originally contained a provision on “Implied Term about Payment” in s14. This provision was dropped from the Bill by the Treasury before it was presented to Parliament as there was criticism of this proposal which made its inclusion unsuitable for the special procedure for uncontroversial Law Commission Bills that was used to pass the Act. Nevertheless, the government had during the Bill’s passage through Parliament, indicated its inclusion in future forthcoming insurance provisions. This will remain to be seen in light of the Law Commission’s proposed third and final report in 2015 on insurance issues yet to be addressed in the reforms thus far.
Section 14 (1) of the Bill had proposed an ‘implied term’ into ‘every contract of insurance that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time.’ Sections 14 (2) and (3) went on to provide that reasonable time included the time taken to investigate and assess the claim; with what is reasonable depending on all relevant circumstances, particularly the type of insurance, the size and complexity of the claim and compliance with relevant rules and factors outside the insurer’s control. Insurers however, would not breach the implied term by merely failing to pay the claim or part of it if they can show that there were reasonable grounds for disputing the claim, although their conduct in handling the claim may be a relevant factor in deciding this.83
Section 14 (5) went on to explicitly provide for remedies like damages to be available for breach of this implied term which would be in addition to and distinct from the right to enforce payment of the sum due and any right to interest on those sums. This would have been a marked improvement in the law which addressed situations similar to that of Sprung v Royal Insurance Co (UK) Ltd 84 and has appeared to have received the support of insurers and insureds alike. The proposal was also ‘targeted at specific instances of bad claims handling rather than forcing insurers generally to make decisions more quickly or to pay out more claims’85 and was to be supplemented by an increased regulatory focus on claims handling via the Financial Conduct Authority’s ‘thematic review’ of claims handling in the insurance industry.86 It is left to be seen as to whether and how soon these measures would be implemented.
With respect to fraudulent claims on the other hand, the common law position has been described as being ‘convoluted and confused.’87 This is because not only does the fraudulent insured forfeit the fraudulent claim; the duty of utmost good faith in s17 of the Marine Insurance Act 1906 (UK) also theoretically gives the insurer a right to avoid the contract and recover any sums previously paid out to the insured, even on genuine claims. It is therefore, crucial that this uncertainty is addressed in a clear manner with insurers being granted remedies that are ‘principled and proportionate’ in order to deter fraud as well as ensure that insureds are treated fairly with respect to prior untainted claims.88
Section 12 (1) of the Insurance Act 2015 (UK) provides that where such a claim is made by an insured, the insurer is not liable to pay the claim; may recover from the insured any sums paid by it there under; and may by notice to the insured treat the contract as having been terminated with effect from the time of the fraudulent act. Section 12 (2) goes on to provide that in the event that the insurer treats the contract as having been terminated, it may refuse all liability to the insured under the contract in respect of a relevant event which occurs after the fraudulent act, without having to refund any premiums paid there under.
The insurer’s rights are prospective in nature and do not affect the rights and obligations of the parties which have arisen with respect to relevant events occurring before the fraudulent act,89 with what amounts to a ‘relevant event’ being events which give rise to the insurer’s liability under the contract, for example the occurrence of a loss and the making or notification of a claim or potential claim.90 Section 13 completes this provision by prescribing a fair treatment of fraudulent claims made in group insurance policies that essentially entitles the insurer to only exercise its remedies against the insured concerned without affecting the cover provided to anyone else in the group.
Sections 15 (1) and 16 (1) go on to provide that parties cannot contract out of any term of a consumer or non-consumer insurance contract if it would put the insured in a worse position. Such contracting out in non-consumer insurance contracts, however, would be possible if the ‘disadvantageous term’ was clear and unambiguous,91 and the insurer had taken sufficient steps to draw the said term to the insured’s attention before the contract was entered into or varied.92
This provision which is mandatory for consumer insurance contracts and provides a default regime for non-consumer insurance with the possibility of contracting out where parties are clearly informed, represents a fair balance between the interests of insurers and insureds but had dropped its original reference which included the insurer’s duty to pay claims within a reasonable time.93
Before moving on to examine the application of the post-contractual duty of good faith and claims settlement in Malaysia, the English proposals for reform in the area which were the forerunners to the recent reforms, will be briefly alluded to, so as to provide an insight into the development of the law in Malaysia.
It started with the Fifth Report of the Law Reform Committee in 195794 which reported that the state of insurance law in the United Kingdom coupled with the widespread use of certain terms and exclusions in policies by insurers could lead to abuse even against an honest and reasonably careful insured. This is because it gave rise to various circumstances enabling insurers to avoid liability in respect of claims made, which had in fact sometimes occurred, as insurers were often placed as judges in their own cause in determining insureds’ claims. However, the Committee felt that in this respect, the prejudice to the insured arose largely from express contractual provisions rather than principles of insurance law per se. Since altering that would interfere with the parties’ freedom of contract, which required the consideration of matters concerning social policy, the Committee felt that it was outside its scope of reference.95
In 1977, the Unfair Contract Terms Act (UK) was passed based on the Law Commission and Scottish Law Commission’s Report on Exemption Clauses,96 which had an element of ‘reasonableness’ added in order for any exclusion of liability to be effective. Although the Law Commissions in fact recommended that their proposal be applied to all types of contracts, insurance contracts were however excluded from its ambit, due to successful lobbying by the industry.97
As a trade-off, the insurance industry adopted self-regulation in 1976 through the Statement of General Insurance Practice (‘SOGIP’) covering general insurance 98 and the Statement of Long Term Insurance Practice (‘SOLTIP’) covering life and investment insurance99 (together referred to as ‘the Statements’), which were revised in 1986 and remained in use until statutory regulation by the Financial Services Authority was introduced in January 2005 in the form of the Insurance Conduct of Business (‘ICOB’)100 and Conduct of Business (‘COB’)101 respectively.
We do not intend to interfere with the manner in which insurers describe or limit the risk which they are prepared to cover: this can be left to competition and market forces… we do not think that any attempt should be made to control the use of such terms even though they may be used to achieve indirectly the functions which can be performed by a warranty.103
… remarkable lack of control over the terms of insurance contracts [and] if market forces can be trusted to get rid of unfair policy terms, they can also be trusted to get rid of the “basis of contract” clause and to abolish (or attenuate) the duty of disclosure.104
In view of the above, it is not surprising therefore, that up until the major reforms in 2012–2015, the United Kingdom was only subject to the self-regulating rules of the SOGIP and SOLTIP and thereafter, statutory regulation by the Financial Services Authority under the COB and ICOB from 2005.
Both the Statements were revised in 1986 and applied only to policies taken out by individuals resident in the United Kingdom in their private capacity. With respect to notification of claims or loss by the insured, Clause 2 (a) of SOGIP provided that ‘the policyholder shall not be asked to do more than report a claim and subsequent developments as soon as reasonably possible’.105 The effect of this was to do away with tight timelines like notification within 14 days of occurrence of the insured event, especially where the loss only manifested itself much later.
