Professional Documents
Culture Documents
INTRODUCTION
Under the law of contract the general rule is : in the absence of fraud or
misrepresentation, if any party fail to disclose all facts (relating to the contract
or the subject matter of the contract) when entering into the contract, the
other party have no right to avoid the contract.
Caveat emptor principle (buyer beware) – parties to the contract have the
responsibility to ascertain all information relating to the contract or the
subject matter of the contract before entering into the contract.
This general rule however does not apply to insurance contract since insurance
contract is a contract uberrimae fidei (utmost good faith.)
uberrimae fidei contract necessitate all parties to the contract to disclose all facts
which are material to the contract to each other. If this is not observed by one
party, the contract may be avoided by the other party.
Contracts uberrimae fidei refer to a class of contract whereby certain facts material
to the contract are within the exclusive knowledge of one party only. Therefore
other party depends upon the good faith of the party having the knowledge to
impart the knowledge to him.
Rationale : the insured know all the fact relating to the item being insured. As such
he has the responsibility to inform the insurer all material facts relating to the item
being insured to enable the insure to assess the risk involved. If there is no
obligation on the insured to disclose the facts there will be possibility that the
insured might leave out certain information which might cause the insurer to reject
the policy, increase premium etc
CARTER v BOEHM (1766)
Lord Mansfield : ‘Insurance is a contract upon speculation.The special fact which
the contingent chance is to be computed lies mostly in the knowledge of the insured
only.The underwriter trust his representation & proceed upon confidence that insured
does not keep back any circumstance in his knowledge ,to mislead the underwriter to
belief the circumstance does not exist & induce him to estimate the risk as if it does not
exist’
RozanesV Bowen
‘the underwriter know nothing & the man who come ask him to insure knows
everything. It is the duty of the insured to make the full disclosure to the
underwriters without being ask about the material circumstances’
Proposal form – A form issued by the insurer containing various questions which
the insurer requires the insured to answer. The information contained in the
form enable the insurer to assess the risk, to ascertain the amount of premium
and condition to be imposed (if any)
PF is just one of the means by which the disclosure of material facts can be
made. It does not mean that the duty is done merely by answering the PF
TEH SAY CHENG v NORTH BRITISH & MERCANTILE INS CO. LTD
The court rejected the argument raised by the insured (in denying non-
disclosure ) that as a person who had never insured b4 & was ignorant of
insurance law, he was justified in assuming that the insurer required no more
information than was sought for by the Qs in the proposal form.
Effect of failure to answer question in proposal form: - does it amount
to non-disclosure?
Depends on the effect of such omission:
Carter v Boehm
Lord Mansfield: ‘The policy would equally be void against the underwriter if he
concealed as if he insured a ship on her voyage which he privately knew to be arrived and
an action would lie to recover the premium.’
Para 5(2) of sch 9 of FSA - It is the duty of the consumer to take reasonable care not to
make a misrepresentation to the licensed insurer when answering any questions under
subparagraph (1)
Para 5(3) of sch 9 of FSA - Before a consumer insurance contract is renewed, a licensed
insurer may either—
(a) request a consumer to answer one or more specific questions in accordance with
subparagraph (1); or
(b) give the consumer a copy of any matter previously disclosed by the consumer in
relation to the contract and request the consumer to confirm or amend any change to
that matter.
Para 5(4) of sch 9 of FSA - It is the duty of the consumer to take reasonable care not to
make a misrepresentation to the licensed insurer when answering any questions under
subsubparagraph (3)(a), or confirming or amending any matter under sub subparagraph (3)
(b).
Para 5(8) of sch 9 of FSA - Subject to subparagraphs (1) and (3), a consumer shall take
reasonable care to disclose to the licensed insurer any matter, other than that in relation to
subparagraph (1) or (3), that he knows to be relevant to the decision of the insurer on
whether to accept the risk or not and the rates and terms to be applied.
The insurer have the duty to make sure the insured perform this duty
Para 4 (3) of sch 9 FSA - Where a proposer fails to answer or gives an incomplete or irrelevant answer
to a question contained in the proposal form or asked by the licensed insurer and the matter was not
pursued further by the licensed insurer, compliance with the duty of disclosure in respect of the matter
shall be deemed to have been waived by the licensed insurer.
Consumer Insurance Contract
Para 5(5) of sch 9 of FSA - If the licensed insurer does not make a request in
accordance with subparagraph (1) or (3) as the case may be, compliance with the
consumer’s duty of disclosure in respect of those subparagraphs, shall be deemed
to have been waived by the insurer.
Para 5(5) of sch 9 of FSA - Where the consumer fails to answer or gives an
incomplete or irrelevant answer to any request by the licensed insurer under
subparagraph (1) or subsubparagraph (3)(a), or fails to confirm or amend any
matter under subsubparagraph (3)(b), or does so incompletely or provides
irrelevant information, as the case may be, and the answer or matter was not
pursued further by the insurer, compliance with the consumer’s duty of
disclosure in respect of the answer or matter shall be deemed to have been
waived by the insurer.
