Exclusion Clause-No valid driving license
The Insured’s claim for loss arising from theft of her motorcycle was repudiated by the Insurer on the ground that the custodian rider at the material time of loss was not in possession of a valid licence to ride a motorcycle, thereby in breach of General Exception 1 of the Policy.
The Case Manager handling this dispute gave his recommendation favouring the Insurer. The Insured who did not accept the recommendation then referred the dispute for Adjudication by the Ombudsman.
The issue to determine here is whether based on the facts and circumstances of the case, the repudiation of the claim by the Insurer was justified notwithstanding the general exclusionary clause in the policy.
General Exception 1 of the policy provides as follows:-
“We will not pay for any liability under the following circumstances:-
If You or any person with your consent are not licensed to drive the vehicle except if You or any person with your consent has held and is not disqualified from holding or obtaining such licence to drive your vehicle under any required laws, by laws and regulations”
Adjudication and Reasons
It was brought to the attention of the Insurer our preliminary view that the breach they are relying on is technical in nature and unconnected to the circumstances of the loss namely having a valid licence would not have prevented the theft from taking place. Emphasise was given to clause 18.104.22.168 of Bank Negara Malaysia’s Guidelines on Claims Settlement Practices (BNM/RH/GL/003-9) which states that:-
An insurer should not repudiate a claim on the following grounds:
“Technical breaches of warranty or policy conditions which are not material or unconnected to the circumstances of the loss, unless it had prejudiced the interest of the insurer or has exceeded time bar as provided under the law.”
It cannot be denied that the insurers have the right in law to repudiate a claim if there is a breach of the terms and conditions of the policy. More so if it is a condition precedent of the policy. Where an insurer seeks to repudiate liability for breach of a condition precedent, the insurer is not required to show that he has been prejudiced by the breach or the breach is connected to the loss. (Putra Perdana Construction Sdn Bhd v AMI Insurance Bhd (2005) 2 MLJ 123; Pioneer Concrete (UK) v National Employers Mutual Insurance Association (1985) 1 Lloyds 274).
Approach by the Financial Ombudsman Service UK
The Financial Ombudsman Service UK’s approach is entirely different to that of court. It does not ask how a term should be classified as a condition precedent or an innominate term. Instead, it concentrates on what it thinks the effect should be of the breach in question and whether the complainant qualifies for the extra protection as a consumer under the Insurance Conduct of Business and or the industry guide. It requires a casual connection for consumers between breach of any term and the loss. The justification for not following the law is that it considers the law outdated and unfair to the consumers.
Our Terms of Reference provide that in deciding a dispute, the Ombudsman For Financial Services (OFS) will do what in it’s opinion is fair and reasonable in all the circumstances, having regard to the terms and conditions of the contract, any applicable law, Bank Negara Guidelines as well as industry best practices. In this respect, it is pertinent to note that court cases such as Affin Bank Bhd v Datuk Ahmad Zaid Hamidi (2005) 3 MLJ 361 and Dianna Chee Vun Hsai v Citibank Bhd (2009) 5 MLJ, have held that BNM Guidelines issued pursuant to a provision of an Act has the force of law. Accordingly, an insurer has to comply with the above mentioned Guidelines.
In the present dispute, we find the following:-
- the Insured had paid the premium for the motor policy.
- the theft of the motorcycle is a covered risk.
- the theft of the motorcycle would have still occurred even if the Insured had a valid licence.
- the breach is technical in nature.
In view of the above circumstances, we find that it is fair and reasonable to adjudicate this dispute in favour of the Insured.