Clause 2 (b) went on to provide that insurers should exercise good claims settlement practice by not repudiating liability on the basis of technical claims like non-disclosure, misrepresentation and breach of warranty or condition by the insured.106 As far as the legality and content of policy documents were concerned, Clause 5 required insurers to ‘continue to develop clearer and more explicit proposal forms and policy documents whilst bearing in mind the legal nature of insurance contracts’.107
On the issue of prompt settlement of claims, Clause 2 (c) provided that ‘liability under the policy having been established and the amount payable by the insurer agreed, payment will be made without avoidable delay’. The effectiveness of this provision was however, questionable. This is because the obligation to settle without avoidable delay (although having an imperative ring to it) only arose once the insurer’s liability was established and the amount payable had been agreed, thereby leaving much scope for delay.108
Finally, Clause 6 of SOGIP provided that the provisions ‘shall be taken into account in arbitration and any referral procedures which may apply in the event of disputes between policyholders and insurers relating to matters dealt with in the Statements’.109 Again, its effectiveness was questionable as the words ‘taken into account’ fell short of the provisions having a binding effect on the parties which was enforceable. The only mitigating factor in this respect was the pro-active stance taken by the Insurance Ombudsman who had been known to insist on compliance by insurers with the Statements, in the cases that appeared before him.110
In 2000, the general insurance industry established a self-regulatory body called the General Insurance Standards Council (‘GISC’), which had a voluntary membership open to insurers and intermediaries engaged in general insurance business.111 The GISC issued a General Insurance Code for Private Consumers (‘GISC Private Code’)112 and a Commercial Code (‘GISC Commercial Code’)113 (together known as the ‘GISC Codes’) to regulate the sales, advice and service standards of insurers and intermediaries, so as to ensure the fair treatment of its customers.
Amongst the items covered by the GISC Private Code were the obligations to deal with customers fairly and reasonably114; handle claims fairly and promptly115; explain to customers any significant or unusual exclusions, conditions and obligations which must be met116; and provide details of how a claim and complaint against them may be made.117 Its drawback however, was that since the GISC Private Code was a contract between GISC and its members, it was not enforceable by the individual insureds concerned.118 The said GISC Codes co-existed with the Statements until they were replaced by statutory regulation in 2005.
Apart from this, the 1993 European Community’s Directive on Unfair Terms in Consumer Contracts 119 was implemented in the United Kingdom through the Unfair Terms in Consumer Contract Regulations 1999 (‘the Regulations’) to provide some reprieve in this area. It however, only applied to consumers who did not individually negotiate the insurance contract with the insurer.120 The Regulations in the main provided that all insurance terms must be ‘plain and intelligible’,121 and considered terms which created a ‘significant imbalance’ between parties to be contrary to the requirement of good faith and therefore ‘not binding on the consumer’.122 However, enforcement of the Regulations was only possible by the Director General of Fair Trading (to whom individual complaints were made) and certain organs of government listed as ‘qualifying bodies’ in Schedule 1, Part 1 of the Regulations,123 which left affected individuals and organisations unable to initiate proceedings on their own.
This was followed by the Financial Services and Markets Act 2000 (UK) which came into force in December 2001, replacing the two-tier system of regulating investment business and general insurance set up by the Financial Services Act 1986 (UK) and the various complaints handling mechanisms then in place.124 In January 2005, the Financial Services Authority officially took over the regulation of the general and life insurance industriesand issued new statutory regulation in the form of the ICOB and COB replacing all previous self-regulating codes.125
Most of the provisions of the ICOB essentially mirrored those of the SOGIP but were set out in greater detail. For example, information to be provided to customers included a summary of the policy126; list of significant and unusual exclusions and limitations127; the policy documents128; and information pertaining to the claims handling process.129 Information on other rights of the insured, like cancellation rights,130 extent and level of cover131 and reference to the Financial Ombudsman Service132 were also required to be provided.
Simple and plain English was required, with technical terms where necessary being explained to customers.133 Where customers indicated that they wished to make a claim under the policy, reasonable guidance was to be provided to them.134 Insurers were also required to not unreasonably reject a claim made by a customer; and save where there was evidence of fraud, not refuse to meet claims by retail customers on grounds of non-disclosure or non-negligent misrepresentation of material facts or breach of warranty or condition unless it was connected to the loss.135 Lastly, insurers were required to settle claims by retail customers promptly,136 within five business days after both parties had reached a settlement.137
The distinctive feature of the ICOB and COB was that unlike their self-regulatory predecessors, damages was available for the aggrieved party138 and the Financial Services Authority could impose a penalty or publish a statement of the said misconduct against the party in breach.139
In addition to this, the Financial Services Authority had also separately published the Principles for Business 140 which expressed the broad spirit running through the detailed rules of the ICOB and COB, for breach of which the Financial Services Authority could impose fines on firms.141
These developments have finally culminated in the progressive reforms introduced under the Insurance Act 2015 (UK) for both consumer and non-consumer insurance contracts, via s12’s handling of fraudulent claims and ss15 and 16’s restriction on contracting out of these provisions, which have been set out above.
It is left to be seen however, if the originally proposed s14 of the Insurance Contracts Bill 2014 (UK)’s ‘implied term’ into ‘every contract of insurance that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time’ with damages being available as a remedy, would also be legislated upon in due course.
4.3 Development and Application of the Law in Malaysia
4.3.1 Post Contractual Good Faith and Claims Settlement Under the Insurance Act 1996
The law in Malaysia prior to the enactment of Financial Services Act 2013 (Malaysia) in this area, both before and after the enactment of the Insurance Act 1996 (Malaysia) has been governed by the broad pronouncement in s17 of the Marine Insurance Act 1906 (UK).142 This is evident from the Malaysian courts’ continued reference to the ‘duty of utmost good faith’ as being the cornerstone of insurance contracts in Malaysia.143 Section 17 in essence provided that insurance contracts are based on utmost good faith and failure by either party to observe the same would entitle the other party to avoid the contract.
Gopal Sri Ram JCA at the Court of Appeal in Leong Kum Whay v QBE Insurance (M) Sdn Bhd, 144 referred to the judgments of Montgomery J in Maschke Estate v Gleeson 145 and Taliano J in Katotikidis v Mr Submarine Ltd 146 in stressing upon the importance of insurers acting in utmost good faith towards insureds. These judgments essentially require the insurer to act promptly and in good faith once a claim is received from its insured or face being in breach of its duty. This is because the insurer’s position of power over the insured upon the occurrence of an insured loss, inevitably places the latter in a vulnerable position and dependent on the former.147
Despite this however, the Malaysian legislature failed to legislate upon this fundamental duty up until the Financial Services Act 2013 (Malaysia). As a result, Malaysian insurance law and practice has until the recent reforms in 2013 been subject to the same criticisms and uncertainty as English law with respect to the juristic basis and nature of the duty of utmost good faith at claims handling.148
In light of this, the Malaysian position prior to the enactment of the Financial Services Act 2013 (Malaysia) with respect to the application of the rules pertaining to construction of policies, exclusions and claims settlement practice will first be examined.
The rules of construction applying to insurance contracts in Malaysia have been largely based on English common law. In this respect, since insurance contracts are commercial in nature, the rules of construction applying to contracts in general have also applied to insurance.149 Hence, written or type-written words in a policy take precedence over printed words150; the words in a policy are to be construed in the context in which they are used151; and terms in a policy will be given effect to by the courts so long as they are reasonably clear,152 to name a few. This was in fact the case in Chiew Swee Chai v British American Insurance Co (M) Sdn Bhd 153 despite the fact that the strict application of the term ‘loss’ as expressly defined in the policy to be ‘dismemberment by severance at or above the wrist or ankle joint’ resulted in the insured of a life policy not being able to claim for his limp and non-functional arm (caused by an accident) unless he had it amputated.