Remedies to the insurer for breach of duty of disclosure by
the insured :
Duty
Para 11(1) of sch 9 FSA No licensed insurer or insurance agent, in order to induce a
person to enter into or offer to enter into a contract of insurance with it or through
him—
(a) shall make a statement which is misleading, false or deceptive, whether
fraudulently or otherwise;
(b) shall fraudulently conceal a material fact; or
(c) in the case of an insurance agent, use sales brochure or sales illustration not
authorised by the licensed insurer.
Remedies available to an insured for a breach of such a duty by the insurer
rescind the contract
demand back premium
Para 11(2) sch 9 of FSA - Where a person is induced to enter into a contract
of insurance in a manner described in subpara (1), the contract of insurance
shall be voidable and the person shall be entitled to rescind it.
But can pose problems especially in life or health insurance because an insured may
not be aware that a particular condition is symptomatic of a more serious health
risk.
It relates to the risk of a claim being made by virtue of the insured’s own
general reputation & credibility.
It includes matter such as claim history, previous refusals of cover and criminal
record.
i.e one which would influence the judgment of a reasonable insurer in deciding
whether to accept the risk, how much premium to charge and what condition to
attach (if any)
IonidesV Pender
All should be disclosed are facts which would affect the judgment of a rational insurer
governing himself by the principles & calculations on which underwriters do in practice.
COA rejected the previous decision and held: to succeed on such a defence it was
sufficient if the insurer could show that the underwriting judgment of, or the
assessment of risk by a prudent insurer would have been influenced by such facts.
In Teh Say Cheng V North British & Mercantile Ins Co ltd
A case involving a fire policy, an attempt was made to persuade the court to reject the
prudent insurer test in favour of the reasonable insured test b’coz prudent insurer test
only applied to cases of marine insurance. This argument was flatly rejected by ct
who instead endorsed the application of the prudent insurer test in all areas of
insurance law.
This definition reinforces the fact that it is the prudent insurer test that
is applicable in Malaysia.
This is b’coz the insurer’s ability to avoid a life policy on grounds of non-
disclosure is greatly restricted para 13 (2) and (3) of sch 9 FSA which reads:
(2) A licensed life insurer shall not dispute the validity of a life policy after the
expiry of two years from the date on which it was effected on the ground that a
statement made or omitted to be made in the proposal for insurance or in a report of a
doctor, referee, or any other person, or in a document leading to the issue of the life
policy, was inaccurate or false or misleading unless the licensed life insurer shows that the
statement was on a material matter or suppressed a material fact and that it was
fraudulently made or omitted to be made by the policy owner.
(3) For the purpose of subsection (2), “material matter” or “material fact” means a matter or fact
which, if known by the licensed life insurer, would have led to its refusal to issue a life
policy to the policy owner or would have led it to impose terms less favorable to the policy
owner than those imposed in the life policy.
Duration of duty to disclose
At common law, duty starts from negotiation until insurance is
effected.
All material facts must be made known to the insurer at the time
when he makes his decision whether:
1) to accept or reject the risk &
2) if he decides to accept the risk, as to the rate of premium to be
charged.
Once this burden has been discharged, the onus then shifts to the
other party to rebut it either by showing that
1. there had been a disclosure or
2. that the fact allegedly not disclosed was in fact not material.
TUTORIAL 2
Malik was a single father and a successful businessman. He used to get treatment for heart problem 10 (10)
years ago. He now believe that the problem he no longer have the problem since he had not required treatment
for a long time. One day, he met Mamat, an insurance agent from Successful Prudential Insurance Company
(SPIC) to purchase a life insurance policy for himself. He named his daughter as beneficiary in the policy. This
is was submitted to Mamat :
(a) Have you or any applicant to be insured, seen a doctor / specialist (except as a routine check-up), and been under
continuous medical treatment or been hospitalized, or undergone any surgical operations, or been from recurring
illness in the past? ________________
(b) Have you or any applicant to be insured currently suffering from any form of physical impairment, congenital
abnormality, or in poor health? ________NO_____________
(c) Have you or any applicant to be insured ever been treated for or has been told of having high or low blood
pressure, diabetes, high cholesterol, heart disease, arthritis, piles, thyroid disorder, asthma, tuberculosis or disease of respiratory
disorder, and other serious illness, disease or injury? _______________
After reading the proposal form, Mamat asked Malik whether he had answered every question correctly and
truthfully. Malik answered “YES”. Five (5) months after purchasing the insurance policy, Malik suffered heart
attack. He passed away twelve (12) days after being admitted to the hospital. Maria submitted a claim to SPIC
for Malik’s death. SPIC however rejected the claim on the ground that Malik had failed to disclose information
concerning his medical problem. Advise Maria. Support your answer with relevant provision in the Financial
Services Act 2013 and ONE (1) decided case.