Question 1 It is a legal requirement that a person should have an insurable interest in the thing or event that is insured.

At what point in time is insurable interest required in: (i) Life insurance; (6 marks) (ii) Marine insurance; (6 marks) (iii) Classes of insurance other than life and marine? (6 marks) Apr 2013, Oct 2012, Jan 2012, Jul 2011, Apr 2011 Insurable interest is the legal right to insure arising out of a financial relationship recognized at law, between the insured and the subject matter of insurance. Life insurance - Insurable interest must be presented at inception Marine insurance - Section 6 Marine Insurance Act 1906 must present at the time of loss Other insurance - Insurable interest must be there at the inception and the time of loss. The principal governing marine insurance, described above, also apply to other policies, including non-marine property, pecuniary and liability insurance. Insurable interest is required at the time of loss because therere indemnity insurance that pay out only when the insured suffers a loss: if the insured has no interest he will suffer no loss. --------------------------------------------------------------OR ---------------------------------------------------------------------------------

Insurable interest arises in a number of ways. Discuss. (12 marks) Apr 2011 Insurable interest is the legal right to insure arising out of a financial relationship recognized at law, between the insured and the subject matter of insurance. Therere number of ways in which insurable interest may arise: - Common law - In some case, insurable interest is automatically presumed to exist. Every person is presumed to have an unlimited interest in their own life. - Ownership: ownership of a car carries with it the right to insure Contract - In some case, a person will agree to accept responsibility for something for which they would not ordinarily be liable. - Example: The landlord, rather than the tenant is normally liable for the maintenance of the property which they own. The lease, however, will often contain a condition which makes the tenant responsible for the maintenance or repair of the building. Clearly, a term of this sort in the lease will give the tenant a financial interest in the property which is insurable. Moreover, the lease may make the tenant liable to pay rent even if the building is uninhabited which further support their interest. Statute - Act of Parliament will create an insurable interest where none exist under common law. For example, the Industrial Insurance and Friendly Society Act 1948 and Amendment Act 1958 gave a child limited insurable interest in life of their parents, something which the common law doesnt allow.

Question 2 Sam, a businessman, wishes to arrange the following insurance policies, either in his own name or the name of his firm. In each case, say whether the contract is likely to be valid under English law, giving a reason for your answer. Where appropriate, state also whether the policy should be in Sams own name or the name of his firm. (i) A policy covering the firms factory premises, which are leased from Daniel. (3 marks) Valid, provided Sam is liable under the terms of the lease to make good any damage that occurs to the factory, she will have an insurable interest based on contract. (ii) A policy covering a Rolex watch that Sam found in the street, the owner of which has yet to be traced. (3 marks) Valid if the owner cannot be traced. Finders and people in possession possession gives the finder the right to the property, other than the true owner. (iii) A policy on the life of Sams son, Mark, who Sam hopes will join the family business one day. (3 marks) Not valid, under English Law insurable interest is presumed to exist in family relationships, which is your own life and your spouses. Insurable interest arises through marriage contract. Besides that, other family relationship doesnt automatically gives rise to an insurable interest. Hence Sam doesnt have insurable interest to the life of his Son. (iv) A policy on the life of Sams daughter, Mary, who is an employee of Sams firm and a member of its board of directors. (3 marks) On the face of it theres no interest in this case, under English Law insurable interest is presumed to exist in family relationships, which is your own life and your spouses. Other family relationship doesnt automatically gives rise to an insurable interest, therefore Sam had no insurable interest on his daughters life. However, Sams firm has, as Mary is one of the employee of Sams firm. An employer can insure the life of his employee, up to the sum where representing the value of the work which the employer is entitled. See the case, Simcock v. Scottish Imperial Insurance Co. (1902). Hence an insurable interest would exist if the policy under his firms name. Apr 2013, Jan 2012 --------------------------------------------------------------- OR --------------------------------------------------------------------------------Mark is the only son of Mr Phang, a billionaire. Anticipating the death of his father who was critically ill, Mark purchased a fire insurance cover for the mansion where he and his father have been living in all this while. Unfortunately, a fire broke out two months after he had arranged for fire insurance coverage. The fire destroyed the mansion and his father was killed in the incident. He estimated his loss to be RM3 million for which the sum insured was adequate and as such there was no under insurance. At the time of processing the claim, the claims investigator discovered that the property insured under the policy was still in the name of Mr Phang and had not been transferred to Mark. He had not named Mark as the heir to the property upon his death but instead had donated the property to a charitable organisation for homeless children. Based on the above facts, the insurance company rejected Marks claim as he had no insurable interest. Advise Mark on his legal rights in the insurance matter. (30 marks) Jan 2013, Jul 2012 Insurable interest is the legal right to insure arising out of financial relationship recognized at law, between the insured and the subject matter. Key elements of the insurable interest are: 1) that there must be a subject matter of insurance, 2)the policy holder must have an economic or financial interest in the subject matter of insurance, 3) the interest must be current interest as opposed to mere expectancy and 4) the interest must be legal interest. Mark purchased a fire insurance cover for the mansion where he and his father have been living in all this while. Where Mark is the only son of Mr Phang, a billionaire. Mr Phang was the proprietor or the owner of the mansion

when an insurance policy in question was effected. See, Simcock v. Scottish Imperial insurance Co. By virtue of being the owner he had an insurable interest on the mansion at the material time. However, his son, Mark dont own the legal insurable interest on the mansion. As the owner, Mr Phang stands in a financial relationship with the mansion, in that any destruction and/or damage to the mansion will inevitably cause loss to Mr Phang. It was certainly a current interest capable of financial valuation. But it doesnt cause the same to Mark, hence the fire insurance policy is unlikely to be valid as Mark appears to have no legal interest on the property. Interest must be legal interest, one that the law recognizes and will support, this principal is well established in the case of Macaura v. Northern Insurance Co. Ltd (1925). At the time of processing the claim, the claims investigator discovered that the property insured under the policy was still in the name of Mr Phang and had not been transferred to Mark. This policy is unlikely to be valid because, although Mark has an expectation of inheriting from Mr Phang, there is no certainty that he will do so, see Lucena v Craufurd (1806). In fact Mr Phang had not named Mark as the heir to the property upon his death but instead had donated the property to a charitable organisation for homeless children.

--------------------------------------------------------------- OR --------------------------------------------------------------------------------Albert wishes to insure the life of his rich uncle Bernard because each year on his birthday, Bernard sends him a cheque for RM 1,000. Bernard has also made a will in which all his money and property has been left to Albert. However, if Claude (another uncle) dies first then all Bernards property is to go to Claudes wife instead of Albert. Therefore, Albert wishes to insure the life of Claude also. Explain, in each case, whether the life insurance policies would be valid in English law. Give reasons for your answer and cite any relevant case law. (14 marks) Jul 2011 The reasons of insurable interest introduces in life insurance are to discourage wagering under the cloak of insurance, and to reduce moral hazard e.g. the motive to murder an unconnected person or destroy their property to get the insurance money. It is arguable that these reasons are not so strong today because there are now plenty of legal means of gambling and no real reason why anyone would want to use an insurance policy as a means of doing so. Also, modern forensic techniques make it much more difficult to get away with murder than in the eighteenth century and a large insurance policy on the life of another would provide a motive that would encourage the police to investigate the actions of the policyholder. In any event, the law allows one spouse to insure the life of another, even though most murders take place within the family, often involving husband and wife. The first policy is unlikely to be valid as Albert appears to have no legal interest in the life of Bernard. Bernard has no obligation to give him 1,000 each year and Albert has no legal right to the money. See Macaura v Northern Assurance Co. Ltd. (1925). Again, the second policy is unlikely to be valid because, although Albert has an expectation of inheriting from Bernard, there is no certainty that he will do so, even if Bernard dies before Claude. Bernard could change his will at any time and leave his money to somebody else. See Lucena v Craufurd (1806) and, again, Macaura v Northern Assurance Co. Ltd. (1925).

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Quennie has been driving her Proton Saga for the past five years. Recently, the Proton Motor Company contacted her and told her that they would be launching a new off road vehicle called Tahan. They also told her there would be a very special offer for existing Proton owners if they decided to trade in their cars. Quennie went for the launch of Tahan and was highly impressed with it. She decided to make a booking for one and paid a deposit for it. Quennie, however, decided not to trade in her Proton Saga. Alice her best friend, had been asking her to sell it to her. When Quennie sold the car to Alice, she merely handed over the motor insurance policy to Alice and said that there was still six months left before it expired. Two days later, Alice met with an accident and the Proton Saga was badly damaged. When she attempted to make a claim with Big Bucks Insurance Co, the insurer, they told her that the claim was not payable. Alice then asked Quennie to make the claim since the policy was in her name. Advise Alice. (30 marks) Oct 2010 Queenie was the proprietor or the owner of the car when an insurance policy in question was effected. By virtue of being the owner she had an insurable interest in the car at the material time. Insurable interest is the legal right to insure arising out of financial relationship recognized at law, between the insured and the subject matter. Key elements of the insurable interest are: 1) that there must be a subject matter of insurance, 2)the policy holder must have an economic or financial interest in the subject matter of insurance, 3) the interest must be current interest as opposed to mere expectancy and 4) the interest must be legal interest. In our present case, the subject matter of the insurance was the car. As the owner, Queenie stands in a financial relationship with the car, in that any destruction and/or damage to the car will inevitably cause loss to Queenie. It was certainly a current interest capable of financial valuation. See, Simcock v. Scottish Imperial insurance Co. Given this, Queenie had insurable interest in the car when the policy of insurance waseffected. Queenie subsequently sold her car to her best friend, Alice. By virtue of the sale, the car became an asset of Alice and by reason of transfer of the car Queenie is deemed to have divested her legal interest in the car to Alice ceased to be the owner of the car and in the circumstances lacks insurable interest to justify the continued existence of the policy. The policy will be void for want of insurable interest. When Quennie sold the car to Alice, she merely handed over the motor insurance policy to Alice and said that there was still six months left before it expired. This may amount to an equitable assignment as a benefit may be assigned equitably without the need for formality. Nevertheless the assignment of a personal service contract, as a cover for motor insurance is dependent upon the characteristics of the owner and driver of the vehicle would render the contract to be, is not possible in law as held in the case of Peters v. General Accident Fire and Life Assurance Corporation Ltd (1938). In practice, insurers are unlikely to grant such consent and will usually provide insurance only under a new contract.

Hence, the policy, although still under Queenies name, but since she sold the car to Alice, she did not have any legal interest in the car anymore. For Alice, although she have insurable interest in the car, the insurer told her that the claim was not payable because it wasnt under her name. At the time the Proton Saga was badly damaged, Queenie didnt have insurable interest in the car. Following the principle of law established in the case of Macaura v. Northern Assurance Co Ltd , one can concluded that Queenie who has an sold the car to Alice did not have any legal interest in the car. Given the above, Big Bucks Insurance Co had rightly refuse the claim and Queenie has lost her rights for indemnity under the policy. Alice would be able to recover premium if she inform the insurer that the car had transferred to her before the accident occurred. --------------------------------------------------------------- OR ---------------------------------------------------------------------------------

Nordin is a trader in cigarettes. He stored a quantity of his own stocks in his friends warehouse, Safe & Secure. At Nordins request, his friends insured Nordins stocks of cigarettes for its full value of RM1,000,000 in his own name, ie. Juta Wan. A fire occurred in Safe & Secure, which totally destroyed Nordins stocks. The insurers refuse to entertain Nordin when he tried to make the claim for the loss of his stocks alleging that he is not an insured under the fire policy. Advise Nordin. (30 marks) Apr 2009 Insurable interest is the legal right to insure arising out of financial relationship recognized at law, between the insured and the subject matter. Key elements of the insurable interest are: 1) that there must be a subject matter of insurance, 2)the policy holder must have an economic or financial interest in the subject matter of insurance, 3) the interest must be current interest as opposed to mere expectancy and 4) the interest must be legal interest. In our present case, the subject matter of the insurance were those cigarettes. As the owner, Nordin stands in a financial relationship with those cigarettes, in that any destruction and/or damage to the car will inevitably cause loss to Nordin. It was certainly a current interest capable of financial valuation as held in the case of Simcock v. Scottish Imperial insurance Co. Given this, Nordin had insurable interest in those cigarettes. A fire occurred in Safe & Secure, which totally destroyed Nordins stocks. The issue before us is whether Nordin has a right to recover as a third party to the insurance contract.

