Exclusion Clause – Criminal Breach of Trust and Limitation as to use

Background

The Participant’s claim for theft of his vehicle was repudiated by the Takaful Operator on the ground that he had voluntarily rented out his vehicle to X for a term of 1 year. Upon the expiry of the contract, X failed to return the Participant’s vehicle and cannot be contacted. The Takaful Operator contended that for theft to occur, the covered vehicle must be taken out of the Participant’s possession without his consent. In this case, the vehicle was voluntarily rented out to X by the Participant. The Takaful Operator was of the view that the claim is not payable as it is not covered by virtue of the ‘criminal breach of trust’ clause in the Certificate which reads as:

“We will not pay for any loss or damage including theft caused by or attributed to the act of cheating or criminal breach of trust by any person”

Another ground which the Takaful Operator relied on to repudiate the Participant’s claim was on the purpose of the risk coverage of the vehicle which was for private use only and not for hiring/renting. Hiring/renting of the vehicle violated the Certificate condition as to use:

“Limitation as to Use

Your vehicle can only be used for social, domestic and pleasure purposes and for the Participant’s business. The Certificate does not cover use for hire or reward”

 

Investigation and Findings

On the issue whether the Participant’s loss was a result of cheating/criminal breach of trust and whether there was a breach of the ‘Limitation as to Use’ condition in the Certificate, the loss adjusters appointed by the Takaful Operator to investigate the matter disclosed in their report the following:

  1. Participant rented out his vehicle to X under a year’s contract with a monthly rental of RM700.00;
  2. After the expiry of the contract, the hirer was supposed to return the vehicle or renew the contract. But he did not and was unreachable;
  3. The Participant made a police report on the matter;
  4. The police did not classify this case as theft but as criminal breach of trust;
  5. The vehicle has not been recovered and the police had closed their file; and
  6. The Participant voluntarily rented out the vehicle to third party and from the investigation the covered vehicle was on hire to the hirer.

Criminal breach of trust is defined in the Certificate as:

“whoever, being in any manner entrusted with property, or with any dominion over property, either solely or jointly with any other person dishonestly misappropriates, or converts to his own use, that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits ‘criminal breach of trust’”.

 

OFS's View

Applying the above definition of criminal breach of trust to the present case, it appears that X by absconding with the Participant’s vehicle had committed criminal breach of trust. Liability for loss as a result of criminal breach of trust is excluded under the Certificate.

Moreover, this is a private car Certificate and the “Limitation as to Use’ condition states that it can be only be used for social, domestic and pleasure purposes and for Participant’s business. The Certificate does not cover use for hire or reward.

Under the circumstances and applying the exclusionary clause/condition in the Certificate on criminal breach of trust and ‘Limitation as to Use’, no liability is attached to the Takaful Operator.

Resolution

Recommendation Issued: The Case Manager made a Recommendation in favour of the Takaful Operator as the Participant had failed to establish that the loss is a peril that is payable and is not excluded by the Certificate.