It follows therefore, that the construction of some commonly used terms in policies is also similar. For example, the Malaysian Supreme Court in American Home Assurance Co v Nalin Industries Sdn Bhd 154 found the term ‘accident’ to cover an unexpected or unintended or fortuitous event. In Pacific & Orient Insurance Co Sdn Bhd v Kathirvelu,155 the Supreme Court approved the application of the decision in Pocock v Century Insurance Co Ltd 156 with respect to ‘permanent total disablement’ as denoting a situation where an insured was unable to engage in his or her then or any substituted type of occupation.
Apart from this, the contra proferentum rule has also been consistently applied by the Malaysian courts to resolve ambiguities in policies against the party responsible for or seeking to rely on it. This can be seen in cases like Malaysia British Assurance Bhd v Syarikat Pembenaan Karun Sdn Bhd,157 Borhanuddin Bin Haji Jantara v American International Assurance Co Ltd,158 Union Insurance (M) Sdn Bhd v Chan You Young 159 and Central Lorry Service Co Sdn Bhd v American Insurance Co..160 Where, the terms of the policy as a whole are clear and unambiguous however, the contra proferentum rule would not apply.161
An exception must clearly and expressly be made known to the party insured—not by implication to be inferred from omission. To require that the ordinary man taking out a policy should read into it not only what was expressed but also to construe omissions as exceptions is an absurd proposition which this court cannot countenance.164
The Malaysian Supreme Court in American Home Assurance Co v Nalin Industries Sdn Bhd 165 also went on to reiterate that an insurer could only rely on an exclusion provision to deny liability if it could show that the insured’s loss came within the exclusion and that it was not for the insured to disprove the same.
On the requirement of utmost good faith in claims settlement practices by the insured and insurer, the Malaysian position has also generally mirrored that of English common law. For instance, the insured must refrain from putting forward fraudulent claims 166 but the mere submission of an exaggerated claim is not conclusive proof of fraud, in view of judicial recognition of ‘price haggling’ between parties.167
The insured has also been required to meet all procedural requirements contained in the policy strictly, failing which the insurer may avoid the policy, provided the requirement breached was a condition precedent.168 In this regard, the insured is required to give notice (often written)169 of the insured loss to the insurer within the time period prescribed in the policy along with any expressly prescribed additional information.170 The Malaysian courts have however, adopted a more positive construction in Pacific & Orient Insurance Co Sdn Bhd v Kathirvelu 171 by holding that a duty to notify the insurer of an accident only arose if the accident was sufficiently serious to give rise to a claim and not trivial in nature. Furthermore, an insurer who despite the insured’s failure to provide adequate notification, had obtained all the information from another source, was also not entitled to avoid the contract, as no prejudice was suffered.172
With respect to the possible reduction of the six year limitation period within which an insured can institute a claim against the insurer, by the contractual requirement of reference to arbitration within a prescribed shorter time, Malaysia has been in a better position than the United Kingdom. This is because s29 of the Contracts Act 1950 (Malaysia) provides that a term seeking to limit the time within which an action might be instituted against an insurer, would be void, with the courts regularly applying the same to invalidate such time limits.173
The insurer’s obligation of utmost good faith in claims settlement has in turn been to act fairly and reasonably; process and settle claims without delay; and refrain from reducing174 and rejecting claims, without proper grounds. The Malaysian courts have in this regard taken a more progressive stance than the English in granting additional damages to the insured beyond the insured sum, where further damage or loss is suffered directly as a result of the insurer’s delay or unreasonable refusal to settle a genuine claim. This is apparent from the Federal Court’s decision in Pacific & Orient Insurance Co Sdn Bhd v Woon Shee Min 175 where additional damages were awarded for the loss to the insured vehicle as a result of being left out in the open for six months without being repaired due to the insurer’s delay and rejection of even its own repairer’s estimate.
… the plaintiffs had, in their properly insured and securely assured claim on the policy, been made to travel through an exceedingly difficult path laid out with sharp stones… [and] travel through an inferno no less searing than the heat that gutted the risk premises.177
In Cheong Heng Loong Goldsmiths (KL) Sdn Bhd v Capital Insurance Bhd 178 the Court of Appeal yet again applied the duty of utmost good faith to claims settlement where it held the insurer’s handling of the insured’s claim to ‘smack of bad faith’. The insurers here avoided liability and the contract altogether by alleging that the insured had faked the robbery of its items. This was despite their adjuster’s report to the contrary, which prompted the Court of Appeal to say that ‘bad faith onthe part of the insurer would also restrict them from raising or complaining of lack of good faith by the insured’.179
Despite this however, it is worth taking note of Australia’s progressive Insurance Contracts Act 1984 (Cth) which has long provided for a comprehensive manner of dealing with utmost good faith in general, and claims settlement practice in particular, via its ss12–14 and ss54–57. The Act was based on the Australian Law Reform Commission’s recommendations made in 1982 that ‘legislation should make it clear that the duty of utmost good faith applied to all aspects of the relationship between insurer and insured, including the settlement of claims’.180
A contract of insurance is a contract based on the duty of utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith (emphasis added).
The implications of this provision vis-à-vis the common law duty of utmost good faith is three-fold. Section 13 makes the duty an implied term of the insurance contract and removes the common law restriction on the remedy of avoidance of contract and a refund of premium paid, as the sole consequence of breach. This has resulted in damages being available as a substantive remedy. Furthermore, the words ‘in respect of any matter arising under or in relation to it’ in s13 give the duty of utmost good faith a wide and overarching reach over all aspects of an insurance contract, from the pre-contractual stage right up to claims settlement.182
In relation to construction of policies, exclusions and claims settlement, this translates into the insurer’s potential exposure to breach of utmost good faith on a range of matters. This would encompass the unclear drafting of proposal forms and policies; making unsubstantiated allegations of breach of utmost good faith against the insured; making unfounded denials of claims183; proposing low claims settlement; as well as causing unreasonable delay in the admission of liability and eventual settlement of claims.184
In this regard, the Supreme Court of Western Australia in Beverley v Tyndall Life Insurance Co Ltd 185 held that s13 provides for the insurer of a life policy to be duty bound to act fairly, reasonably and in good faith when determining whether the insured was totally and permanently disabled within the purview of the policy, more so because it was acting as a judge in its own cause.
If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with utmost good faith, the party may not rely on the provision.
The Australian Law Reform Commission in fact noted that such a provision ‘should provide sufficient inducement to insurers and their advisers to be careful in drafting their policies and to act fairly in relying on their strict terms’.187
In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in Section 37 or otherwise.
Section 37 in turn covers the position with respect to the notification of unusual policy terms.188 The combined effect of ss13, 14 and 37 would therefore, neutralize any attempt by insurers to rely on unusual terms, unduly strict construction of policy terms or wide exclusion clauses in policies, so as to defeat an otherwise genuine claim put forward. In this regard, Cox J in Australian Associated Motor Insurers Ltd v Ellis 189 held that the combination of ss13 and 14 (3) placed the obligation of utmost good faith on the insurer to notify the insured of any post-contractual conditions which had the effect of permitting it to refuse to indemnify the insured, and could not be discharged by merely including such a condition in the proposal form or policy. This would therefore, compel insurers to exercise care in drafting their policy documentation so as to avoid unfair practices.
Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act (emphasis added).
Subject to succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.
Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act.190
Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim so far as it concerns that part of the loss, by reason only of the act.
A connection between the duty of utmost good faith set out in s13 and the remedies in s54 in the event of post-contractual breach thereof, was held to exist by the Supreme Court of Western Australia in Entwells Pty Ltd v National and General Insurance Co Ltd 191 and was in fact, intended to be so by the Australian Law Reform Commission 192 which introduced the provision. Other cases in which this has been successfully applied are Moss v Sun Alliance Aust Ltd,193 Beverly v Tyndall Life Insurance Co Ltd 194 and McArthur v Mercantile Mutual Life Insurance Company Ltd 195
This dual limb approach in ss54 (1) and (2) entitles the insurer to refuse to pay the sum insured for post-contractual breach (whether by act or omission) only if the breach was reasonably capable of causing or contributing to the insured loss, with the burden of proving the lack of a causal link placed on the insured.196 Otherwise, the insurer is only entitled to claim damages for any prejudice suffered by way of a proportional reduction of the policy monies, to the extent of the prejudice. This was in fact proposed by the Australian Law Reform Commission as a means necessary to strike a fair balance between insurers and insureds.197 This dichotomy between s54 (1) on the one hand and ss54 (2)–(4) on the other was examined by the High Court in Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd. 198 Section 54 (1) was held to apply in this case, as the insured’s failure to notify the insurer of its registration of a mobile crane for road use was not capable of causing or contributing to the insured loss.
The Australian courts have gone on to give effect to the spirit and intent of the Australian Law Reform Commission’s proposal that s54 should not be affected by form. Section 54 would be applicable where ‘the effect of the contract of insurance’ may lead to the insurer refusing to pay the claim, be it for allegations of the insured’s breach of condition, warranty, clause descriptive of the risk,199 non-fulfilment of notice requirements200 or exclusions.201
As for fraudulent claims made by the insured, s56 (1) provides that the insurer may refuse payment of the claim but not avoid the contract. However, if only a minimal or insignificant part of the claim is made fraudulently and non-payment of the remainder of the claim would be harsh and unfair, the court may under s56 (2) order the insurer to pay an amount of the claim which is just and equitable in the circumstances. In doing so however, the court shall have regard to the need to deter insurance fraud and other relevant matters.202
Based on Fullagar J’s decision in Gugliotti v Commercial Union Assurance Co of Australia 203 which was approved by the Victorian Court of Appeal in Thiep Thi To v Australian Associated Motor Insurers Ltd,204 s54 would not apply to cases involving fraudulent claims under s56, as the grounds for and manner of assessing the remedies therein are inconsistent with each other.205
The Australian Law Reform Commission’s primary purpose in drafting s56 (1) was to ensure that fraud with respect to one claim did not affect other claims under the policy that might entitle the insurer to avoid the contract as a whole, as was the case at common law.206 This was further qualified by s56 (2) to allow a just and equitable payment of the claim to be made even in cases involving ‘a little bit of fraud’ on the basis that it would be harsh and unfair not to allow an otherwise legitimate claim for an insured loss, on grounds of ‘minimal and insignificant’ fraudulent conduct.207
Although the reasoning behind this appears logical, it may pose a problem in some cases where the extent of fraud may not be readily quantifiable.208 Apart from this, some authors209 have pointed out that in view of the protection already granted to insureds under ss12–14 and s54, this added accommodation of fraudulent insureds under s56 (2) may have swung the pendulum, too far in favour of the insured. It could even bring into question the requirement of both parties having to act in utmost good faith.210
Lastly, ss57 (1) and (2) provide that where payment by an insurer is due under an insurance contract, the insurer is also liable to pay interest on it, from the day when it was unreasonable for the insurer to withhold payment until payment is actually made.211
4.3.2 Central Bank Guidelines
It is worth noting that prior to the recent reforms in 2013, the law in Malaysia on post contractual good faith and claims settlement was governed by the Insurance Act 1996 (Malaysia) and certain Guidelines and Codes of Practices issued by the Central Bank (‘the Guidelines’) to insurers, as and when the need arose.
Clause 5 of the Guidelines on Minimum Disclosure Requirements in the Sale of Insurance Products effective from 2 January 2006 requires insurers to use clear and simple language; avoid technical terms; and be accurate and complete in substance, in their communication with proposers of insurance.212
Clause 3.4 of the Guidelines on Claims Settlement Practices (‘Claims Settlement Guidelines’)213 which is the most important of the guidelines issued, provides that insurers should not repudiate a claim for a technical breach of warranty or policy conditions, save where it is material and unconnected to the loss, unless it has prejudiced the insurer’s interest or exceeded the time bar under law. It also requires any repudiation to contain a prominent statement about recourse to the Financial Mediation Bureau. The purpose being to act as a deterrent to attempts by insurers to avoid policies on technical grounds where notice requirements and time-lines are not strictly complied with by insureds.
In this regard, the Mediator of the Financial Mediation Bureau observed that insurers should give sympathetic consideration to appropriate claims, especially where rejection is based on late notification and technical non-compliance. In doing so, they should make ‘ex gratia payments’ which are not ‘arbitrary figures’ but have ‘substantive basis’, as this would considerably enhance the industry’s reputation.214
Most of the other provisions in the Claims Settlement Guidelines relate to time limits applicable to the insurer at various stages of claims processing. Clause 3.1 provides that insurers must initiate claims processing within seven days from receipt of a claim notification.215 Within 14 days of receipt of the claim form, the insurer is required to acknowledge receipt in writing and provide the insured with certain requisite information.216 Clause 3.3 goes on to provide that adjusters must be appointed within seven working days of receipt of the claim form and relevant supporting documents; adjuster’s final report must reach the insurer within 14 working days of appointment; and the claimant must be notified of the status of the claim within 60 working days of first notification and every 30 working days thereafter.
Pursuant to Clause 3.4, an offer of settlement must be sent to the claimant within seven working days of receipt of the adjuster’s final report, with the adjuster’s recommendations being accepted unless there is a dispute as to liability. If the claim is rejected, the claimant must within seven working days of the final report be notified in writing, with reasons for repudiation being stated in a clear and simple manner. Insurers are required not to delay in making payment of claims or reduce the quantum in exchange for early payment pursuant to Clause 3.5. In this regard, full payment of claims is required to be made within 14 working days of acceptance of the settlement offer for sums up to RM1,000,000 and within 21 working days for sums above RM1,000,000.