A third party can gain the right to claim on an insurance policy under the rules of agency. Most straightforward situation is where a third party authorises the policyholder to insure on their behalf. The doctrine of undisclosed principal can apply in insurance. In the case of Siu v. Eastern Insurance Ltd (1994), a marine policy was taken by a firm of shipping agent in their own name. They had been instructed to insure the liability of the ship-owners, but the name of the latter did not appear in the policy and there was no indication that the shipping agents were insuring on the owners behalf and not in their own right. Court held that the ship-owners were parties to the contract and could enforce it.

The facts of this case is similar to that of Siu v. Eastern Insurance Ltd (1994), wherein Juta Wan, may be regarded as an agent or a bailee to the stock of cigarettes belonging to Nordin. From the facts of the case Juta Wan has insured the stock of cigarettes in his own name, and this would render Nordin an undisclosed principal in as far as this transaction is concerned. Based on the decision in Sius case it would appear that Nordin could recover from the insurance policy as the undisclosed principal.

Even if an agent has no authority to contract on behalf of the principal, the principal can take advantage of the contract by ratifying it subsequently. The rules of ratification apply to insurance in the ordinary way. However an important restriction arises from the rule that an undisclosed principal cannot ratify a contract. This means a third party can ratify an insurance contract only if they are name in it as the insured (co-insured). However we are told from the facts of this case that Nordin is an undisclosed principal which means that his name does not appear in the policy and as such ratification is not possible. Nordin right to make a claim is made on the basis of agency or bailees relationship with Juta Wan.

Question 3 According to the doctrine of proximate cause, the claimant must prove that an insured peril was the main cause of the loss, with minor (or remote) causes to be ignored. If the insurers allege that the proximate cause of the loss was an excluded peril then the burden of proof shifts to them. Discuss the extent to which the doctrine of proximate cause, outlined above, can be modified in its operation by the words of the policy. Illustrate your answer with decided cases. (30 marks) Apr 2013, Oct 2012, Oct 2011 The doctrine of proximate cause can be excluded or modified by the particular words used in the policy. For example, insurers may wish to exclude some risks (such as war risks) absolutely and be in a position to refuse payment even where the peril operates as a remote cause (i.e. a cause which makes only a minor contribution to the loss). To achieve this, insurers sometimes exclude losses caused directly or indirectly by the peril in question. Providing the clause is upheld the effect will be to exclude any loss in which the peril operates, even though it does so only as a remote cause. For example, in Oei v Foster (1982), the insureds wife left some fat heating on the electric cooker of a house which she had borrowed and, while she went out, the fat ignited and caused fire damage to the house. She was legally liable for this damage and claimed indemnity under the personal liability cover of her husbands household insurance. However, the policy excluded liability arising directly or indirectly from ownership or occupation of any land or building. The judge held that the proximate cause of the fire for which she was liable was her failure to turn off the cooker. Nevertheless, the damage arose indirectly from the occupation of the house and the exclusion therefore applied. Again, the effect was to widen the effect of the exclusion and narrow the cover. By contrast, however, the effect of the policy wording in some cases may be to widen the scope of the cover rather than narrow it. Dunholme v Bentley (1996) is an example of a case where the doctrine of proximate cause was modified by the words of the policy, with the cover being widened. A motor policy covered liability caused by or arising out of Mrs Dunholmes use of her motor vehicle. However, the motor insurers denied liability, pointing out that Mrs Dunholmes car had been properly parked about ten minutes before the accident occurred, and therefore the accident was not caused by or arising out of her use of the car. The Court of Appeal accepted that the accident for which she was liable was not caused by the use of the car; that is, the use of the car was not the proximate cause of the accident. Nevertheless, the court held that the accident did arise out of the use of the car and so the insurers were liable. The inclusion of the words arise out of indicated that the doctrine of proximate cause was not to be applied strictly and that the cover operated where the use of the car was only a remote cause of the accident. Once the insured has established prima facie (on the face of it) loss by an insured peril the burden shifts to the insurers. If they wish to avoid the claim they must prove in turn that an excepted peril was the proximate cause of the loss. However, these general principles governing the burden of proof may themselves be modified by the terms of the policy. In some cases the insurers may shift the burden of proof by requiring the insured to prove that a loss was not caused by an excepted peril. For example, fire insurance policies sometimes used to provide that if a fire occurred during an earthquake or time of civil commotion the insurers would be liable only if the insured could prove that the fire did not arise from either cause. However, the courts are unsympathetic to these reverse burden clauses and construe them narrowly: see Spinneys (1948) Ltd v Royal Insurance Co Ltd (1980). Furthermore, clauses of this sort would almost certainly be struck out as unfair under the Unfair Terms in Consumer Contract Regulations 1999 were they to be used in consumer insurance contracts.

--------------------------------------------------------------- OR --------------------------------------------------------------------------------Explain the operation of the doctrine of proximate cause in the context of each of the following. Illustrate your answers with appropriate case law. (a) 'Chains' of events; (15 marks) (b) Concurrent causes. (15 marks) Jan 2013, Jul 2011 (a) Chain of events The leading authority on this and on proximate cause generally is the decision of the House of Lords in Leyland Shipping v Norwich Union Fire Insurance Society Ltd (1918). Many earlier cases had been decided on the basis that where there was a chain of events the last event to occur was the proximate cause but the Leyland Shipping case clearly put an end to this theory in English law. The ship in question, the Ikara, was insured under a policy that covered perils of the seas, but excluded war risks. She was hit by an enemy torpedo and despite being badly holed and in danger of sinking, reached the port of Le Havre, where repair work was started. When a storm blew up the harbour master ordered the ship to an outer berth to save the harbour from being blocked if she sank, which she did after she left port. The House of Lords had to decide whether the proximate cause of the loss was the torpedo (a war risk which was excluded) or the storm, which was the last event to happen and was insured as a peril of the sea. Under the old approach the storm would undoubtedly have been regarded as the proximate cause of the loss, as it was the last cause, but the court held that the torpedo was the proximate cause of the loss because the damage it caused had been effective throughout. The chain of events had not been broken. Cases of lesser importance that could be used to illustrate the principle include: Etherington v Lancashire and Yorkshire Accident Insurance Company (1909). Mardorf v Accident Insurance Co. (1903). Tootal Broadhurst Lee Company v London and Lancashire Fire Insurance Company (1908). Marsden v City and County Insurance (1865). Winicofsky v Army and Navy Insurance (1919). Lawrence v Accidental Insurance Co. Ltd (1881). (b) Concurrent causes Occasionally two or more perils operate concurrently (i.e. at the same time) to bring about a loss. Where the perils are independent (in the sense that one did not lead to the other) and either one would have caused some loss without the other, the insurers are simply liable for that part of the loss attributable to whichever peril is insured. In other cases the perils may be not only independent (i.e. one did not lead to the other) but also interdependent, in the sense that neither peril would have caused damage on its own. If one peril is an insured peril and the other is an excluded peril the exception prevails and the insurers have no liability at all. If one of the perils is an insured peril and the other is an uninsured peril (i.e. not specifically excluded) the position is different. In this case the insurers are liable for the whole of the loss. The leading case is J.J Lloyd (Instruments) Ltd v Northern Star Insurance Co. Ltd (1987) (The Miss Jay Jay). In this case, damage to a yacht was caused by two concurrent proximate causes. First, heavy weather (a peril of the sea which was insured) and second, defective design (which was an uninsured peril neither insured nor excluded). Neither cause would have brought about the loss on its own and since the former was insured and the latter was not excluded, the insurers were liable in full. Other cases that could be used equally well to illustrate the principle include: Midland Mainline Ltd and Others v Eagle Star Insurance Co. Ltd (2004). Wayne Tank and Pump Co. Ltd v Employers Liability Insurance Corporation Ltd (1974).

Question 4 Suresh opened a fitness centre and wanted to add to his range of fitness machines. He knew that his friend, Lim, the manager of another fitness centre, had a spare step-machine and he asked him how much he would sell it for. Lim said, "probably RM700". The next day, Suresh telephoned Lim at home and left a message on his answering machine saying, "I will give you RM650 for the step-machine. No need to reply if that is all right. I will pick it up next week." Lim kept the machine for Suresh and so he was very annoyed when, two weeks later, Suresh told him that he had changed his mind and did not want it after all. (a) Consider whether there is a contract between Suresh and Lim for the purchase of the step-machine. (15 marks) Apr 2013, Jul 2012 Therere five essentials for the formation of a valid contract: - There must be an agreement, which in English law is generally shown by offer & acceptance - There must be intention to create legal relations - There must be consideration - The agreement must be in the form required by law - The parties must have capacity to contract The issue here is whether theres a valid contract between Suresh and Lim for the purchase of the step-machine. A contract comes into existence, among others, when theres an offer and acceptance to that offer. Offer may be made in writing, orally or by conduct. Suresh knew that his friend, Lim, the manager of another fitness centre, had a spare step-machine and he asked him how much he would sell it for. Lim said, "probably RM700". This "probably RM700" could be just process of negotiation, but doesnt amount to offer and acceptance. The next day, Suresh telephoned Lim at home and left a message on his answering machine saying, "I will give you RM650 for the step-machine. No need to reply if that is all right. I will pick it up next week." In this case, Suresh counter offer the original offer - RM 700, where a counter-offer will also operate as a rejection. See Hyde v. Wrench. Suresh said No need to reply if that is all right. However, in real case, silent doesnt amount to acceptance. See Felthouse v. Bindley. Hence theres no valid contract formed.

--------------------------------------------------------------- OR --------------------------------------------------------------------------------June takes a dress to Spotless Dry Cleaning Sdn. Bhd. for cleaning. The employee writes the cost of the cleaning and the date it will be ready on a docket. June does not read the docket but puts it straight into her pocket. On the back of the docket is printed the following clause: The company will not be liable for any loss or damage to articles left for cleaning, whether caused by negligence of the servants or agents of the company. Junes dress, when returned, is scorched and stained. June now wishes to sue the company. Advise June of her cause of action against the company and whether the disclaimer has been successfully incorporated into the contract. (30 marks) Apr 2010 Contracts are often made on standard terms drawn up by one of the parties. The terms are usually contained in printed forms which are used in dealing with all customers who want the same type of goods or services. However, theres also a risk of abuse, because the consumer usually has little chance of negotiating any changes in the written contract presented to him, and often doesnt bother to read what is often described as the small print. In this case,

the employee o f Spotless Dry writes the cost of the cleaning and the date it will be ready on a docket. June does not read the docket but puts it straight into her pocket. The steps to notify other party of the terms must be taken before or at the time the contract is made. Case example Olley v. Marlborought Court Ltd (1949) & Thornton v. Shoe Lane Parking Ltd (1971). In order to rely on an exemption clause in such a case, Spotless Dry Cleaning Sdn. Bhd must: First establish that the document was a contractual one which could reasonably be expected to contain terms. Also prove that they took reasonable steps to bring the terms to the attention of the other party by the use of clear words communicated in an appropriate way. As such, Spotless Dry Cleaning Sdn. Bhd doesnt took reasonable steps to bring the terms to the attention of June. Hence, this exemption clause is said not to be incorporate into the contract. See, Chapleton v. Barry UDC (1940). June may take legal action against the company.

