Pre-contractual Duty of Disclosure and Misrepresentation

Thanasegaran, Haemala

doi:10.1007/978-981-10-0383-7_3

Haemala Thanasegaran²

Abstract

This chapter builds on the preliminary description of the pre-contractual duty of disclosure and misrepresentation and their relationship to the concept of utmost good faith offered in Chap. 2. It analyses the elements of the duties as embodied in ss18 (2) and 20 (2) of the Marine Insurance Act 1906 (UK) and their development with respect to the United Kingdom and Malaysia, as well as the effect of selected provisions of the Insurance Act 1996 (Malaysia) and its successor, the Financial Services Act 2013 (Malaysia) with respect to Malaysia, before providing a comparison with the Australian Insurance Contracts Act 1984 (Cth).

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Notes

1.
The pre-contractual duties of disclosure and misrepresentation were a codification of the common law position in the United Kingdom at the time, as expounded by Lord Mansfield in Carter v Boehm (1766) 3 Burr 1905 and set out in ss18 and 20 of the Marine Insurance Act 1906 (UK) until its recent repeal by s21 (2) of the Insurance Act 2015 (UK).
2.
The common law position remained applicable to the United Kingdom until the Consumer Insurance (Disclosure and Representations) Act 2012 altered it with respect to consumer insurance contracts and the Insurance Act 2015 (UK) did so with respect to primarily but not exclusively, non-consumer insurance contracts. As for Malaysia, the application of the common law to insurance contracts was altered in 1996 and again in 2013 by virtue of the Insurance Act 1996 (Malaysia) and Financial Services Act 2013 (Malaysia) respectively, and the Islamic Financial Services Act 2013 (Malaysia) did the same with respect to takaful, contracts in Malaysia which shall be addressed in Chap. 5 of this book.
3.
Birds (2013, pp. 114–115).
4.
[1936] 2 All ER 952, 956.
5.
It should be noted that the law on pre and post-contractual misrepresentation in insurance contracts is distinct from that applying to the general law of contract. In general contract law, misrepresentation (whether innocent, negligent or fraudulent) necessarily occurs at the pre-contractual stage, as there is no continuing duty of utmost good faith. It is treated as a vitiating factor which makes the contract voidable at the option of the innocent party. See: ss17–19 of the Contracts Act 1950 (Malaysia) as discussed in Chap. 2 of this book.
6.
Section 18 (4) of the Marine Insurance Act 1906 (UK).
7.
Section 20 (7) of the Marine Insurance Act 1906 (UK).
8.
Section 20 (4); It went on to stipulate that a representation of fact would be substantially correct if the difference between what is represented and what is actually correct would not be considered material by a prudent insurer. This goes to show that a representation must be considered in its entirety and in the context in which it was made: Morrison v Muspratt (1827) 4 Bing 60, 63 (Burrough J).
9.
Section 20 (5); See: Economides v Commercial Assurance Co Plc [1997] 3 WLR 1066. Section 20 (6) completed the provision on pre-contractual representations by providing that a representation may be withdrawn or corrected before the contract is concluded, without affecting the validity of the ensuing contract.
10.
See: Highlands Insurance Co v Continental Insurance Co [1987] 1 Lloyd’s Rep 109 (Steyn J obiter) which was subsequently echoed by Rix J in HIH Casualty and General v Chase Manhattan Bank [2001] Lloyd’s Rep IR 702. See also: Financial Ombudsman Service (1991, pp. 7–8).
11.
Merkin (2000, p. [A.4.6]).
12.
The existence of an ambiguity in any given situation however, may in itself be unclear, as could be seen in the case of Alder v Moore [1961] 2 QB 57.
13.
See: English v Western [1940] 2 KB 156; Houghton v Trafalgar Insurance Co Ltd [1954] 1 QB 247.
14.
Birds, above n 3, 122–123.
15.
See: Section 2 (2) of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK) and s3 (1) of the Insurance Act 2015 (UK), respectively.
16.
Lambert v Co-operative Insurance Society [1975] 2 Lloyd’s Rep 485.
17.
See: Section 3 (3), 3 (4) and 7 (3) of the Insurance Act 2015 (UK).
18.