Despite the detailed provisions above, the Guidelines have not proved to be very effective, in that they do not provide for any sanctions to be applicable against insurers should they fail to comply. As a result, the Malaysian courts have not given effect to them in the cases appearing before them on claims settlement.217
The Claims Settlement Guidelines have however, been applied regularly by the Mediators of the Insurance Mediation Bureau and its successor, the Financial Mediation Bureau which took over in 2005, when determining the reasonableness of the parties’ conduct, in the cases heard before them.218
Nevertheless, the Mediator’s Report in the Annual Report 2007,219 noted several continued indiscretions committed by insurers. Delay in claims settlement was the major complaint, with one case even recording a delay of almost a year after the acceptance of the settlement offer. Insurers have in some cases also delayed in responding to the Mediator’s request for particulars. Tactics deployed were to request for extensions of time to appoint adjusters and conduct further investigation when in actual fact, all investigations should have been concluded in full before a claim was even rejected or repudiated. Another instance witnessed insurers putting forward new grounds for repudiating a claim after the Mediator had found the earlier ground for repudiation to be baseless. Although an insurer in its repudiation letter may ‘reserve any and all defences which it may have with respect to the claims’, such conduct by insurers ‘to change their tune’ depending on the turn of events is unfair to insureds, unprofessional and lacks good faith.220
This has in a practical sense, contributed towards mitigating the lopsided bargaining position between insurers and insureds in claims settlement in Malaysia. In fact, an average of 26.5 % of insurers’ decisions in cases brought before the Financial Mediation Bureau annually from 2000 to 2014 has been revised by the Mediator in favour of the insureds.221 This is because most complaints or cases on alleged breaches of utmost good faith by insurers in Malaysia are lodged with the Bureau rather than the civil courts. This is apparent from an average of about 1,000 new insurance cases being referred to it annually from 2000 to 2014. Of these, an average of 53 % of the cases referred annually involved complaints by insureds on poor claims handling by insurers.222
4.3.3 Post-contractual Good Faith and Claims Settlement Under the Financial Services Act 2013
The Financial Services Act 2013 (Malaysia) which came into effect on 30th June 2013, repeals the Insurance Act 1996 (Malaysia)223 and with respect to post contractual good faith and claims settlement, appears to have been influenced primarily by the English and Scottish reforms introduced via the Consumer Insurance (Disclosure and Representations) Act 2012 (UK). It is unfortunate however, that it did not take into account ss13, 14 and 54 of the Insurance Contracts Act 1984 (Cth) (Australia) which apply to both consumer and non-consumerinsurance contracts in Australia. Neither did it consider the proposals for reform pertaining to non-consumer insurance contracts in the United Kingdom contained in s14 of the Insurance Contracts Bill 2014 (UK).
As explained above there was no provision in the Insurance Act 1996 (Malaysia) that set out the duty of utmost good faith or its application to claims settlement and the ensuing remedies. Hence, s17 of the Marine Insurance Act 1906 (UK) and the common law applied to claims settlement in Malaysia prior to 2013.
The Financial Services Act 2013 (Malaysia) however, addresses the problems pertaining to good faith in claims settlement through the enactment of Paragraph 5 (9) of Schedule 9 to the Act. This is an improvement with respect to consumer insurance contracts in that it requires the duty of utmost good faith to be exercised by a consumer and licensed insurer in their dealings with each other ‘including the making and paying of a claim’ after a contract of insurance has been entered into, varied or renewed. Although it is an improvement with respect to consumer insurance contracts, as it expressly requires utmost good faith to be exercised by both parties in claims settlement, the uncertainty remaining is however, with respect to the status of non-consumer insurance contracts and the remedy available in the event of breach in either case.
Paragraph 5 (9) of Schedule 9 to the Act would have been more complete had it been applicable to all insurance contracts, with the proportionate remedy of damages being expressly provided to apply in cases of breach of utmost good faith in claims settlement. As a result, it remains unclear if there is still scope for s17 of the Marine Insurance Act 1906 (UK) and its remedy of avoidance to apply to non-consumer insurance contracts in Malaysia. Such a result would indeed be an unfortunate state of affairs.
Instead, it would have been better if the Financial Services Act 2013 (Malaysia) had modelled its provision on utmost good faith and claims settlement along the lines of ss13 and 14 of the Insurance Contracts Act 1984 (Cth) (Australia) which introduce an ‘implied term’ into every contract of insurance that utmost good faith must be observed by both parties and failure to act in good faith would prevent the said party from alleging breach of good faith by the other. Furthermore, the implications of the duty being an implied term of contract, is that damages would be an available remedy in the event of breach, rather than avoidance alone.
As explained earlier, although Paragraph 5 (9) of Schedule 9 to the Financial Services Act 2013 (Malaysia) provides a marked improvement with respect to claims handling in consumer insurance contracts, it would have been more effective had it applied to all insurance contracts instead and also provided for a proportionate remedy in the event of its breach by either party. As a result, insureds making a claim under non-consumer insurance contracts would appear to be at a disadvantage.
The Malaysian legislature needs to address this in a comprehensive manner and not discriminate between consumer and non-consumer insurance contracts with respect to utmost good faith in general and claims settlement in particular. The insurers’ right to avoid liability for breach should also be within defined limits; and fraudulent claims need to be addressed along the lines of s12 of the Insurance Act 2015 (UK) and s54 of the Insurance Contracts Act 1984 (Cth) (Australia).
The Central Bank’s Claims Settlement Guidelines directing insurers to conduct themselves in a fair and reasonable manner in settling claims224; and the Financial Mediation Bureau of Malaysia’s flexible and proactive resolution of disputes brought before them,225 cannot be the only recourse for non-consumer insurance contracts. There is much to be said therefore, in the Financial Services Act 2013 (Malaysia) being improved to address these shortcomings, so as to be able to ‘strike a balance between the competing interests at play while being legally robust.’226
Fraudulent claims by insureds is only briefly considered here, as it has been discussed in Chap. 2 of this book.
This was following Hirst J’s wide formulation of the duty in Black King Shipping Corp v Massie (The Litsion Pride)  1 Lloyd’s Rep 437.
The pre-contractual duty of utmost good faith has been based on the common law pronouncement in s17 of the Marine Insurance Act 1906 (UK).
Hasson (1984, pp. 517–518).
See: The Star Sea  1 Lloyd’s Rep 389 (Lord Hobhouse), The Mercandian Continent  EWCA Civ 1275 (Longmore LJ), Agapitos v Agnew (The Aegeon)  2 Lloyd’s Rep 42 (Mance LJ).
See: Bennett (1999, 197); Soyer, above n 5, 70; Manifest Shipping & Co Ltd v Uni-Polaris Insurance Co Ltd  1 Lloyd’s Rep 360, 370 (Leggatt LJ).
 Lloyd’s Rep I R 111.
The insured in this case was however, unsuccessful on the grounds of losses consequent on failure to pay a valid insurance claim being irrecoverable in English law.
An indemnity insurance pays based on the actual value of the loss occasioned from the peril insured whereas a contingency insurance pays based on an amount stipulated in the insurance contract when a specified event occurs, both of which are addressed in this chapter.
Clarke (2005, p. 182).
This section draws on research appearing in: Thanasegaran (2011, pp. 191–192).
Birds (2013, p. 232).
This section draws on research appearing in: Thanasegaran, above n 12, 193–194.
Cementation Piling and Foundations Ltd v Aegon Insurance Co Ltd  1 Lloyd’s Rep 97, 101 (Sir Ralph Gibson).
See: Kessler (1943). It should be noted however, that not all insurance policies are contracts of adhesion, for example commercial policies.
 1 QB 750.
 Lloyd’s Rep I R 190.
Aswan Engineering Establishment Co Ltd v Iron Trades Mutual Insurance Co Ltd  1 Lloyd’s Rep 289; Hammersley v National Transport Insurance  TASFC 5.
Robertson v French (1803) 4 East 130.
Zurich General Accident and Liability Insurance Co Ltd v Morrison  2 KB 53.
See: Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453, 456 (Lindley LJ).