Question 5 Explain the basis and nature of the principle of subrogation and the impact of the case of Napier v Hunter on the application of this doctrine. (20 marks) Apr 2013, Apr 2012 Subrogation prevents the guilty party from being let off the hook and ensures that he doesnt escape his financial responsibilities simply because the other party has been careful enough to arrange insurance. In fact, the main purpose of subrogation is simply to prevent what is known as the unjust enrichment of the insured. In other words to prevent him from unfairly profiting his loss and so to preserve the principle of indemnity. To quote Brett, LJ in Castellain v. Preston (1883) subrogation is : a doctrine in favour of the underwriters or insurers in order to prevent the assured from recovering more than a full indemnity. In the case of Napier v Hunter(1993), where the House of Lords considered the nature of subrogation for the first time, settled this and a number of connected issues. Their Losrdships found that subrogation has its origins in equity. However, they also found that the basic doctrine had been supplemented by the common law, which implies the following four terms into insurance contracts: - A duty on the part of the insured to start proceedings against a third party in order to reduce his loss - A promise by the insured to account to the insurer for moneys received from the third party - A promise by the insured to permit the insurer to exercise his right of action against the third party should be the insured fail to do so himself - A promise by the insured to act in good faith when proceeding against the third party Since subrogation is a corollary of indemnity the doctrine doesnt apply to non-indemnity contracts, such as life or personal accident. This means, for example, that a life insurance company which paid a claim for the death of a policyholder who was killed in a road accident would have no subrogation rights against a driver whose negligence caused the accident. --------------------------------------------------------------- OR --------------------------------------------------------------------------------Explain the main circumstances in which insurers may agree to waive (give up) their rights of subrogation. (13 marks) - Oct 2011 Market agreements. Sometimes insurers agree amongst themselves to waive (i.e. give up entirely) their rights of subrogation against third parties. This is particularly common where the third party himself is insured. The most well-known examples of waiver of subrogation rights are found in the field of motor insurance, where a network of knock-for-knock agreements developed in the UK and in some other countries. Various other agreements exist. For example, there are immobile property agreements between motor insurers and property insurers that cover impact damage by motor vehicles.

Contractual waiver. Quite often insurers agree with a particular insured that they will not exercise subrogation rights against certain other parties or persons who are associated with the insured. They can do this by including in the policy a subrogation waiver clause which may, for example, state that subrogation rights will not be exercised against affiliated or subsidiary companies of the policyholder. (a) the law may prevent insurers from exercising any right of subrogation. (17 marks) Even if there is no such subrogation waiver clause in the insurance policy, a business contract between the insured and another person may be construed in such a way as to bar the insurers rights of subrogation. For example, if a contract (e.g. a construction contract) between A and B states that certain property shall be at the sole risk of A the courts may assume that A had agreed not to sue B for any damage to the property, thus depriving As insurers of subrogation rights. The way in which two or more parties have arranged their insurance may persuade a court that there should be no subrogation rights. For example, if a business contract states that a person shall have the benefit of the insurance arranged by another the courts may assume that the intention was to exempt that person from any liability for a loss to be covered by the insurance. See also Mark Rowlands Limited v Berni Inns Limited. (1986). Co-insurance cases. Where two or more persons are covered by one policy subrogation will usually be denied. See, for example, Petrofina Limited, Magnaload Limited (1984). However, if one co-insured ceases to be covered by the insurance subrogation may be allowed. See for example Samuel v Dumas (1924). Public policy. Following Lister v Romford Ice and Cold Storage Limited (1957) insurers generally have agreed to give up their subrogation rights against negligent workers who injure their fellow employees in the course of employment. However, a more recent case where the facts were similar, Morris v Ford Motor Co. (1973), fell outside this agreement because the injured worker was not a fellow employee, but a worker from another firm. One of the judges, Lord Denning MR, denied subrogation on grounds of public policy, arguing that industrial relations would be harmed if employees could be sued personally in cases like this. --------------------------------------------------------------- OR --------------------------------------------------------------------------------Define "subrogation" and briefly explain why the law allows it. (5 marks) Apr 2011 - subrogation prevents the guilty party from being let off the hook, and ensures that they do not escape their financial responsibilities simply because the other party has been careful enough to arrange insurance. - prevent what is known as the unjust enrichment of the insured, in other words to prevent him from unfairly profiting from their loss and so to preserve the principle of indemnity. The prevention of unjust enrichment is a principle of equity. To quote Brett, L.J. in Castellain v. Preston (1883), subrogation is a doctrine in favour of the underwriters or insurers in order to prevent the assured from recovering more than a full indemnity. Question 6 (a) Explain how the independent liability method is used in calculating contribution ratios. (5 marks) Under independent liability method, the liability of each insurer for the particular loss which has occurred is assessed as though its policy were the only one in force. The figure that results in each case represents the independent liability of the insurer for the loss. The loss is then shared in proportion to the independent liabilities of the two insurers. Example : Policy A sum insured 10,000 Policy B sum insured 20,000 Loss 15,000 (Neither policy is subject to average)

Step 1: Calculate independent liability of policy A (the amount payable is A was the only policy in force) This is 10,000 Step 2: Calculate independent liability of policy B (the amount payable is B was the only policy in force) This is 15,000 Step 3: The loss is then shared in proportion to the independent liabilities of the two insurers. A pays 10,000 x 15,000 = 6,000 25,000 B pays 15,000 x 15,000 = 9,000 25,000 (b) Outline your understanding of the maximum liability method and the shortcomings in its application. (5 marks) Under maximum liability method, the loss is shared by the insurers in proportion to the maximum amount of cover that is available under each policy which, in the case of property insurance, is usually equivalent to the sum insured. So, to take a simple case, if property is insured for 10,000 with insurer A and 20,000 for insurer B, A will pay 1/3 of any loss and B will pay 2/3. Shortcomings (this method will not operate fairly) : - If the terms and conditions of the policies are not the same the maximum liability method will not operate fairly (for example, one policy may be subject to an average clause or policy excess). - If the range of the two policies is different it will be difficult to compare properly the sum insured. For example, policy A may cover stock in Building 1 only, whereas B covers stocks in buildings 1,2,3. - If one policy provides unlimited cover, the method will not work at all. Apr 2013, Apr 2012 --------------------------------------------------------------- OR ---------------------------------------------------------------------(a) Daud, a shop owner, employs Kumar, an electrician to carry out some work for him. Kumar carried out the job but unfortunately did not complete the wiring correctly. A fire broke out that night in the shop, burning down the stock room and the fire quickly spread to the rest of the shop premises. Daud incurred the following losses: Stock RM 1500 Fixtures and fittings RM 3000 There is an excess on the stock for RM250. When confronted, Kumar accepts his negligence. How much does Daud receive in this scenario and from whom? (5 marks) RM 1500 + RM 3000 - RM250= RM 4250 (b) What are the two main methods of calculating contribution ratios? Explain your understanding of the independent liability method of calculating contribution. (10 marks) The two main methods of calculating contribution ratios are maximum liability method & independent liability method. Under independent liability method, the liability of each insurer for the particular loss which has occurred is assessed as though its policy were the only one in force. The figure that results in each case represents the independent liability of the insurer for the loss. The loss is then shared in proportion to the independent liabilities of the two insurers. Example : Policy A sum insured 10,000 Policy B sum insured 20,000 Loss 15,000

(Neither policy is subject to average) Step 1: Calculate independent liability of policy A (the amount payable is A was the only policy in force) This is 10,000 Step 2: Calculate independent liability of policy B (the amount payable is B was the only policy in force) This is 15,000 Step 3: The loss is then shared in proportion to the independent liabilities of the two insurers. A pays 10,000 x 15,000 = 6,000 25,000 B pays 15,000 x 15,000 = 9,000 25,000 (c) Loss: RM12,000 Insurer A - maximum liability = RM 15,000 Insurer B - maximum liability = RM 35,000 Calculate the two insurers contribution using the maximum liability method. (10 marks) Apr 2011 Step 1: Maximum liability of policy A = RM 15,000 Step 2: Maximum liability of policy B = RM 35,000 Step 3: Sum of maximum liability of A & B = RM50,000 A pays 15,000 x 12,000 = 3,600 50,000 B pays 35,000 x 12,000 = 8,400 50,000 --------------------------------------------------------------- OR ---------------------------------------------------------------------(a) Define contribution. (5 marks) Contribution is concerned with the sharing of losses between insurers when such double insurance exists, the overriding principles being that insured cannot recover for the same loss twice and the insurers should share the loss in a fair way. Contribution is the right of an insurer to call upon other similar, but not necessarily equally liable to the same insured, to share the cost of an indemnity payment. (b) Judy has an insurance policy covering dishonesty of all her employees with Will Pay Insurance Berhad, for the sum of RM1,000,000. She has also taken out another policy with Bayar Semua Insurance Berhad to cover her business risks for fire, theft, burglary and dishonesty of employees for the sum of RM2,000,000. Tipuh who has been Judy's employee for five years suddenly disappeared on 31st of January 2010 with the company's car, which is worth RM250,000 together with cash of RM100,000 from the safe in the office. Judy decided to make a claim for her losses from Bayar Semua Insurance Berhad for the loss and they have paid Judy all her losses in full. Bayar Semua Insurance Berhad now wants to claim contribution from Will Pay Insurance Berhad. Explain if they will succeed giving reasons for your answer. (25 marks) Apr 2010 Contribution will arise only when the following conditions are satisfied: - Two or more policies of indemnify exist - Each insures the subject matter of the loss - Each insures the peril which brings about the loss - Each insures the same interest in the subject matter - Each policy is liable for the loss There is an overlapping cover for dishonesty of employees for both insurance policy. The issue is what losses is subject to contribution? Usually the cover is limited to assets or cash handled by the staff. We know it is a companys car and may not be stock in trade, theft of which is covered by a motor policy. What may be called into contribution is RM 100,000 in safe. They can use rateable proportion to calculate the RM 100,000.