See: Section 3 (3) of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK).
19.
See: Paragraph 6 (2) and Paragraph 4 (1) (b) of Schedule 9 to the Financial Services Act 2013 (Malaysia) for consumer and non-consumer insurance contracts respectively, in relation to Malaysia, which was previously regulated by the now repealed s150 (1) of the Insurance Act 1996 (Malaysia). The position in Australia on the other hand, is governed by s21 of the Insurance Contracts Act 1984 (Cth).
20.
Economides v Commercial Assurance Co Plc [1997] 3 WLR 1066.
21.
Section 21 (1) of the Insurance Contracts Act 1984 (Cth) (Australia).
22.
Section 150 (1) of the Insurance Act 1996 (Malaysia).
23.
In fact, this provision was dropped from both the Australian Insurance Contracts Act 1984 (Cth) and the now repealed Malaysian Insurance Act 1996, as well as from s4 (2) of the new Financial Services Act 2013 (Malaysia).
24.
The Australian and Malaysian equivalent are s21 (2) (a) of the Insurance Contracts Act 1984 (Cth) and s4 (2) (a) of the Financial Services Act 2013 (Malaysia), respectively.
25.
The equivalent Australian and Malaysian provisions are s21 (2) (b) and (c) of the Insurance Contracts Act 1984 (Cth) and s4 (2) (b) and (c) of the Financial Services Act 2013 (Malaysia), respectively.
26.
[1960] 2 Lloyd’s Rep 391; See also: Winter v Irish Life Assurance Plc [1995] 2 Lloyd’s Rep 274.
27.
[1973] 1 MLJ 6.
28.
[1985] 2 MLJ 60.
29.
In the former case, the Federal Court felt that the insurers were not influenced by the insured’s incorrect answer in the proposal form that he had not made a claim in respect of his motor policy in the past two years, as the insurers went on to charge the insured the standard premium without any ‘no claim bonus’ rebate. In the latter, the court was of the view that the insurers in fact knew or at the very least, ought to have known that the motor policy was renewed on behalf of the deceased policyholder by his son, as the cover note described the insured as ‘Ng Hwee Bin (Deceased)’.
30.
The equivalent Australian and Malaysian provisions are s21 (2) (d) of the Insurance Contracts Act 1984 (Cth) and s4 (2) (d) of the Financial Services Act 2013 (Malaysia), respectively.
31.
Arterial Caravans Ltd v Yorkshire Insurance Co Ltd [1973] 1 Lloyd’s Rep 169; c/f Roberts v Plaisted [1989] 2 Lloyd’s Rep 341.
32.
See: Orakpo v Barclays Insurance Services Ltd [1995] LRLR 443 where this was in fact not the case.
33.
[1908] 2 KB 863, 884.
34.
[1975] 2 Lloyd’s Rep 485.
35.
Ibid. 491.
36.
Ibid. 492.
37.
Merkin (1976).
38.
[1975] 2 Lloyd’s Rep 485.
39.
Merkin, above n 37, 479.
40.
[1922] 2 KB 364.
41.
[1936] 1 KB 408.
42.
See: Lambert v Co-operative Insurance Society Ltd [1975] 2 Lloyd’s Rep 485.
43.
See: May J in March Cabaret Club & Casino Ltd v London Assurance Ltd [1975] 1 Lloyd’s Rep 169, 176. This was reiterated in the Malaysian case of United Oriental Assurance Sdn Bhd v WM Mazzarol (The Melanie) [1984] 1 MLJ 260, 262 (Salleh Abbas CJ).
44.
Goh Chooi Leong v Public Life Assurance Co Ltd [1964] MLJ 5.
45.
Merkin, above n 37, 480.
46.
[1974] 1 MLJ 149, where the insurer’s branch secretary’s testimony at the Sessions Court (which was not substantiated by any independent witness) that knowledge of the presence of the four grinding mills in the insured’s shop would have caused the insurer to charge a higher premium, was whole heartedly accepted right up to the Federal Court.
47.
Mahmood (1992, p. 58).
48.
[1966] 2 Lloyd’s Rep 112.
49.
Evans (1984, p. 14).
50.