 1 KB 462.
See: the Court of Appeal’s decision in Alder v Moore  2 QB 57.
Krisa v Equitable Life Assurance Society, 113 F Supp 2d 694, 701 (MD Pa 2000); Barrer v Metropolitan Life Ins Co, 151 F Supp 2d 617 (ED Pa 2001).
48 NJ 291, 299, 225 A2d 328, 333 (1966); This case was also reported in the United Kingdom as  1 Lloyd’s Rep 380.
(1984) 49 OR (2d) 101 (CA).
Brown in Webb and Rowe (2004, p. 42).
Tarr (2001, p. 15).
First Energy (UK) Ltd v Hungarian International Bank Ltd  2 Lloyd’s Rep 194; Cook v Financial Insurance Co  1 WLR 1765.
 1 All ER 98.
 Lloyd’s Rep I R 190.
Mills v Smith  1 QB 30.
 QB 235; Lord Phillip MR in the case referred to the Oxford English Dictionary definition of ‘accident’ in coming to the decision: at 247.
Moore v Evans  1 KB 458, 471 (Banks LJ).
Eisinger v General Accident, Fire and Life Assurance Co  2 All ER 897.
Webster v General Accident, Fire and Life Assurance Co  1 QB 521.
 1 MLJ 53.
Birds (1982, pp. 455–456).
This section draws on research appearing in: Thanasegaran, above n 12, 194.
Browning v Phoenix Assurance Co Ltd  2 Lloyd’s Rep 360; Seddon v Binions  1 Lloyd’s Rep 381; Kuwait Airways Corporation v Kuwait Insurance Co SAK  1 Lloyd’s Rep 804, 815 (Lord Hobhouse).
People’s Insurance Co of Malaya v Ho Ah Kum  2 MLJ 134; American Home Assurance Co v Nalin Industries Sdn Bhd  2 MLJ 409.
Louden v British Merchants’ Insurance Co Ltd  1 Lloyd’s Rep 154.
Section 55 (1) of the Marine Insurance Act 1906 (UK) provides:
Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.
Wayne Tank and Pump Co Ltd v Employers’ Liability Assurance Corporation Ltd  3 WLR 483; Singatronics Ltd v Insurance Co of North America  1 SLR 500.
Killick v Rendall  2 All ER (Comm) 57 (Court of Appeal) (Evans LJ) at 64–67.
Oei v Foster  2 Lloyd’s Rep 170.
Britton v Royal Insurance Company (1866) 4F & F 905; Tuong Aik (Sarawak) Sdn Bhd v Arab-Malaysian Eagle Assurance Bhd  1 AMR 871; See: Chap. 2 for a discussion on fraudulent claims.
Mahmood (1992, p. 136).
Galloway v Guardian Royal Exchange (UK) Ltd  Lloyd’s Rep IR 209. The standard for this at common law is somewhere between the balance of probability and beyond reasonable doubt: Hornal v Neuberger Products Ltd  1 QB 347.
Derry v Peek (1889) 14 App Cas 337.
Judicial acknowledgement of this commercial phenomenon can be seen in Ewer v National Employers’ Mutual General Insurance Association Ltd  2 All ER 193, 203 (Mac Kinnon J); Wong Cheong Kong Sdn Bhd v Prudential Assurance Sdn Bhd  3 MLJ 724, 737–38 (Vincent Ng J).
This section draws on research appearing in: Thanasegaran, above n 12, 195. Also see: Hayward v Zurich Insurance Company plc  EWCA Civ 327.
Hadenfayre Ltd v British National Insurance Society Ltd  2 Lloyd’s Rep 393.
Verelst’s Administratrix v Motor Union Insurance Co  2 KB 137.
Cassel v Lancashire and Yorkshire Accident Insurance Company (1885) 1 TLR 495; See also: Adamson & Sons v Liverpool and London and Globe Insurance Co Ltd  2 Lloyd’s Rep 355. This section draws on research appearing in: Thanasegaran, above n 12, 195.
Pioneer Concrete (UK) Ltd v National Employer’s Mutual General Insurance Association Ltd  1 Lloyd’s Rep 274.
McAlpine v BAI  2 Lloyd’s Rep 694.
Stoneham v Ocean Railway and General Accident Insurance Co (1887) 19 QBD 237.
Herbert v Railway Passenger Assurance Co Ltd (1938) 158 LT 417.
 1 KB 136.
Welch v Royal Exchange Assurance  1 KB 294.
Barrett Bros (Taxis) Ltd v Davies, Lickiss and Milestone Motor Policies at Lloyd’s (Third Parties)  1 WLR 1334.
Allen v Robles  2 Lloyd’s Rep 61; This section draws on research appearing in: Thanasegaran, above n 12, 196.
Walker v Pennine Insurance Co Ltd  2 Lloyd’s Rep 139.
This section draws on research appearing in: Thanasegaran, above n 12, 196.
Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2)  Lloyd’s Rep IR 291; Abu Dhabi National Tanker Co v Product Star Shipping Ltd (The Product Star)  1 Lloyd’s Rep 397.
 1 WLR 685.
 Lloyd’s Rep IR 291.
Hobbs in Webb and Rowe (2004, pp. 124–25).
This section draws on research appearing in: Thanasegaran, above n 12, 196.
 Lloyd’s Rep IR 111.
President of India v Lips Maritime Corporation  AC 395.
It is worth noting that the Scottish Court of Session in Davidson v Guardian Royal Exchange Assurance  1 Lloyd’s Rep 406 decided otherwise and awarded additional damages to the insured for the loss of use of the insured car for 40 weeks instead of a reasonably estimated eight weeks which is what it should have taken the insurer to repair the car.
See: Pacific & Orient Insurance Co Sdn Bhd v Woon Shee Min  1 MLJ 291 (Malaysia); and ss 57 (1) and (2) of the Insurance Contracts Act 1984 (Cth) (Australia).
The Star Sea 1 Lloyd’s Rep 389.
Clarke, above n 11, 235.
 1 AC 481, 497. Although this was a banking case, the dicta was directed at suppliers of financial services like banks, financial institutions and insurance companies.
Clarke, above n 11, 244–245. For criticism of the English position, see: Campbell (2000).
Brown (2002, pp. 458–459).
This section draws on research appearing in: Thanasegaran, above n 12, 197. Also see: Campbell in Webb and Rowe (2004, p. 213).
Section 14 (4) of the Insurance Contracts Bill 2014 (UK).
 Lloyd’s Rep I R 111.
Hertzell and Burgoyne (2013, p. 119).
Ibid. 118. See: Wheatley (2013) http://www.fca.org.uk/news/speeches/meeting-the-growth-challenge. Accessed 30 June 2015.
Hertzell and Burgoyne, above n 85, 119.
Section 12 (3) of the Insurance Act 2015 (UK).
Section 12 (4) of the Insurance Act 2015 (UK).
Section 17 (3) of the Insurance Act 2015 (UK); See: Carnwath LJ in Tektrol v International Insurance Co of Hanover  2 CLC 339 at 347.
Section 17 (2) of the Insurance Act 2015 (UK).
Hertzell and Burgoyne, above n 85, 120.
Conditions and Exceptions in Insurance Policies, Report No 5, Cmnd 62, 1957 –.
Law Commission and Scottish Law Commission (1975) –.
Birds, above n 13, 233.