If calculate by independent liability method, Step 1: Calculate independent liability of policy WP This is 100,000 Step 2: Calculate independent liability of policy BS This is 100,000 Step 3: The loss is then shared in proportion to the independent liabilities of the two insurers. WP pays 100,000 x 100,000 = 50,000 200,000 BS pays 100,000 x 100,000 = 50,000 200,000 --------------------------------------------------------------OR ---------------------------------------------------------------------------------

(a) Sarah loses her camera when on holiday. It is insured as a specified item under a personal all risks policy with the Top Insurance Company and covered under the general heading personal effects under a separate travel policy issued by Apex Insurance Ltd. Neither insurer wishes to pay because each policy contains the following clause There shall be no liability under this policy in respect of any loss for which you are entitled to indemnity under any other policy. (i) Advise Sarah, giving reasons for your advice. (ii) How would your advice differ if the clause on each policy read as follows: There shall be no liability under this policy in respect of any loss for which you are entitled to indemnity under any more specific insurance. (10 marks) Oct 2009

--------------------------------------------------------------- OR --------------------------------------------------------------------------------Bill owns and operates LD Television Company (LDTV) that manufactures Liquid Crystal Display (LCD) televisions. LDTV occupies an office block, a manufacturing plant, three storage warehouses in a single two acres premise located in the industrial area of Shah Alam, Selangor. Bill had arranged fire insurance cover for LDTV as required by the bank where he had obtained business loans to expand LDTV export market. The insurance coverage under the bank was provided by ADA Insurer (Insurer A), and it covers the office block, manufacturing plant and warehouse 1. In order to give support to his brothers new business as an insurance agent, Bill had arranged fire insurance cover for the storage warehouses and all other buildings within the premise owned by LDTV with BOLEH Insurance Company (Insurer B). The insurance coverages and terms are as follows: Insurer A Insurer B Sum insured RM10 million Sum insured RM20 million (Neither policy is subjected to average, but policy by Insurer A is subjected to RM200,000 excess). A fire broke out and affected the stocks of television sets contained in all the warehouses, the office block and the manufacturing plant, with a total damage of RM600,000. As the claims investigator, you are required to: (a) explain the most appropriate method in determining the basis of contribution; Under independent liability method, the liability of each insurer for the particular loss which has occurred is assessed as though its policy were the only one in force. The figure that results in each case represents the independent liability of the insurer for the loss. The loss is then shared in proportion to the independent liabilities of the two insurers. (b) compute the liability of each insurer by using the most appropriate method. (30 marks) Example :

Policy A sum insured 10,000,000 Policy B sum insured 20,000,000 Loss 600,000 Step 1: Calculate independent liability of policy A (the amount payable is A was the only policy in force) This is 400,000 Step 2: Calculate independent liability of policy B (the amount payable is B was the only policy in force) This is 600,000 Step 3: The loss is then shared in proportion to the independent liabilities of the two insurers. A pays 400,000 x 600,000 = 240,000 1,000,000 B pays 600,000 x 600,000 = 360,000 1,000,000 Apr 2009

--------------------------------------------------------------- OR --------------------------------------------------------------------------------Best Glove Manufacturing Sdn Bhd sent one of their latex dipped production line (machinery) to Teck See Machinery Sdn Bhd for repair and restoration work. Teck See Machinery Sdn Bhd insured goods of customers deposited at their premises for repair as bailee. Best Glove Manufacturing Sdn Bhd on the other hand also insured their machinery under an all risks policy with a temporary removal clause, thereby covering the temporary storage at Teck See Machinery Sdn Bhd. When the machinery was damaged by fire, which was started due to the negligence of Teck See Machinery Sdn Bhds employee, their insurer paid and sought to recover from the Best Glover Manufacturing Sdn Bhds insurer. (a) Define contribution and discuss the conditions that must be satisfied for contribution to arise at common law. (20 marks) Contribution is concerned with the sharing of losses between insurers when such double insurance exists, the overriding principles being that insured cannot recover for the same loss twice and the insurers should share the loss in a fair way. Contribution is the right of an insurer to call upon other similar, but not necessarily equally liable to the same insured, to share the cost of an indemnity payment. Under Common law, contribution will arise only when the following conditions are satisfied: - Two or more policies of indemnify exist - Each insures the subject matter of the loss - Each insures the peril which brings about the loss - Each insures the same interest in the subject matter - Each policy is liable for the loss (b) Can Teck See Machinery Sdn Bhds insurers succeed? Support your answer with case law. (10 marks) Oct 2008

Question 7 Cempaka Holdings Sdn Bhd has been operating their bakery in Jalan Cicik Moo for the past 25 years. In early 2012 the tenant in the neighbouring shop moved out and a new tenant, Dr Romzey, moved in and used the premises as a maternity clinic and surgery centre. Due to the persistent noise and vibration coming from Cempaka Holdings premises, Dr Romzeys business dropped. (15 marks) Advise Dr Romzey. Make reference to case law. Jan 2013, Oct 2011 Based on the fact it would appear that Cempaka Holdings Sdn Bhd has committed the tort of private nuisance. A private nuisance is an unlawful interference with a persons use or enjoyment of their land (which includes houses and buildings attached to it). The interference on the part of the defendant may take either one of two forms : - Wrongfully allowing noxious (ie. harmful) things to escape from their own property so as to interfere with the claimants land (such as noice, smoke, smells, vibration, damp or vermin) - Wrongful interference with servitudes For the interference to be actionable damage must result. This means that the interference must either cause actual physical damage to the land or at least adversely affect the claimants use and enjoyment of it. For example, if the claimant is unable to sit comfortably in their garden because of excessive and continual noise from neighbouring property this might amount to a nuisance even though the land itself is not harmed. Damage in the form of personal injury is not actionable in nuisance, because the object of the tort is to protect a persons interest in their land rather than in their person. As such, Dr Romzeys business dropped due to the persistent noise and vibration coming from Cempaka Holdings premises. The law of nuisance attempts to create a fair balance between neighbours by allowing people to make reasonable use of their own land but preventing unreasonable use of land which will adversely affect others as illustrated by Lord Wright in Sedleigh-Denfield v. OCallagan (1940). A balance has to be maintained between the right of the occupier to do what he likes with his own, and the right of his neighbour not to be interfered with. Its impossible to give any precise or universal formula, but it may broadly be said that a useful test is perhaps what is reasonable according to the ordinary usages of mankind living in society. Its recognized that there must be some give and take between neighbours so not every trivial interference will amount to a nuisance in law. In assessing the reasonableness or otherwise of the defendants conduct the court will take into account a number of factors, including the following: - Continuity As general rule, a single escape will not amount to a nuisance. There must be either some repetition of the alleged interference or it must amount to a continuous state of affairs (such as encroachment of tree roots onto the claimants land) - Locality The standard comfort one can expect to enjoy depends to some extend on the locality. Keeping a large number of noisy animals in a rural area is unlikely to amount to nuisance, whereas keeping them in quiet suburban neighbourhood could be. Again, fumes and noise from a factory are less likely to amount to a nuisance in an industrial area. However, in St Helens Smelting Co. v. Tipping (1865), where fumes from a factory damages trees and shrubs, the House of Lords ruled that locality is irrelevant if actual damage is caused to neighbouring land. - Sensitive claimants If the claimant suffers harm only because they (or their property) are exceptionally sensitive their action may fail. For example, in Robinson v. Kilvert (1889) the claimant sued in nuisance when his stock of brown paper was damaged by heat which escaped from the premises next door. The action failed because the heat escaping was not excessive and the damage resulted only because keeping brown paper was an exceptionally delicate trade. - Malice An activity which is generally reasonable may become unreasonable if its done maliciously. In Christie v. Davey (1893), a young man was held liable in nuisance when he deliberately beat a tin tray on the wall, and made various other noises, in retaliation for the noise from next door, where his neighbour gave piano

lessons. Each neighbour alleged nuisance on the part of the other but only the young man was liable because his action were malicious whereas his neighbour, the piano teachers, were not. As such, due to the persistent noise and vibration coming from Cempaka Holdings premises, its clearly that it affected Dr. Romzeys use and enjoyment his land. The remedies that Dr. Romzey may seek are damages as well as getting an injuction to stop Cempaka Holdings Sdn Bhd from making the noise and vibration. --------------------------------------------------------------- OR --------------------------------------------------------------------------------Tommy bought a house in Hill Park in January 2010. In February 2011 Cindy moved in next door to him, renting the house from its owner John. Since moving in, Cindy has been having noisy parties three to four times a week. Due to the noise Tommy has been having sleepless nights and speaks to her to stop having the parties but Cindy continues to have the parties. Tommy is annoyed with Cindys behaviour and comes to you for advice. Advise him as to what tort (if any) Cindy may have committed and what legal remedies may be available to him. (30 marks) Oct 2012, Jan 2011 Based on the fact it would appear that Cindy has committed the tort of private nuisance. A private nuisance is an unlawful interference with a persons use or enjoyment of their land (which includes houses and buildings attached to it). The interference on the part of the defendant may take either one of two forms : - Wrongfully allowing noxious (ie. harmful) things to escape from their own property so as to interfere with the claimants land (such as noice, smoke, smells, vibration, damp or vermin) - Wrongful interference with servitudes For the interference to be actionable damage must result. This means that the interference must either cause actual physical damage to the land or at least adversely affect the claimants use and enjoyment of it. For example, if the claimant is unable to sit comfortably in their garden because of excessive and continual noise from neighbouring property this might amount to a nuisance even though the land itself is not harmed. Damage in the form of personal injury is not actionable in nuisance, because the object of the tort is to protect a persons interest in their land rather than in their person. The law of nuisance attempts to create a fair balance between neighbours by allowing people to make reasonable use of their own land but preventing unreasonable use of land which will adversely affect others as illustrated by Lord Wright in Sedleigh-Denfield v. OCallagan (1940). A balance has to be maintained between the right of the occupier to do what he likes with his own, and the right of his neighbour not to be interfered with. Its impossible to give any precise or universal formula, but it may broadly be said that a useful test is perhaps what is reasonable according to the ordinary usages of mankind living in society. Its recognized that there must be some give and take between neighbours so not every trivial interference will amount to a nuisance in law. In assessing the reasonableness or otherwise of the defendants conduct the court will take into account a number of factors, including the following: - Continuity As general rule, a single escape will not amount to a nuisance. There must be either some repetition of the alleged interference or it must amount to a continuous state of affairs (such as encroachment of tree roots onto the claimants land) - Locality The standard comfort one can expect to enjoy depends to some extend on the locality. Keeping a large number of noisy animals in a rural area is unlikely to amount to nuisance, whereas keeping them in quiet suburban neighbourhood could be. Again, fumes and noise from a factory are less likely to amount to a nuisance in an industrial area. However, in St Helens Smelting Co. v. Tipping (1865), where fumes from a factory damages trees and shrubs, the House of Lords ruled that locality is irrelevant if actual damage is caused to neighbouring land. - Sensitive claimants

If the claimant suffers harm only because they (or their property) are exceptionally sensitive their action may fail. For example, in Robinson v. Kilvert (1889) the claimant sued in nuisance when his stock of brown paper was damaged by heat which escaped from the premises next door. The action failed because the heat escaping was not excessive and the damage resulted only because keeping brown paper was an exceptionally delicate trade. Malice An activity which is generally reasonable may become unreasonable if its done maliciously. In Christie v. Davey (1893), a young man was held liable in nuisance when he deliberately beat a tin tray on the wall, and made various other noises, in retaliation for the noise from next door, where his neighbour gave piano lessons. Each neighbour alleged nuisance on the part of the other but only the young man was liable because his action were malicious whereas his neighbour, the piano teachers, were not.

The remedies that Tommy may seek are damages as well as getting an injuction to stop Judy from having the noisy parties. Question 8 Peter is married and a retired businessman with no children. Over the years, he acquired some commercial properties worth millions of ringgit. He recently developed cataracts in both eyes and his condition deteriorated to the extent that he lost his eyesight. He asked his cousin, Tim, to help him donate two of his shop-lots to two charities, a non-profit eye hospital and an orphanage Tim brought the transfer documents for Peter to sign and when asked by Peter, Tim explained that the documents were to effect the transfer of his property to the two charities. However, in fact, the transfer forms which Peter had signed were in favour of Tim. Advise Peter as to his legal rights. (15 marks) Jan 2013, Oct 2011 Peter is married and a retired businessman with no children. Over the years, he acquired some commercial properties worth millions of ringgit. He recently developed cataracts in both eyes and his condition deteriorated to the extent that he lost his eyesight. He asked his cousin, Tim, to help him donate two of his shop-lots to two charities, a non-profit eye hospital and an orphanage. In this case, Tim acted as Peters agent in handling the transfer documents. Duties of an agent is to : - Obey principals instruction - Exercise proper car & skill - Perform duties personally - Act in good faith towards the principal - To account for monies received on behalf of principal In practical, a person is bound by the terms of a document which they sign, whether they have read it or not. This is obviously a problem for a signer who is illiterate if the contents of the document have been read to them wrongly. As such, Tim brought the transfer documents for Peter to sign and when asked by Peter, Tim explained that the documents were to effect the transfer of his property to the two charities. However, in fact, the transfer forms which Peter had signed were in favour of Tim. The common law, thus, developed the defence of non est factum, by which signer pleaded that the document was not my deed. The defence is available if : The signer has no real understanding of the document because of defective education, illness or innate capacity Theres a fundamental difference between the document actually signed and the one which the signer believe it to be The signer can show that they were not careless in signing the document. This is well established from case Saunders v. Anglia Building Society (1971) Hence, the contract is said to be void under law.