Such was the case in Teh Say Cheng v North British & Mercantile Insurance Co Ltd (1921) 2 FMSLR 248. See also: Godfrey v Brittanic Assurance Co Ltd [1963] 2 Lloyd’s Rep 515, 518 (Pape J).
51.
Newsholme Bros v Road Transport and General Insurance [1929] 2 KB 356. This has been the case in the United Kingdom, despite the Law Reform Committee (1957) having recommended that the position be changed, whereby an insurance agent negotiating a policy should be deemed to be the insurer’s agent for the purposes of formation of the insurance contract, so that the agent’s knowledge could be imputed to the insurer. An examination of the recent reforms in the United Kingdom and Malaysia and the position in Australia with respect to the role and effect of insurance intermediaries at the pre-contractual stage of insurance contracts will be made later in this chapter.
52.
Merkin, above n 37, 482.
53.
See: Lambert v Co-operative Insurance Society Ltd [1975] 2 Lloyd’s Rep 485 (MacKenna and Lawton LJJ).
54.
[1964] 2 Lloyd’s Rep 347.
55.
(1921) 2 FMSLR 248, 258.
56.
The Court of Appeal’s decision in Berger and Light Diffusers Pty Ltd v Pollock [1973] 2 Lloyd’s Rep 442 however, indicates some reference to such issues by the courts much earlier.
57.
[1982] 2 Lloyd’s Rep 178.
58.
Ibid. 187, 188.
59.
Ibid. 188.
60.
See: CTI v Oceanus [1984] 1 Lloyd’s Rep 476, 491–492 (Kerr LJ) in delivering the judgment of the Court of Appeal. It is worth noting that Kerr LJ in his judgment had disassociated himself from his previous decision in Berger and Light Diffusers Pty Ltd v Pollock [1973] 2 Lloyd’s Rep 442.
61.
[1987] 1 Lloyd’s Rep 109, 114.
62.
[1987] 8 NSWLR 514.
63.
[1984] 1 Lloyd’s Rep 467; Ibid. 520, his Honour went so far as to comment on Kerr LJ’s unfortunate disassociation in CTI v Oceanus [1984] 1 Lloyd’s Rep 467 with his earlier judgment in Berger and Light Diffusers Pty Ltd v Pollock [1973] 2 Lloyd’s Rep 442.
64.
[1974] 1 NSWLR 228, 239.
65.
This was one of the last cases applying the common law duty of disclosure, as the position has since been governed by the Insurance Contracts Act 1984 (Cth) that in essence views the question of materiality from the reasonable insured’s perspective. Such has also been the case under the now repealed Insurance Act 1996 with respect to Malaysia.
66.
Barclay Holdings (Australia) Pty Ltd v British National Insurance Co Ltd [1987] 8 NSWLR 514, 517–519.
67.
[1984] 1 Lloyd’s Rep 467.
68.
[1994] 3 All ER 581.
69.
[1984] 1 Lloyd’s Rep 476.
70.
[1994] 3 All ER 581.
71.
[1984] 1 Lloyd’s Rep 476.
72.
Ibid.
73.
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1993] 1 Lloyd’s Rep 496, 503–505.
74.
[1984] 1 Lloyd’s Rep 476.
75.
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1993] 1 Lloyd’s Rep 496, 503–505.
76.
[1984] 1 Lloyd’s Rep 476.
77.
Ibid.
78.
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 All ER 581, 588.
79.
Ibid. 617–619.
80.
Not to forget, materiality in turn only required the test of ‘mere influence’ to be satisfied. It should be noted that Lord Lloyd in the same case strongly disagreed with the imposition of such a presumption (at 637) and has been consistent in holding this view. See: His Lordship’s decisions at the High Court in CTI v Oceanus [1982] 2 Lloyd’s Rep 178; Commonwealth Insurance Co of Vancouver v Group Sprinks SA [1983] 1 Lloyd’s Rep 67; and Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 All ER 581.
81.
It should be noted that the House was split on the law but was unanimous in dismissing the appeal on the facts.
82.