Association of British Insurers, Statement of General Insurance Practice (1986a).
Association of British Insurers, Statement of Long Term Insurance Practice (1986b).
Financial Services Authority, Insurance Conduct of Business (2005b).
Financial Services Authority, Conduct of Business (2005a).
English Law Commission (1980).
Ibid. [8.17]. This was expressed despite Professor Gower’s observations in 1957 that ‘there can be few countries …where the insurance companies are allowed the same freedom to dictate their own terms’: Ginsberg (1959, p. 163).
Hasson, above n 4, 517–518. He went on to say that law reform was necessary as English law’s main weapon in dealing with unfair contract terms in insurance policies, namely the contra proferentum rule, was inadequate as it was not clear if and when it would apply, depending much on the varying views of the judges hearing the cases. He cited as examples, the interpretation of the terms ‘riot’ and ‘flood’ in Bolands Ltd v London and Lancashire Fire Insurance  AC 836; and Young v Sun Alliance and London Insurance  1 WLR 104.
This is so except in the case of legal processes and claims which a third party requires the policyholder to notify within a fixed time where immediate advice may be given. Clause 3 (c) of SOLTIP was the comparable provision for life insurance and did not contain the proviso above.
Clause 2 (b) provided that:
An insurer will not repudiate liability to indemnify a policyholder (i) on grounds of non-disclosure of a material fact which a policyholder could not reasonably be expected to have disclosed; (ii) on grounds of misrepresentation unless it is a deliberate or negligent misrepresentation of a material fact; (iii) on grounds of breach of warranty or condition where the circumstances of the loss are unconnected with the breach unless fraud is involved.
It did not however, apply to marine and aviation policies. Similar provisions appeared in Clause 3 (a) and (b) of SOLTIP covering life insurance.
An identical version appeared in Clause 2(a) of SOLTIP for life insurance.
By contrast, the corresponding provision in Clause 3 (d) of SOLTIP although identical, was helped to an extent by Clause 3 (e) which required the insurer to pay interest on the sum due if the delay in payment was more than two months, albeit the initial criticism of the payment obligation only arising once liability is established and the amount agreed, still applied.
An identical version appeared in Clause 4 of SOLTIP.
See: Financial Ombudsman Service (1990–1991) .
This was as a result of the Financial Services Act 1986 (UK) which introduced a two-tier system of regulation for investment business not covering the ambit of general insurance.
General Insurance Standards Council, General Insurance Code for Private Customers (2000a).
General Insurance Standards Council, General Insurance Commercial Code (2000b).
Clause 1.1 of the GISC Private Code.
Ibid. Clauses 6 and 9.
Ibid. Clause 3.3.
Ibid. Clauses 3.6 and 6.1.
Ibid. Clause 10.2.
Directive on Unfair Terms in Consumer Contracts 1993 (European Community).
Regulation 5 (4) of the Unfair Terms in Consumer Contract Regulations 1999.
Ibid. Regulations 6 (2) and 7.
Ibid. Regulations 5 and 8.
Ibid. Regulations 10 (1) and 12 (1).
The Insurance Ombudsman Bureau and Personal Investment Authority Ombudsman were amongst the said mechanisms in place.
The regulations drew a distinction between ‘retail customers’ who were individuals acting outside their trade or profession and ‘commercial customers’ who were anyone other than retail customers (on the basis of the former requiring more protection than the latter) with some concession being made for small businesses, mainly with respect to additional protection as to product disclosure and advice provided.
ICOB 5.3.9R and 5.3.4R.
ICOB 5.5.1R (2) (b).
Section 150 of the Financial Services and Markets Act 2000 (UK).
Section 66 of the Financial Services and Markets Act 2000 (UK).
Financial Services Authority, Principles for Business (2005c).
The Principles for Business required insurers to conduct their business with integrity; observe proper standards of market conduct; treat customers fairly; manage conflicts of interest fairly; take reasonable care to ensure the suitability of advice and that discretion is exercised; and address the information needs of their clients by communicating information to them clearly and fairly without misrepresentation.
This is by virtue of ss5 (1) and (2) of the Civil Law Act 1956 (Malaysia), owing to the lack of a corresponding provision in Malaysian statutes.
See: Leong Kum Whay v QBE Insurance (M) Sdn Bhd  1 CLJ 1; Jong Set Fah v Asia Life Assurance Society Ltd  2 CLJ 667; Leong Brothers Industries Sdn Bhd v Jerneh Insurance Corporation Sdn Bhd  1 MLJ 102.
 1 CLJ 1, 6.
 54 OR (2d) 753 and 756.
 ACWSJ 10135.
This section draws on research appearing in: Thanasegaran, above n 12, 192–193.
See: Naidoo and Oughton, above n 5; Bennett, above n 7; Hasson (1969); Soyer, above n 5.
Malaysia National Insurance Sdn Bhd v Abdul Aziz bin Mohamed Daud  2 MLJ 29.
Tay Hean Seng v China Insurance Co Ltd  MLJ 38.
Provincial Insurance Co Ltd v Yeo Chee Swee  2 MLJ 60; Sawarn Singh a/l Mehar Singh v RHB Insurance Bhd  7 MLJ 416.
Chiew Swee Chai v British American Insurance Co (M) Sdn Bhd  1 MLJ 53.
 1 MLJ 53.
 2 MLJ 409.
 2 MLJ 249.
 2 Lloyd’s Rep 150.
 6 MLJ 533.
 1 MLJ 22.
 1 MLJ 593.
 2 MLJ 40.
Norani bin Maniran v Maybank General Assurance Bhd  9 MLJ 610.
This is by virtue of ss5 (1) and (2) of the Civil Law Act 1956 (Malaysia) and applied in Commercial Union Assurance (M) Sdn Bhd v Pilihan Megah Sdn Bhd  7 MLJ 33.
 2 MLJ 287.
Ibid. 289 (Ong CJ).
 2 MLJ 409. See also: People’s Insurance Co of Malaya v Ho Ah Kum  2 MLJ 134.
Failure to abide by this would entitle the insurer to avoid the claim and retain the premiums paid: Tuong Aik (Sarawak) Sdn Bhd v Arab-Malaysian Eagle Assurance  1 AMR 871.
Globe Trawlers Pte Ltd v National Employers’ Mutual General Insurance Association Ltd  1 MLJ 463; Wong Cheong Kong Sdn Bhd v Prudential Assurance Sdn Bhd  3 MLJ 724, 735 and 737 (Vincent Ng J).
Public Insurance Co Ltd v Muthu  2 MLJ 201.
Chong Kok Hwa v Taisho Marine and Fire Insurance Co Ltd  1 MLJ 244 where it was held that an insurance agent usually has no authority to waive such a requirement for written notice.
Cheong Heng Loong Goldsmiths (KL) Sdn Bhd v Chan Kim Swi  5 MLJ 191; AXA Affin Assurance Bhd v MTD Construction Sdn Bhd  6 MLJ 323.
 2 MLJ 249.
China Insurance Co Ltd v Ngau Ah Kau  1 MLJ 52. This was applied again in Talasco Insurance Bhd v Goh Thiam Hock  1 MLJ 179.
See: Asean Security Paper Mills Sdn Bhd v Commercial Union Assurance (M) Sdn Bhd  6 CLJ 505; New Zealand Insurance Co Ltd v Ong Choon Lin  1 CLJ 44. This section draws on research appearing in: Thanasegaran, above n 12, 196.