Question 9 When two or more persons are insured under the same policy, how might a court decide whether it is a joint or a composite insurance? Support your answer with reference to decided cases. (30 marks) Jan 2013, Jan 2012 Two or more persons are often insured under single policy. This is sometimes described as co-insurance, although the word used to describe the sharing of a risk between a group of direct insurers, or the sharing of a risk between the insurer and the insured, where for instance, the insured agrees to bear, say, 5% of any loss that occurs. Under English law, the distinction between a joint and composite insurance hinges on the interests of the insured persons. If the insured persons share a common interest in the subject matter, for example, where they are joint owners of the property, the policy is likely to be joint. On the other hand, where the interests are different, as in the case of lessee and lessor, mortgagor and mortgagee, the policy is likely to be composite. Fraud within one company doenst affect the claims of other companies in the group. Case example : New Hampshire Insurance Co. v. Mirror Group Newspapers (1997). It was held that each company had a separate interest to insure and the insurance was composite. Theres doubt about the true basis of the insurance the courts are likely to consider the policy wording as well as the nature of the parties interest in order to determine whether the insurance is joint or composite. For example, if the policy states that the parties are being insured for their respective rights and interests, and the interests are, indeed, different, is likely to be treated as a composite policy. Again, the policy may state specifically that the wrongful act or neglect of one insured person will not prejudice the right of another insured. Property policies sometimes contain a mortgage clause stating that the cover provided in respect of the mortgagee (lender) will not be invalidated by any act or neglect of the mortgagor. Similar clauses are found in other policies and may be described as anti-avoidance clauses, breach of warranty clauses, or incontestable clauses.

Question 10 Vincent is 53 years old and has been suffering from high blood pressure for over ten years now. Three years ago, a routine medical check-up revealed he had elevated cholesterol level and he is now on medication for both problems. He has sought medical cover from Globalworld Insurance. In the proposal form, he declared he had been taking medication for high cholesterol and high blood pressure from Klinik Mega since the diagnosis. Globalworlds underwriter nevertheless granted the cover. Nine months after inception of the insurance, Vincent was hospitalised for kidney failure. The diagnosis by the specialist was that he had already had kidney problems for the last few years due to his high blood pressure. Treatment for this now costs RM40,000 as he needs kidney dialysis. Globalworld Insurance has now repudiated the claim on the grounds that Vincent did not disclose his kidney condition which he ought to have known about when completing the proposal form. According to the insurers, this amounted to a breach of the duty of utmost good faith. (a) Advise Vincent if he has any grounds to appeal on his insurers decision. (25 marks) Vincent is 53 years old and has been suffering from high blood pressure for over ten years now. Three years ago, a routine medical check-up revealed he had elevated cholesterol level and he is now on medication for both problems. He has sought medical cover from Globalworld Insurance. In the proposal form, he declared he had been taking medication for high cholesterol and high blood pressure from Klinik Mega since the diagnosis. According to Scrutton LJ summed up the duty in a similar way in Rozanes v. Bowen(1928): to make a full disclosure to the underwriter without being asked of all the material circumstances. This is expressed by saying it is a contract of utmost good faith. The essential duty is to disclose all facts or circumstances that are material to the risk. The standard definition is provided by s.18(2) of the Marine Insurance Act 1906.

In CTI case, the court held that the insurers do not have to prove that knowledge of that fact in question would have changed the decision of a reasonable insurer. The decision in CTI case was affirmed in Pine Top case. Their Lordship introduced a second element, which is the actual inducement test. In order to avoid the contract, it was not enough to show that a material fact was not disclosed. It was also necessary to show that the underwriter in question was induced by the non-disclosure into entering the contract on the relevant terms. In this case, if Vincent able to prove that although the non-disclosed fact was material, the particular underwriter would have offer the cover on the same terms in any event. If he can prove so, he can appeal the insurers decision. (b) What are five items of some of the information that Vincent need not disclose, even though they may be material to the risk? (5 marks) - Matter of law - Factors which lessen the risk - Facts known by the insurers - Facts which the insurer ought to know - Information that is waived by the insurers Oct 2012, Apr 2011 --------------------------------------------------------------- OR --------------------------------------------------------------------------------Perunding Marine Engineering (PME) is a consultant specialist engineering firm involved in the marine parks and related projects. Recently they were awarded the contract to provide an in-depth study on the proposed building of a marine theme park called Marine Perdana, off the coast of Melaka. One of the requirements of the contract is for them to purchase their own professional indemnity policy. They had sought the assistance of their insurance brokers, Equity Brokers Sdn Bhd, to purchase a professional indemnity policy. Equity Brokers approached several insurers specializing in such insurance and secured three quotations which were presented to PME who choose the lowest quote from Longman Insurance. A proposal form was delivered to PME through the brokers and one of the questions asked was concerning previous claims history. The previous staff handling claims matters at PME had left the company and the new person in charge did not check the records of a letter notifying insurers of circumstances that may lead to a possible claim. The proposal form was filled up and the column on previous claims history was left blank. Insurance cover was granted and three months into the policy a reminder of the demand letter for the said claim was delivered by the claimant's lawyers to PME who in turn passed it to their brokers for onward transmission to Longman Insurance. Longman Insurance had found out that PME had notice of the earlier claim earlier but PME had not reported it to the insurers and consequently has threatened to cancel insurance cover. Discuss, citing relevant case law, PMEs legal situation in the light of the duty of disclosure. What difference would it have made if the claim was notified by PME to Equity Brokers who failed to inform Longman Insurance? (30 marks) Apr 2012

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What are the main types of fact or information that a proposer for insurance need not disclose, even though they may be material to the risk? Where appropriate, use case law to illustrate your answer. (30 marks) Oct 2011 Some things need not be disclosed, even if they are material. They include the following: Matters of law. Everyone is deemed to know the law. There is no requirement to disclose factors that reduce the risk i.e. make it better than a normal risk of its type. Examples include the installation of an alarm system for a theft risk or automatic sprinklers for a fire risk. In some cases the need to disclose information is made superfluous by reason of the terms of policy. For example, if a personal accident policy excludes injury arising from participation in winter sports the proposer would not be obliged to disclose the fact that he went skiing regularly, unless specifically asked to do so. Similarly, there is no need to disclose matters, however material, which are the subject of an express or implied warranty in the policy. There is no duty to tell insurers things that they already know. The information does not have to come from the proposer. In fact, it does not seem to matter where the information came from, provided the source is reliable. See, for example Woolcott v. Excess Insurance Co. Ltd. (1979). Facts which the insurers ought to know. In some cases the courts take the view that, whilst the insurers might not have actual knowledge of the circumstances they have constructive knowledge, that is, they ought to know of them. This category covers a number of situations, including the following: Facts which are notorious (i.e. matters of common knowledge). An insurer is deemed to know about things that are in the public domain. See for example, Carter v. Boehm (1766). Facts about the trade the underwriters insure. Insurers are deemed to be aware of the normal trade practices in the businesses they insure and the usual risks associates with them. However, this does not necessarily extend to events that have affected the trade in question, even if they are quite recent. See for example, Bates v. Hewitt (1867). Information that is waived by the insurers. This covers a number of situations, including the following: Facts about which the insurers have been put on enquiry. Where insurers have been put on inquiry about things that are material they may not be able to plead non-disclosure if they then fail to follow the matter up. The most common example is the proper who writes a phrase such as see your records on the proposal form in answer to a question about their previous claims history. Facts that are outside the scope of specific questions. If an insurer asks a question of limited scope, by implication there is a waiver of related information that goes beyond the scope of the question. For example, if an insurer asks for details of all accidents or losses that have occurred in the last five years, there is no need to disclose accidents that occurred more than five years ago. Facts which an inspection of the risk should have revealed. If the insurer carries out a survey or inspection of the risk there is no duty to disclose facts that should have been obvious to the surveyor, or which any reasonable surveyor would have enquired about. However, this principle does not extend to unusual features of a risk that a conventional inspection would not reveal. See, for example Pacific Queen Fisheries v. Symes (1963). In some cases the need to disclose information is made superfluous by reason of the terms of policy. For example, if a personal accident policy excludes injury arising from participation in winter sports the proposer would not be obliged to disclose the fact that he went skiing regularly, unless specifically asked to do so. Similarly, there is no need to disclose matters, however material, which are the subject of an express or implied warranty in the policy. As a general rule, there is no duty to disclose facts which the poposer does not know. See, for example, the life insurance case of Joel v. Law Union (1908). In marine insurance there is a duty to disclose constructive knowledge. However, this principle does not apply to cases where the insured is a consumer (i.e. non-commercial insurances) unless they deliberately turn a blind eye to the obvious. See Economides v. Commercial Union (1977). Convictions that are spent. Convictions that are spent under the Rehabilitation of Offenders Act 1974 need not be disclosed.

--------------------------------------------------------------- OR --------------------------------------------------------------------------------LCB is an interior design consultancy located in Putra Jaya. Recently they secured a big contract to act as consultants for the interior design of a twenty storey office building in Dubai. The contract requires LCB to take a professional indemnity policy to be effected throughout the project period which is for twelve months. LCB approached XXL Insurance Company to help them secure the best cover, and were advised to take up an annual professional indemnity cover. Lopez, the finance manager of LCB, completed the proposal form and submitted it to XXL Insurance Company, who subsequently gave a quotation as follows : Limit of RM1million Deductible: RM10,000 Premium: RM21,000 This was subject to further information being submitted on the Twin Towers claim two years ago which was mentioned in the proposal form by LCB. The quotation was dated 21 December 2009. LCB then paid the premium and were issued with the policy in January 2010. In March 2010, LCB notified a claim to XXL Insurance Company. This claim occurred in December 2006 but it was not mentioned at all in the proposal from. XXL Insurance Company is also threatening to cancel the whole policy on the grounds that LCB failed to answer their query on the Twin Towers claim. Advise LCB and XXL Insurance on the duty of disclosure. (30 marks) Oct 2010 --------------------------------------------------------------- OR --------------------------------------------------------------------------------Dan agrees to buy a business known as The Neariver Restaurant from Sam, its owner for the last ten years. Since the restaurant is situated on the banks of a major river, Dan asks if Sam has ever had any problems with flooding. Sam assures him that the river has never been known to flood and he need not worry. Dan goes ahead with the purchase, paying the full asking price of 3 million for the business. He asks his insurance broker, Cynthia, to arrange insurance, telling Cynthia that there is no flood risk. Cynthia arranges business insurance cover (which includes flood cover) over the telephone with Top Insurance. Vincent, the Top underwriter who takes Cynthias call, grants cover verbally without asking any questions about the flood risk. A week later the river rises and floods the basement of The Neariver Restaurant, causing significant damage. Dan then learns for the first time that this is a regular occurrence. Top Insur ance refuses to meet Dans claim, saying that he failed to disclose the fact that the river floods regularly. However, Top says it will keep the policy in force, minus the flood cover. (a) Advise Dan as to his legal position, including any rights that he may have against Top Insurance, his insurance broker (Cynthia) and Sam. (b) How would your advice differ, if at all, if Cynthia knew that the river flooded regularly, even though Dan did not? (30 marks) Oct 2009

Question 11 The duties owed by the principal to an agent. (20 marks) Jul 2012 Duties of an agent to the principal are : - To obey the principals instructions An agent must obey the principals instructions, provided theyre lawful and reasonable, and may be liable in damages if the instructions are not carried out. However, the agent is under no obligation to perform any act which is illegal or void.