Carter v Boehm (1766) 3 Burr 1905; Ionides v Pender (1874) QB 531; Stribley v Imperial Marine Insurance Co (1876) 1 QBD 507; Rivas v Gerussi Bros & Co (1880) 6 QBD 222; Tate & Sons v Hyslop (1885) 15 QBD 368; Mutual Life Insurance Co of New York v Ontario Metal Products Co Ltd [1925] AC 344; Zurich General Accident and Liability Insurance Co Ltd v Morrison [1942] 2 KB 53; Barclay Holdings (Australia) Pty Ltd v British National Insurance Co Ltd (1987) 8 NSWLR 514.
83.
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 All ER 581, 625–626.
84.
Ibid. 638.
85.
[1984] 1 Lloyd’s Rep 476.
86.
[1994] 3 All ER 581.
87.
[1995] 2 Lloyd’s Rep 116.
88.
Ibid. 122 and 127.
89.
[1998] 1 Lloyd’s Rep 565.
90.
[1998] 1 Lloyd’s Rep IR 151.
91.
[1996] 1 Lloyd’s Rep 430, 442. The decision was later upheld by the Court of Appeal but without fully considering the point. It should be noted that Long more J has been consistent in subscribing to this view, as can be seen in Sirius International Insurance Corp v Oriental Insurance Corp [1999] Lloyd’s Rep IR 343, 354 (a case involving misrepresentation).
92.
[1984] 1 Lloyd’s Rep 476.
93.
Clarke (1988, p. 298).
94.
Brooke (1985) (written before Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 All ER 581 came about).
95.
[1984] 1 Lloyd’s Rep 476.
96.
Brooke, above n 94, 438 and 452.
97.
(1874) QB 531.
98.
[1925] AC 344.
99.
[1942] 2 KB 53.
100.
[1984] 1 Lloyd’s Rep 476.
101.
Brooke, above n 94, 451–452.
102.
[1984] 1 Lloyd’s Rep 476.
103.
72 F 413 (1896).
104.
49 F 2d 720 (1931).
105.
[1984] 1 Lloyd’s Rep 476.
106.
Clarke, above n 93, 298.
107.
Ibid. 304.
108.
[1984] 1 Lloyd’s Rep 476.
109.
Just before the Insurance Contracts Act 1984 (Cth) (Australia) came into effect on the 1st of January 1986.
110.
(1987) 8 NSWLR 514.
111.
[1984] 1 Lloyd’s Rep 476.
112.
Ying (1990).
113.
The decision of the court in the case was unanimous.
114.
[1984] 1 Lloyd’s Rep 476.
115.
Ibid.
116.
(1987) 8 NSWLR 514.
117.
Ying, above n 112, 103.
118.
[1984] 1 Lloyd’s Rep 476.
119.
Ying, above n 112, 106.
120.
[1994] 3 All ER 581.
121.
[1995] 2 Lloyd’s Rep 116.
122.
[1994] 3 All ER 581.
123.
Birds and Hird (1996, p. 288) eloquently question the need for a ‘convoluted’ introduction of the ‘actual inducement’ element by the House of Lords, when neither the Marine Insurance Act 1906 (UK) nor the previous authorities make any mention of it, as well as the inherent differences between non-disclosure and misrepresentation; Hird (1995a, b) goes on to state that there would not have been a need for such artificial striving had the House of Lords rejected the mere influence test to begin with.
124.
Lord Mustill alluded to such a presumption twice in his judgment in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 All ER 581, 610, 617. This was later endorsed by the Court of Appeal in St Paul Fire & Marine Insurance Co (UK) Ltd v McConnell Dowell Constructors Ltd [1995] 2 Lloyd’s Rep 116.
125.
[1994] 3 All ER 581.
126.
[1984] 1 Lloyd’s Rep 476.
127.
It is however, difficult to appreciate how it may be so in light of the ‘presumption of inducement’ that was introduced.
128.
[1995] 2 Lloyd’s Rep 116.
129.
Hird (1995a, b, pp. 612–613).
130.
Ying, above n 112, 102.
131.
[2004] EWCA Civ 1600.
132.
[2004] QB 601.
133.
This view is also shared by various commentators, like Eggers (2003), Clarke (2003).
134.
(1921) 2 FMSLR 248.
135.
Ibid. 260.
136.
See: Merkin, above n 11.
137.
Lyons v JW Bentley Ltd (1944) 77 Ll L Rep 335.
138.