Arasis Sdn Bhd v Pacific & Orient Insurance Co Bhd  1 MLJ 784 where the High Court held the insurer’s payment of a reduced sum to be in breach of the insurance contract and awarded the insured a full settlement of the claim.
 1 MLJ 291.
 3 MLJ 724.
Ibid. 751. The court’s discretion to grant interest is generally available under s11 of the Civil Law Act 1956 (Malaysia).
 1 CLJ 357.
Ibid. 364–365.This section draws on research appearing in: Thanasegaran, above n 12, 196.
In fact, the Notes to the draft Insurance Contracts Bill 1982 (Cth) described the duty of utmost good faith as being ‘paramount’ and should not be displaced by further or other duties imposed by the Act. This view was shared in Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 6 WAR 68 (Ipp J) which was a case concerning the effect of s54 on remedies for post-contractual breach and s13.
This section draws on research appearing in: Thanasegaran (2004, pp. 152–153).
Such denials could be based on the unduly strict construction of policy terms or ambiguous exclusions: Hammer Waste Pty Ltd v QBE Mercantile Mutual Ltd  NSWSC 1006.
Moss v Sun Alliance Aust Ltd (1990) 6 ANZ Ins Cas ¶60-967 where the insurer initially denied liability and later, upon admission, delayed in settling the insurance claim.
(1999) 10 ANZ Ins Cas ¶61-453. The same reasoning was applied in McArthur v Mercantile Mutual Life Insurance Company Ltd.  2 Qd R 197.
Although s14 is theoretically applicable to both insurers and insureds, it would most likely be deployed against insurers, as they are normally the party seeking to rely on provisions of the policy to avoid liability. This section draws on research appearing in: Thanasegaran, above n 182, 153.
Australian Law Reform Commission (1982) .
Section 37 provides that:
An insurer may not rely on a provision included in a contract of insurance (not being a prescribed contract) of a kind that is not usually included in contracts of insurance that provide similar insurance cover unless, before the contract was entered into, the insurer clearly informed the insured in writing of the effect of the provision (whether by providing the insured with a document containing the provision or the relevant provisions of the proposed contract or otherwise).
(1990) 6 ANZ Ins Cas ¶60-957.
Sections 54 (5) and (6) complete the provision by preventing the insurer from avoiding liability where the act was necessary to protect persons or property or where the act was not reasonably avoidable; with any reference to ‘act’ including omissions as well.
(1991) 6 WAR 68.
The Australian Law Reform Commission’s Notes to the draft Insurance Contracts Bill 1982 (Cth) also contains an example of s 54’s application as an illustration of this.
(1990) 6 ANZ Ins Cas ¶60-967.
(1990) 10 ANZ Ins Cas ¶61-453.
 2Qd R 197.
Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652.
Australian Law Reform Commission (1982) . In order to achieve this, the Law Commission envisaged that the application of s 54 should not be affected by matters of form and would also cover matters such as breaches of conditions subsequent and exclusions.
(1993) 176 CLR 332.
East End Real Estate Pty Ltd (t/a City Living) v C E Heath Casualty and General Insurance Ltd (1992) 25 NSWLR 400.
FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641.
It is worth noting that s55 provides that the remedies in s54 apply exclusively to such post-contractual breaches (as opposed to previous common law remedies which depended on the form of breach rather than its effect): Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652. Section 55A in turn, empowers the Australian Securities and Investments Commission (‘ASIC’) to bring representative actions on behalf of insureds that have or are likely to suffer damage as a result of the terms of the contract or conduct of the insurer in breach of the Act.
See: s56 (3).
(1992) 7 ANZ Ins Cas ¶61-104 where the insured’s claim was rejected for the deliberate provision of a false answer in a claims form as to a blood alcohol test result, as it amounted to a fraudulent claim.
(2001) 3 VR 279 which involved the submission of a false claim by the insured that the damage to the insured vehicle occurred after it was stolen, when in actual fact it was damaged whilst being driven by her 15 year-old son without her consent. Although the insured would have otherwise been entitled to claim, her false claim based on a mistaken belief that she would not have been so covered, amounted to fraudulent conduct which barred her claim.
This is especially so with respect to ss54 (1) and 56 (2).
Australian Law Reform Commission (1982) .
Ibid. .This section draws on research appearing in: Thanasegaran, above n 182, 154–155.
Ricciardi v Suncorp Metaway Insurance Ltd (2001) 11 ANZ Ins Cas ¶61-493.
Tarr, above n 209, 89. This section draws on research appearing in: Thanasegaran, above n 182, 154–155.
The question of when it became unreasonable for an insurer to withhold payment is in turn to be determined objectively: Settlement Wine Co Pty Ltd v National and General Insurance Co Ltd (1994) 62 SASR 40.
Central Bank of Malaysia (2003). This revised version came into effect on 16 September 2003 replacing the Claims Settlement Guidelines of 25 February 1995.
Financial Mediation Bureau (2008, p. 15). This section draws on research appearing in: Thanasegaran, above n 12, 197.
Claims notification through agents must reach insurers within three working days, with the agent not being involved in claims handling on the insurer’s behalf, save in assisting the claimant to complete the claim form.
Amongst the information to be provided are the insurer’s contact person, expected time frames to process claims, insured’s rights, request for additional information and supporting documents, so as to avoid piecemeal repetitive requests for information and is required to send a reminder after 14 days if the requisite information is not provided: Clause 3.2.
This section draws on research appearing in: Thanasegaran, above n 12, 197.
This has been acknowledged and reported in the Financial Mediation Bureau (2009, p. 20). See also: The said Annual Report 2008, 8–10, for the Financial Mediation Bureau’s Terms of Reference as embodied in its Memorandum and Articles of Association which facilitates this:
Mediators are required (i) to have regard to and act in conformity (a) with the terms of any contract; (b) any applicable rule of law, judicial authority or statutory provision; and (c) the general principles of good insurance, investment or market practice, the Central Bank’s Guidelines on Claims Settlement Practices for insurance and takaful matters but with (c) prevailing over (b) in favour of the complainant; (ii) to have regard to (without being bound by) any previous decision of any Mediator; (iii) in light of (i) and (ii), to assess what solution would be fair and reasonable in all the circumstances.
Financial Mediation Bureau (2008, pp. 13–16).
This section draws on research appearing in: Thanasegaran, above n 12, 197–198.
See: Table of Cases Referred to the Financial Mediation Bureau from 2000–2014 in the Appendix.
See: Table of Cases Referred to the Financial Mediation Bureau from 2000–2014 in the Appendix. Albeit the fact that the breakdown in terms of types of complaints is no longer available from 2012. This can be compared to there being less than 60 reported insurance cases being decided by the courts for the same period. This section draws on research appearing in: Thanasegaran, above n 12, 198 but the statistics herein have been updated from 2009 up until 2014.
Section 271 of the Financial Services Act 2013 (Malaysia) repeals the Insurance Act 1996 (Malaysia) but s272 retains the application of the Insurance Regulations 1996 as amended in 2013.
See: Clause 3.4 of the Claims Settlement Guidelines 1995 @ 2003. A major drawback is that the Guidelines have no clear sanctions set out as being applicable in the event of non-compliance.
Hertzell and Burgoyne, above n 85, 123.
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