To exercise proper care and skill Agent must exercise reasonable care and skill in the performance of their duties as agents. The level of care and skill required will depend on the circumstances. Experts and professional people must exercise the care and skill which is expected in their trade and profession. Again, people who claim to have some special skill must be able to live up to their claims. In Chaudry v. Prabhakar (1988), an apparently knowledgeable car enthusiast advised a friend to purchase a second-hand car which turned out to be a worthless insurance write-off. He acted as her agent in advising the purchase and was held to have failed to exercise proper care and skill in doing so.

To perform duties personally Generally, an agent may not delegate duties to a sub-agent. However, delegation may be allowed in the following circumstances: Where the principal expressly authorizes the agent to delegate all or some of their duties Where the authority to delegate can be implied from the circumstances such as the delegation of routine clerical and administrative tasks to employees Where the delegation is in accordance with trade custom In case of necessity Where delegation does take place the sub-agent acts on behalf of the agent, not the principal. The agent is, therefore, liable to the principal for any fault on the part of the sub-agent and will be responsible for paying the sub-agent. To act in good faith towards the principal An agents relationship with their principal is fiduciary one, which means that it is based on duties of good faith. The agent must, therefore, not allow personal interests to conflict with those of the principal. If such a conflict arises it must be disclosed to the principal. In Lucifero v. Castel (1887) the principal engaged an agent to buy a yacht for him. The agent found a suitable yacht, bought it himself and then tried to sell it to the principal for a higher price. The court held that the principal was required to pay no more than the amount which the agent himself had paid for the boat. The agents good faith to the principal requires full disclosure, not just of matters that relate to a possible conflict of interest, but of any information acquired in the course of the agents duties that might affect the principals position. Case example : Keppel v. Wheeler (1927), An estate agent who had been engaged to sell the principals house allowed the latter to accept an offer of 6,150 and failed to inform him of a higher offer of 6,750 which he had subsequently received. The seller recovered 611 in damages from the estate agent, which was the difference between the two offers. Agents must not make any form of secret profit from their agency duties. In Hippisley v. Knee Brothers (1905) an advertising agent who obtained trade discounts from printers was held liable for failing to pass on this benefit to his principal. He had charged the principal the full price for the work and kept the amount of the discount himself.

Based on the same principal, an agent must not accept commission from both parties without full disclosure. To account for monies received on behalf of the principal An agent must account to the principal for all money received in the course of agency duties. The principals money and property must be kept separate from the agents own money.

--------------------------------------------------------------- OR --------------------------------------------------------------------------------An insurance agent can be defined as a representative of one or more insurance companies who sells the firms products. Discuss the duties, rights and liabilities of agents in insurance contracts. (30 marks) Jan 2011

--------------------------------------------------------------- OR --------------------------------------------------------------------------------In the law of agency, discuss the duty to exercise ' reasonable care and skill ' in respect of an insurance intermediary. Support your answer with the relevant case laws. State & discuss the general duties owed by an agent to the principal by reference to decided case laws. (30 marks) Apr 2010

Question 12 (a) What is the basis of measuring indemnity for losses arising under the following : (10 marks) (i) Buildings; Where a building is damaged, the normal basis of indemnity will be the cost of repair or reconstruction at the time of the loss with, in many cases, a deduction for betterment. Betterment can take two forms: First, when a building is repaired, certain part of the structure will often have to be renewed so that when the work is complete the building is likely to be in a better condition than it was before the loss. This will be the case where, for instance, the roof of a building which is in poor condition, with little useful life remaining, has to be replaced following a fire. Again, the reconstruction work may include new plumbing, new electric wiring and redecoration. The other way in which betterment can arise is where the quality of the building is improved in the course of carrying out repairs. For example, an extra storey may be added to a building or a sprinkler system installed during the reconstruction. Again, the insurer is not liable for this type of betterment under a basic indemnity only policy: the extra cost has to be born entirely by the insured. (ii) Machinery; Indemnity is generally valued as : - The cost of repair less an allowance for wear and tear - The cost of replacement, less wear and tear, if repair is not possible In the latter case, it is assumed that there exist a ready second-hand market where the insured can purchase a replacement. In some cases, however, theres no ready second-hand market for such property because when its disposed of, its destroyed or sold as scrap. In this case, the insured may be obliged to purchase new equipment and a deduction for betterment will normally be appropriate. Example of commodities where the retail price of second-hand goods is used are motor cars and certain office equipment. In the case of motor cars, indemnity for a write off will normally be the market value of a vehicle of the same model, age, mileage and condition, and not the trade inprice. (iii) Liability insurance;

It will be amount of any court award or negotiated out of court settlement plus costs and expenses arising in connection with the claims (such as lawyer fees, court fees, and payment for medical reports or the services of expert witnesses) plus any other expenses which have been incurred with the agreement of the insurers. (iv) Manufacturers stock? Manufacturers stock generally consists of raw materials, work in progress and finished stock. The measure of indemnity will not necessarily be the cost to the manufacturer of producing the stock. It will be what it will cost them, at the time and place of loss, to replace the goods or return them to the condition they were in before they were destroyed. In the case of raw material, this will be the replacement cost including delivery to site. In the case of other stock, it will be the same raw material costs plus labour and other cost which will be incurred in reproducing the halfmade or fully completed goods which were lost. Jul 2012, Apr 2012, Apr 2011 (b) Indemnity is a contractual principle that can be contractually varied. What are the variations that can limit an insureds entitlement to a full indemnity? (10 marks) Jul 2012, Apr 2012, Apr 2011 (c) Describe the various modes of providing indemnity in an insurance policy. (10 marks) Apr 2012 --------------------------------------------------------------- OR --------------------------------------------------------------------------------Discuss the various methods of providing indemnity under the insurance policy and the circumstances of their use. (30 marks) Oct 2010 (d) There is also an extension in the operation of the principle of indemnity where the insured may receive more than a strict indemnity in certain situations. What are they? (12 marks) Jul 2012, Apr 2011 Exatensions in the operation of indemnity Therere a number instances where the insured may, depending on the precise circumstances, recover more than a strict indemnity. Some examples are given below : i) Cover on a Reinstatement In the event of a loss, the insurers will pay a sum equivalent to the cost of rebuilding or replacing the property to a condition equivalent to or substantially the same as but not better or more extensive than its condition when new. In other words, no deduction is made for wear and tear and the insurance pays for the full cost of rebuilding as new (including any increased costs resulting from inflation between the date of the damage and completion of the rebuilding work). Its also possible to insure against extra costs which might be incurred by the insured in the course of rebuilding if they have to comply with new building regulations or other legal requirements. Such regulation might, for instance, require the new structure to be built in a different form from the old one or incorporate different materials, resulting in considerable extra expenses. Reinstatement cover is obviously beneficial to the insured. However, its likely to be more expensive than a simple indemnity insurance because the sum insured (on which the premium is based) will generally need to be higher to cover the cost of rebuilding as new. Furthermore, the insured will not obtain the benefit of reinstatement cover unless they actually rebuild the property in question. The effect of the usual reinstatement clause is to restrict the cover to simple indemnity (thus allowing a deduction for wear and tear) unless the rebuilding work is commenced without unreasonable delay and is subsequently completed. Reinstatement cover can be appropriate applied to buildings and to plant, machinery and other contents. However, the question of rebuilding and the making good of wear and tear doesnt normally arise in the case of stock, and ordinary indemnity cover is, therefore, likely to be adequate.

ii) New for old cover The term new for old is more often associated with insurances of household goods and personal possessions, including household contents and personal all risks policies. Quite simply, the insurers agree to pay the full replacement cost as new of any insured item which is lost or destroyed, with no deduction for wear, tear or depreciation. However, the cover may be a little more restrictive items with a limited life, such as clothing and linen, and pay new for old only when items are less than, say, three years old at the date of the loss. At first sight new for old cover may seems to contradict the principle of indemnity and allow the insured to making a profit out of his loss. However, the reality is that most people are reluctant to buy second-hand replacements when household goods or personal effects are lost or destroyed, and normally expect to replace them with new. This accounts for the low second-hand price of such items and means, in turn, that indemnity only cover will give the insured very little to spend if he suffers a loss. New for old cover simply reflects a commercial necessity. Of course, where insurance is arranged on this basis, the sum insured needs to reflect the total replacement cost of all items as new. This results in a much higher sum insured than an equivalent indemnity only policy and means that a more substantial premium must be paid. iii) Agreed value cover The object of a valued policy is to avoid disputes as to the value of the property at the time of the loss. This form of cover is, therefore, often employed where the property is unique or of a type for which theres a limited market. Here the question of value is likely to be more subjective than is normal and more likely to give rise to a dispute. Therefore, works of art and veteran, vintage or classic cars are frequently insured on an agreed value basis. Valued policies are common in the marine market. Under a valued policy, the insurers must pay the agreed value regardless of the actual value at the time of loss, even if they can prove beyond doubt that the value of the property has declined since the insurance was opened. The insured may, therefore, receive more than a full indemnity. If the initial valuation is grossly excessive, the policy might be voidable for fraud or misrepresentation or even void as a gaming policy under the Gaming Act 1845. However, the insured will normally be required to substantiate the value for which they seek to insure by providing an expert valuation at inception and so problem rarely arise in practice. Question 13 Chris chartered a ship from a shipping company known as Sea Limited to load a cargo of potatoes within 30 days from 1 June 2011. Subsequently, on 10 June 2011, Chris renounced the contract by saying that he had nothing to load and indicated that he would not be able to honour his part of the bargain under the charter contract within the stipulated time. Chris sent a notice to this effect to Sea Limited. Sea Limited hoped that Chris would change his mind. Before the 30 days expired, war broke out and rendered the performance of the contract illegal. Sea Limited suffered financial losses and now seeks remedy for breach of contract against Chris. Advise Sea Limited on the following: (a) if they could have repudiated the contract on 10 June 2011; (22 marks) There are several ways to repudiate a contract. One of them which is involved in this case is anticipatory breach. Anticipatory breach is where before the performance of the contract arrives, one party may indicate that they will not fulfill their part of bargain. The wrongful party may expressly renounce the contract by stating that they will not perform or may disable themselves from performing by doing something which makes performance impossible. For example, in the case of Hochster v De La Tour 1853, the defendant engaged claimant as courier for a European Tour to commence on 1st June but informed him on 11th May that his services would not be required. The court held that an action could be brought at once. However, the injured party may opt to wait until the time for performance arrives before he sues for breach, so that there is a chance the other party may perform his obligations, but he risk the right to sue if the contract is discharged by other means, such as in the case of Avery v Bowden 1855, where the right to sue for anticipatory breach of contract was lost as claimant did not sue immediately and had waited by which the Crimean war broke out and it act to discharge the contract by frustration.

