Absence of specific questions in the Proposal Form
The Insured’s motorcycle was involved in an accident. His “own damage claim” (OD) was repudiated by the Insurer on the ground of non-disclosure of material fact, namely he had sold the vehicle to one Mr. Mohamad Hafizul with a deposit of RM40,000.00. This is in breach of subsection condition No. 1, Duty of Disclosure of the Private Vehicle Policy.
The Case Manager handling this dispute gave her recommendation favouring the Insurer. The Insured who did not accept the recommendation has now referred the dispute to Ombudsman for Adjudication.
The issue to determine here is whether there was any non-disclosure of material fact on the part of the Insured when the policy was purchased.
- The relevant condition No. 1, Duty of Disclosure of the Private Vehicle Policy states as follows:-
Consumer Insurance Contracts
Where You have applied for this Insurance wholly for purposes unrelated to Your trade, business or profession, You had a duty to take reasonable care not to make a misrepresentation in answering the questions in the Proposal Form (or when You applied for this Insurance) i.e. You should have answered the questions fully and accurately. Failure to have taken reasonable care in answering the questions may result in avoidance of Your contract of insurance, refusal or reduction of Your claim(s), change of terms or termination of Your contract of insurance in accordance with the remedies in Schedule 9 of the Financial Services Act 2013. You were also required to disclose any other matter that You knew to be relevant to Our decision in accepting the risks and determining the rates and terms to be applied.
You also have duty to tell us immediately if at any time after Your contract of insurance has been entered into, varied or renewed with Us any of the information given in the Proposal Form (or when You applied for this insurance) is inaccurate or has changed.
Non-Consumer Insurance Contracts
Where You have applied for this Insurance wholly for purposes unrelated to Your trade, business or profession, You had a duty to disclose any matter that You know to be relevant to our decision in accepting the risks and determining the rates and terms to be applied and any matter a reasonable person in the circumstances could be expected to know to be relevant otherwise if may result in termination of Your contract of insurance.
You also have a duty to tell Us immediately if at any time Your contract of insurance has been entered into, varied or renewed with Us any of the information given in the Proposal Form (or when You applied for this insurance) is inaccurate or has changed.
You must observe and fulfil the Terms, Conditions, Endorsements, Clauses or Warranties of the Policy.“
- The Law on non-disclosure before coming into effect of Schedule 9 of Financial Services Act:-
The law did not differentiate between consumer and non-consumer insurance contracts and imposes on the proposer a duty to disclose to the insurer a matter:-
- He knows to be relevant to the decision of the insurer as to whether to accept the risk or not and the rate and terms to be accepted; or
- A reasonable person in the circumstances could be expected to know to be relevant.
To mitigate the harshness of the existing law which is complex with unfair remedies available to the Insured, the Financial Services Act 2013 by way of Schedule 9 has given protection to consumers who take insurance policies.
- The Law on non-disclosure after coming into effect of Schedule 9 (effective from 1.1.2015):-
The rules of non-disclosure and the remedies available to the insurer is drastically changed. Schedule 9 only applies to a consumer insurance contract entered into, varied or renewed effective from 1.1.2015 and will apply to all consumer insurance contracts regardless of how it is bought, i.e. online, personally or via a price comparison website. “Consumer insurance contract” means a contract of insurance entered into, varied or renewed by an individual wholly for purposes unrelated to the individual’s trade, business or profession.
The new rules throw the onus onto the insurer to ask the questions that will be relevant and material to them in determining whether to accept the risk or not, i.e. the proposer will only answer question that the insurer asks in the proposal form. Whether it amounts to a misrepresentation or not depends on the nature of the questions and the answers given. The insured is required to give honest answers to the questions and beyond that he is not required to volunteer any answers or information.
(Please refer to paragraph 5 and 6 of Schedule 9 of the Financial Services Act 2013 and page 137-140 Law of Life Insurance in Malaysia by S Santhana Dass (second edition).
Adjudication and reasons
It was brought to the attention of the Insurers here that this is a consumer insurance contract and that there are no proposal forms or policy terms that requires the Insured to disclose such information in the present case. However, their response seem to be oblivious to the new requirement. The Insurers are relying on para 4 of Schedule 9 whereby the old rules of non-disclosure still applies. However, they failed to realise that para 4 only applies to non-consumer insurance contracts and not to consumer insurance contracts.
The relevant applicable para here is 5 which is applicable to consumer insurance contracts. As such, the case law and the general principles of common law of non-disclosure relied by them in their response is misconceived and totally not applicable to the present dispute. Para 4 of Schedule 9 relied by them is only applicable to non-consumer insurance contract whereby the common law principles of non-disclosure which imposes duty on the proposer to disclose material fact is still retained.
This misconception or ignorance on the part of the Insurer might have far reaching consequences that might be systemic in nature as Bank Negara Malaysia gave the Insurers a grace period of one year before implementation of Schedule 9 for them to rewrite or modify their proposal forms to cater to their specific risk before accepting the proposal forms.
Based on the above key findings, we are of the view that there was no non-disclosure on the part of the Insured in the present dispute as there was no proposal form or questions that requires the Insured to answer such information. In addition, the Insurers are also relying on the grounds that there are inconsistency of damages sustained to the vehicle. However, this was not substantiated with any evidence.
Moreover, it was brought to our attention that this issue was settled during case management stage whereby the Insurers agreed not to pursue with this issue which explains why the case manager in her recommendation did not mention anything on this.
In the up-shot, the rejection of the claim in the present dispute is untenable as there was a clear breach of para 5, Schedule 9 of the Financial Services Act 2013, by the Insurer.
This Adjudication is in favour of the Insured.