The notice sent by Chris has rendered that he has nothing to load which also implies that he is unable to perform his part of the contract and hence there is an anticipatory breach and Sea Limited has the right to claim for damage. (b) the prospect of recovery against Chris. (8 marks) A breach of contract always gives the injured party the right to claim for damages. Based on the facts given, Sea Limited has the right to claim for damages as there is an anticipatory breach by Chris. However, Sea Limited has waited instead of pursuing the claim immediately and unfortunately, a war broke out and rendered the performance of contract illegal. In the case of Avery v Bowden 1855, where the right to sue for anticipatory breach of contract was lost as claimant did not sue immediately and had waited by which the Crimean war broke out and it act to discharge the contract by frustration. Breach by frustration occur when the contract became impossible to perform or illegal or futile due to some unexpected event. However, a contract will not be discharged by frustration simply because it has become difficult to perform and the courts are reluctant to allow any remedy where the frustrating event could have been foreseen, such as in the case of Tsakiroglou & Co Ltd v Noblee Thori 1962. The sudden closure of the Suez Canal after a contract had been made meant that a seller of groundnuts would have to ship them from Sudan to Germany via the Cape of Good Hope instead of by the canal. The court held that the increased cost involved were not sufficient to frustrate the contract. Therefore, it is unlikely that Sea Limited would be able to seek recovery from Chris as the contract was discharged by frustration. Apr 2012 ---------------------------------------------------------------

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Charles Reinary used to work as a market research analyst for one of the worlds renowned advertising firms. He recently resigned and set up his own freelance market research consultancy based in Kuala Lumpur. In February 2009, he secured a contract from the US Statistics Bureau to conduct a market research for US made vehicles operating within Malaysia. The contract runs for six months from 1st March 2009 and Charless task is to take samples of US made vehicles ownership demographics, the typical frequency and type of usage of US made vehicles in Malaysia. The research contract is worth USD200,000 and a sum of USD100,000 was advanced by the US Embassy in Malaysia on behalf of the US Statistics Bureau. In anticipation of the performance of the contract, Charles had bought an advanced remote infrared tracking meter which cost USD25,800 from a local distributor. However, on 27th February 2009, Charles was involved in a nasty road accident and as result, he was paralyzed. As the contract has been signed, now the US Statistics Bureau wanted to sue Charles for anticipatory breach of contract. Advise Charles. (30 marks) Apr 2009 Anticipatory breach is one of the ways to discharge a contract. It happens when one party indicate that they will not fulfill their part of the bargain before the performance of the contract arrives, by expressly renounce the contract by stating that they will not perform or may disable themselves from performing by doing something which makes performance impossible. When there is an anticipatory breach, the right to sue for breach arises at once. For example, in the case of Hochster v De La Tour 1853, the defendant engaged claimant as courier for a European Tour to commence on 1st June but

informed him on 11th May that his services would not be required. The court held that an action could be brought at once. In the case given, the US Statistics Bureau will claim that Charles is unable to perform the contract as he was paralyzed due to the car accident. Charles should be advised that he could defend himself by rendering the contract being discharge by frustration. Breach by frustration occur when the contract became impossible to perform or illegal or futile due to some unexpected event. One of the various circumstances allowing for frustration is death or personal incapacity. Death or serious illness will discharge a contract where the person in question is required to provide a personal service. In the case of Condor v The Barron Knights 1966, the claimant which is a drummer was employed by a band under a contract for five years which involved his playing on seven nights a week when necessary. When he fell ill, his doctors ordered him to play no more than four nights a week and the band terminated his contract. The court held that the claimants illness had frustrated the agreement and that the contract of employment was thus properly terminated. Frustration automatically brings the contract to an end. Both parties are freed from their obligations and neither need take any steps to rescind the agreement. The law then, attempts as far as possible to put the parties back to where they were before the contract was made. The Law Reform (Frustrated Contracts) Act 1943 states that: i) All sums paid before frustration can be recovered. ii) Money payable before frustration is no longer payable iii) A party may claim or keep from what they have already been paid, a reasonable sum for any expenses they have incurred before frustration iv) Where a party has conferred a benefit (other than money payment) on the other prior to frustration, they may recover a reasonable sum in compensation Charles will be advised that should the court rule that the contract is discharged by frustration, the US Embassy on behalf of US Statistics Bureau is entitled to recovery of the USD 100,000 that is advanced. On the other hand, Charles will also be advised that he could file a claim for the USD 25,800 under the Law Reform Act 1943 as the remote infrared tracking meter was purchased in anticipation of performance of the contract.

Question 14 (a) In relation to the methods by which insurers can provide indemnity under a property insurance policy, distinguish between reinstatement under the terms of the policy and statutory reinstatement. (14 marks) Jan 2012, Jul 2011 Part I (5 marks) (b) With reference to reinstatement under the terms of the policy, explain why insurers rarely employ this method of providing indemnity, quoting case law in support of your explanation. (16 marks) Jan 2012, Jul 2011 Part I (5 marks)

Question 15 "In the general law of contract, warranties are minor terms which, if broken, allow only an action for damages, whereas conditions are important terms which, if broken, allow the injured party to repudiate the contract as a whole. In insurance it is just the other way round." Discuss this statement and explain whether or not it represents a good description of how terms in insurance policies are classified. Give reasons to support your arguments. (30 marks) Jan 2012

It is true that a warranty in the general law of contract is a term concerning a minor part of the agreement only. If it is broken, the injured party has a right to claim damages but not, in general, to treat the contract as repudiated. A condition, on the other hand, is a term that relates to an important aspect of the agreement: it goes to the root. If such a term is broken the victim has a right not only to claim damages but also to avoid the contract. The classification of the terms of an insurance contract is in some ways more complex than the classification that applies in the general law and it is not true to say that it is simply the other way round. Warranties are certainly the most important terms in an insurance contract and bring about the most drastic effects if they are broken. A warranty is essentially a promise made by the insured relating to facts or to something which they agree to do. A warranty may relate to past or present facts (i.e. be a promise that something was so or is so), or it may be a continuing warranty, in which the insured promises that a state of affairs will continue to exist or they will continue to do something. Until fairly recently, a warranty in an insurance contract was commonly described as a term which, if broken, allowed the insurers to repudiate the contract as a whole. In this respect it was regarded as being similar in effect to what is described as a condition in the general law of contract. However, in Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) (1992) the House of Lords held that a breach of warranty terminated cover automatically from the date of breach and to all intents and purposes, terminated the insurance policy. It is not true to say that conditions in insurance policies are minor terms. There are different types of conditions and they can also be classified in various ways. Conditions include the following. Conditions precedent to the contract A condition precedent to the contract is one which states, in one form of words or another, that the policy as a whole will be void or not come into effect if the insured fails to comply with the term in question. For example, a life insurance policy may contain a condition that the policy will not come into effect until the premium is paid. A condition precedent may also impose a continuing obligation on the insured. For example, motor policies usually contain a clause that requires the insured to maintain the vehicle in a roadworthy condition at all times. Conditions of this sort have much the same effect as continuing warranties, and some writers have suggested that there is no difference and the two terms refer to exactly the same thing. Conditions precedent to liability The expression condition precedent to liability (or recovery) is used to describe a term that allows the insurers to avoid liability for a particular loss if the term is broken, but not avoid the contract as a whole. If a further loss occurs the insurers must pay, provided the insured in this case complies with the condition. Claims conditions, such as those requiring the insured to give prompt notice of a loss, or not admit liability, provide examples of this category. It is unusual to find in insurance anything that corresponds with a warranty in the general law of contract; that is, a minor term, which results only in an action for damages if it is broken. If the insured breaks part of the agreement, a claim for damages is generally of little use to insurers. Their main aim will be either to avoid paying what may be a large claim or to cancel the policy entirely. Insurers therefore usually draft their policies in such a way that the terms take effect as warranties or conditions. Nevertheless some terms may fall in a different category. Collateral conditions (or mere conditions) These are conditions that are viewed as not being part of the main agreement to insure, but concerned only with a side issue, such as the adjustment of the premium. If a condition of this sort is broken the insurers will not able to avoid the policy or avoid the claim but, at the most, claim damages. Virtually all insurance policies carry a number of exceptions, which excuse insurers from liability when the loss is caused by a particular peril, or affects a particular type of property, or when some other circumstances apply. Such clauses are usually easy enough to distinguish. Of course, these clauses do not place any obligation on the insured and they cannot be broken by the insured.

Statements made on a proposal form can be converted into warranties if the insured declares that they are true and they are made the basis of the contract. Occasionally, however, the courts have interpreted such statements as merely describing the risk that is insured by the policy and not as warranties. See, for example, Farr v Motor Traders Mutual Insurance Society (1920). The general effect is somewhat like an exclusion, except that in this case all cover is suspended when the condition is not adhered to, whereas an exclusion does not suspend cover, but simply narrows it. Question 16 Insurers issue a business combined insurance policy covering the usual range of property and liability risks in joint names of two associated companies, A Ltd and B Ltd, which occupy adjoining premises in a business park. The insurance is subject to various warranties, including a fire precautions warranty on the fire section of the insurance. An employee of A Ltd is grossly negligent and starts a fire when using some cutting equipment. There is clearly a breach of the fire precautions warranty at this time. Fire damage is caused at the premises of A Ltd, but the fire also spreads to the premises of B Ltd, where the damage is very severe. Discuss: (a) the liability of the insurers to indemnify A Ltd and B Ltd for the fire damage that each has suffered. (14 marks) The first thing to establish is whether the policy is joint or composite, because if it is joint then the breach of warranty will terminate the insurance as a whole, in which case neither A nor B will be able to claim. Since the interests under the two policies are different (assuming that each company owns its own premises) the policy is probably composite (unless, perhaps, the two companies each jointly own both sets of premises, which seems unlikely). It might be necessary to check the wording of the policy to confirm whether it was intended to be joint or composite. If the policy is composite then the breach of warranty by the employee of A would terminate the cover of A, but would not terminate the cover of B, allowing B but not A to claim an indemnity. (b) whether the insurers, if they were to indemnify B Ltd for the fire damage, might exercise subrogation rights against A Ltd. (16 marks) The question then arises as to whether the insurance company, having indemnified one co-insured (B) for a loss covered by the policy, can exercise subrogation rights against the other co-insured (A) who was legally responsible for the loss, being vicariously liable for the negligence of their employee. If there was an express waiver of subrogation clause to the effect, no subrogation rights will be exercised against a co-insured then subrogation would not be possible. However, even if there is no such clause, subrogation will usually be denied in the case of coinsurance. For example, Petrofina Ltd v Magnaload Ltd (1984). In any event subrogation is often futile if the same insurers would be liable to indemnify the co-insured in respect of the subrogated claim. However, if one co-insured ceases to be covered by the insurance, subrogation may be allowed. For example in Samuel v Dumas (1924) the owners and mortgagees of a ship were co-insured. The owners scuttled the ship and this wilful misconduct terminated their cover. The court held that the innocent mortgagees could enforce the insurance and in these circumstances the insurers could proceed against the owners in the name of the mortgagee. On this basis insurers might be able to exercise subrogation rights against A, on the grounds that their breach of warranty meant that they were no longer covered by the policy.

Question 17 (a) Distinguish between void, voidable and illegal contracts. (10 marks) (b) Describe: (6 marks) (i) one set of circumstances in which an insurance contract may be void; (ii) one set of circumstances in which an insurance contract may be voidable; (iii) one set of circumstances in which an insurance contract may be illegal. (c) Explain how the remedies available to the parties (insurer and insured) vary in relation to void, voidable and illegal contracts, including the rights of the parties to recover any money that has been paid (e.g. premiums or claims payments). (14 marks) Jul 2011, Oct 2009 A void contract : - Has no binding effect on either party - Because a void contract is no contract at all, the expression is really a contradiction on terms - However, the expression is useful to describe agreements which neither party can fully enforce A voidable contract : - But one (or possible both) parties will have the right, if they wish, to set it aside. - Contracts may ne voidable on a number of different grounds, such as misrepresentation, drunkenness or insanity An unenforceable contract is valid; - But it cannot be enforced in a court if one party refuses to keep the agreement - Such a contract may, nevertheless, be useful for other purposes; it may, for instance, be used as a defense to a claim. (b) An insurance contract could be void for mistake or void for absence of the insurable interest required by law. An insurance contract is voidable for misrepresentation or non disclosure (whether fraudulent or innocent), and for breach of condition precedent to the contract. An insurance contract could be illegal for absence of insurable interest (if governed by the Life Assurance Act 1774), illegal by virtue of being contrary to public policy, or illegal on the grounds that there is a close connection between the insurance and some criminal activity. (c) If an insurance contract is void then neither party (insured or insurer) can enforce it in a court action. However, if money has been paid under a void contract it can usually be recovered, so a premium paid under a void insurance contract would be recoverable by the insured. Similarly, if insurers have made a claim payment under a void insurance contract it should be possible, in principle, to recover it. If a voidable insurance contract is avoided by one of the parties (e.g. on the grounds of misrepresentation) then the parties are usually restored to their previous position and any money paid will be repayable. However, the insured may not be able to recover his premium in every case e.g. where there has been fraud or where the risk has started to run. Similarly insurers who avoid a contract for fraud or misrepresentation will be able to recover any claims previously paid in the year of insurance if the contract has been avoided ab initio (e.g. where there has been fraud or misrepresentation during negotiations for the contract). Unlike money paid under a contract that is merely void and not illegal, money paid under an illegal contract is not usually recoverable by court action. Thus a premium paid under an illegal insurance could not usually be recovered by legal process. Similarly, a claim paid by an insurer under an illegal insurance contract could not be recovered. Exceptionally, however, it may be possible to sever the illegal part of contract and enforce the part that is not illegal (e.g. under a composite insurance such as a D&O insurance). --------------------------------------------------------------OR ---------------------------------------------------------------------------------

Illegality in respect of a contract of insurance can occur at various stages and accordingly can have varied effects upon the contract of insurance. (a) Explain four ways illegality can arise in insurance contracts. (12 marks) No insurable interest. An insurance contract may be illegal and void because the would-be insured lacks the insurable interest required by statue. Purpose of contract illegal. The purpose of the contract may be illegal or against public policy. Contracts of insurance with enemies or on enemy property may fall in this category, and there are a number of decisions to this effect, such as Keller v. Le Mesurier (1803) Unlawful use of insured property. If insured property is used unlawfully the contract may be rendered illegal. In marine insurance law there are decisions, which suggest that policies of insurance on illegal adventures are themselves illegal. Close connection with a crime. In any case where theres a close connection between the loss for which the insured seeks compensation and a criminal act, the policy may well be invalidated. Two principles may be involved here. First, theres a basic requirement in insurance that losses should be accidental or fortuitous, so that the insured is not entitled to recover for losses caused by his own willful misconduct. Second, public policy may prevent the insured from recovering where allowing him to do so might encourage other people to break the law.

(b) Describe your answer with examples from the following classes of insurance: (i) Life insurance; (6 marks) (ii) Liability insurance; (6 marks) (iii) Property insurance. (6 marks) Illustrate your answer with decided case law where appropriate. Jan 2011 (i) Life insurance The leading case is Beresford v. Royal Insurance Co. Ltd (1938) . Here the insured committed suicide, intending that the policy money be used to payoff his heavy debts, at a time when suicide was a criminal offence. It was held that the policy did cover suicide and that the insurers could extend the policy to cover acts of willful misconduct if they wished. Nevertheless, the court held that public policy would prevent a recovery being made because payment would allow the assured a benefit from his criminal act in the sense that his estate would be freed from debts. Th eres no doubt that the courts would now reach a different conclusion, because suicide is no longer a crime. (ii) Liability insurance In the case of liability insurance, a deliberate or even reckless course of conduct is enough to invalidate the cover even if the result is accidental and the insured is not convicted of any crime. The leading case is Gray v. Barr (1971), where a man shot and killed his wifes lover. He had deliberately taken a loaded gun with the intention of frightening his rival, who was killed when the gun accidentally went off in a scuffle. He was acquitted of murder and manslaughter in the criminal trial but was successfully sued for damages by the wife of the dead man. He claimed an indemnity under the personal liability part of his household policy, but the court refused to allow him to recover. They laid great stress on deliberate and dangerous use of the loaded gun, holding that it would be against public policy to allow him an indemnity against the consequences of his conduct. (iii) Property insurance Insurance on property which has been acquired illegally by the policyholder (such as stolen goods) will be certainly be illegal. In Geismar v. Sun Alliance (1977) the insured had not stolen the insured property (some items of jeweler) but had smuggles it into the UK without declaring it and paying the necessary exercise duty: this made them liable to forfeiture. The items were subsequently stolen, but the court held that the claimant couldnt recover for the theft under his insurance as this would allow him to profit from his criminal act.

Question 18 Cuci is a very enterprising lady. In 2004, she met Mr Watanabe, an Executive Director of a Japanese Electronics factory in Bayan Lepas and cultivated a good friendship with him. Cuci then procured all the insurance business from Mr Watanabes factory and placed it with Admire Plus Insurance by signing up an agency in 2004 with the company. Cuci migrated to South Africa in 2008 where she set up a travel agency business while continuing to earn her agency commissions from Admire Plus Insurance annually from the renewals of Mr Watanabes factorys insurances. This year, the CEO of Mr Watanabes factory, Mulut, questioned the wisdom of dealing through an intermediary and requested in writing that Admire Plus Insurance renew their factorys insurances on a direct basis net of any agents commission. Admire Plus Insurance granted the request and now Cuci is suing Admire Plus Insurance for breach of fiduciary duty and breach of contract for the loss of her commission income. Advise Admire Plus Insurance. (30 marks) Oct 2010 Question 19 Chua approached Danielle, an accountant, and asked her advice as to the financial position and profitability of a business. Danielle prepared a report for Chua and concluded that it could be a profitable and secure investment. In preparing the report, Danielle overlooked the fact that the business had not provided sufficiently for bad debts. Chua invested his money in the business but within three months the firm was in serious financial difficulty and Chua was in danger of losing the bulk of his investment. Does Chua have any claim against Danielle? Explain in detail outlining the elements of negligence and the relevant case law. (30 marks) Apr 2010 Question 20 Tom and Jerry inherited a shop located at Cheese Town. The insurable value is approximately RM100,000. Tom paid the premiums to insure the shop under a fire policy with extended flood cover for the full value whereas Jerry did not contribute to the premium though he was also named in the policy. The shop was severely damaged by the recent flood and the claim came up to a very high figure. Can Tom keep all the money paid by the insurance company? (30 marks) Oct 2009 Question 20 Adelyn, the financial controller of a large multinational is a frequent traveler and in one of the coming trips to Korea, she had decided to apply for travel insurance that she had taken note of as she was window shopping during lunch. The travel insurance cover called Travel Fun, had a brochure that was displayed at the window of an insurance branch office, but due to lack of time, she took down the contact number and had made no enquiries on the cover until she was back at her office. She telephoned the insurance companys branch office and requested BOLEH Insurance to provide her with a quotation after she informed them of her destination and traveling plans and the duration of her travel which is for 14 days. Upon receiving the detailed quotation, Adelyn was happy with the premium quoted and the coverage that she will get when she travels. She confirmed her intention to purchase the cover the following day before her departure through a facsimile message that she sent from the airport. She had not paid and had informed the

insurance company that she will pay upon her return to Malaysia. During her trip, Adelyn tripped and fell injuring herself and needed home rest for three weeks. When she submitted her claim, the insurance company denied that they have provided coverage under Travel Fun insurance policy for Adelyn. Advise on her legal rights to claim under the policy. (30 marks) Apr 2009

Question 21 Mega Store recently sent out flyers to all the residents of Kinta Valley. In the flyer, various items were listed as being on sale. Included in the flyer, was a drug called Night Rest a controlled substance under the Pharmaceutical Acts 1956 for psychological disorder. Charles, who is suffering from depression picked up the drug and paid for it at the counter, where the resident pharmacist was standing and walked out. Agnes an officer of the Health and Drug Department saw this and now Mega has been charged for offering for sale a controlled drug without the presence of a pharmacist. The flyer also advertised, that whoever can buy a Cupid bed at a price lower than that advertised which was RM99, will be entitled to refund of the purchase price plus an additional RM250. Julie buys the bed and then goes to a furniture store near her house, where the same bed was being sold for RM9. She wants Mega Store to pay the reward and refund that was promised. (a) Advise Mega Store whether they have broken the law with respect to the sale of Night Rest. (15 marks) (b) Advise Julie whether she is entitled to the refund as well as the RM250 that was promised by the store. (15 marks) Oct 2008 Question 22 Rosman have recently taken up golf. He usually goes to the driving range in the Golf Club with his friend every other day after work. One afternoon when he was at the driving range, his driver hit a 280 yard record distance, therefore the ball went over the driving ranges netting and onto the Federal Highway, at the same time Julia was driving her brand new Mercedes Benz car along the Federal Highway heading towards Klang when Rosmans stray golf ball hit her windscreen and caused a crack. Advise Julia as to her legal rights, if any. Oct 2008 (30 marks)

Question 23 You are an insurance agent and have been invited by a Zinc Extrusion manufacturer located in Shah Alam to advise them on their insurance coverage for their building, furniture and fittings, plant and machinery and stock in trade. Their concern is on how to fix their insurance value of the various assets in order to obtain the best value for the premiums paid. Most of the plant and machinery are slightly more than fifteen years old, which does not fetch a second hand value but are nevertheless well maintained and is productive, with an average life span of 30 years. A few units of the extrusion lines of machines were recent purchases and is charged to the bank. The building currently occupied is owned by them for which they bought new five years ago and moved in from their old factory in Balakong. Please advise them on the suitable basis of arriving at the sums insured of the various categories of assets. (30 marks) Oct 2008

Question 24 Maisarah saw a Chanel handbag on display near the window of a boutique known as Anggun Enterprise. The price tag on it showed RM10,000. Maisarah was interested in purchasing the handbag as it was cheap. She approached Nina Karina, an employee of the shop, and indicated that she wished to purchase the handbag by tendering her credit card for payment. Nina Karina, upon discovering that the price tag on the handbag had been erroneously placed, told Maisarah that the handbag actually cost RM18,000. Maisarah insisted that the handbag be sold to her at the price as displayed. When Nina Karina refused to accept her credit card, Maisarah threatened to sue Anggun Enterprise. Advise Anggun Enterprise if they are bound to sell the handbag to Maisarah. Illustrate your answer with to case laws. (30 marks) Apr 2008

Question 25 Nabil, a 17-year-old boy works as a dispatch clerk in a firm. Six months after he started work, he entered into a scholarship agreement with his employer to enable him to pursue his education by attending night classes for one year. The amount disbursed to him under the said agreement was RM500 per month for one year. In consideration thereof he was required to serve his employer for a further one year at the end of his study term. Six months after completion of his studies, he was offered a better job and better salary as an agent by an insurance company. He now wishes to leave his current employment with the firm. His employer threatens to sue him on the scholarship agreement. Advise Nabil. (30 marks) Apr 2008 Question 26 Zurina wanted to enter into a joint venture agreement with a property developer known as Sham Sdn Bhd. Prior to executing the joint venture agreement, Zurina approached Niaga Bank to ascertain the credit worthiness of Sham Sdn Bhd. Niaga Bank gave an excellent account of Sham Sdn Bhds financial status and in fact recommended that Zurina proceed to execute the joint venture agreement. Based on this, Zurina entered into the joint venture agreement with a substantial amount of money being invested as capital. Sham Sdn Bhd was wound up one month after the agreement was executed. Zurina suffered a loss and she approached you for advice on the prospect of recovering her loss in tort. Advise Zurina on her appropriate cause of action. (30marks) Apr 2008

Question 27 Asas Niaga Sdn Bhd, a company engaged in the business of providing transport, was hired by Syarikat Abu Tausi for the purposes of transporting durian and other fruits from its orchard in Ipoh, Perak to Thailand. The estimated cost of transportation was about RM30,000. The lorry met with an accident somewhere near Alor Setar and it was immobilized thereafter. As the fruits were perishable items, Kumar, a staff of Asas Niaga, who happened to be on the said lorry, decided to sell the fruits as he was afraid that they would rot. He was not able to contact Syarikat Abu Tausi. The fruits were actually sold at a considerable discount in the market in Alor Setar and the proceeds were accordingly forwarded to Syarikat Abu Tausi. Syarikat Abu Tausi was upset on hearing this and threatened to sue Asas Niaga Sdn Bhd and Kumar for breach of want of authority. Advise Asas Niaga Sdn Bhd and Kumar. (30 marks) Apr 2008