(1922) 12 Ll L Rep 413.
139.
Marc Rich & Co AG v Portman [1996] 1 Lloyd’s Rep 430.
140.
[1937] 2 All ER 193. His Honour however, failed to go further and provide some guidelines on the extent of the duty.
141.
See: Becker v Marshall (1922) 12 Ll L Rep 413; Goh Chooi Leong v Public Life Assurance Co Ltd [1964] MLJ 5; Toh Kim Lian & Anor v Asia Insurance Co Ltd [1996] 1 MLJ 149.
142.
Following the coming into force of the Race Relations Act 1976 in the United Kingdom however, issues of race, religion, nationality and origin are immaterial factors, on grounds of public policy.
143.
Glicksman v Lancashire & General Assurance Co Ltd [1927] AC 139. This however, is only peculiar to non-marine insurance contracts and is irrelevant to marine insurance: Glasgow Assurance Corporation v William Symondson & Co (1911) 16 Com Cas 109, 119 (Scrutton J).
144.
National Insurance Co Ltd v S Joseph [1973] 2 MLJ 195.
145.
Glicksman v Lancashire & General Assurance Co Ltd [1927] AC 139 where the House of Lords decided that the insured who ran a small business as a ladies’ tailor and had applied for a burglary policy to insure his stock-in-trade, was duty bound to disclose to the insurer that he had been previously refused a burglary policy by another insurance company. Their Lordships held that the insured’s duty to disclose this information was in addition to his duty to provide truthful answers to questions posed in the proposal form. In fact, the insurer in this case had posed a question in the proposal form that was made the ‘basis of contract’, asking the insured as to whether any company had declined to accept or refused to renew the insured’s burglary policy, to which the insured failed to give a truthful response.
146.
Legh-Jones et al. (2003, p. 438).
147.
(1987) 8 NSWLR 514.
148.
[1982] 2 Lloyd’s Rep 178.
149.
It therefore, follows that prior dishonest conduct or fraud by an insured would constitute a moral hazard and would have to be disclosed to the prospective insurer: Insurance Corporation of Channel Islands v Royal Hotel Ltd [1998] Lloyd’s Rep IR 151.
150.
[1937] 2 All ER 193.
151.
For instance, a conviction for diamond smuggling (but not for bribing a police officer 20 years ago) was held to be material to a policy on diamonds in Roselodge v Castle [1966] 2 Lloyd’s Rep 112; and a conviction for receiving stolen furs was held to be material to a policy on furs in Regina Fur v Bossom [1958] 2 Lloyd’s Rep 425. It is however, not easy to see how the Court of Appeal in Lambert v Co-operative Insurance Society Ltd [1975] 2 Lloyd’s Rep 485 found Mr. Lambert’s first conviction and fine of £25 for receiving 1730 stolen cigarettes, which took place more than 10 years before the policy, to be a material fact, despite the fact that the insurers had in evidence admitted that an all risks policy would have been issued even if the said conviction was disclosed.
152.
Schoolman v Hall [1951] 1 Lloyd’s Rep 139 where the insured’s previous convictions for a series of offences ranging over 10 years, were held to be material to a burglary policy.
153.
This was the case in Roselodge v Castle [1966] 2 Lloyd’s Rep 112, 132 where McNair J held the undisclosed fact that the insured company’s principal director had been convicted 20 years ago for bribing a police officer, to be immaterial as it had ‘no direct relation to trading as a diamond merchant’. Likewise, in Reynolds v Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep 440 the insured’s failure to disclose a previous conviction involving a fine for receiving some stolen goods 11 years before was held to be immaterial when taking out a fire policy.
154.
Merkin, above n 37, 481.
155.
Section 2 (4) of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK) explicitly abolishes this.
156.
Section 3 (1) of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK). The relevant circumstances to be taken into account would include the non-exhaustive list of matters set out in s3 (2), like the type of consumer insurance contract, its target market, any explanatory or publicity material produced by the insurer, the clarity, specifics and importance (as communicated to the insured) of the insurer’s questions posed and the presence (if any) of an agent acting on the insured’s behalf.
157.
[1994] 3 All ER 581, 625–626.
158.
Section 5 (4) of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK).
159.
[2011] 1 Lloyd’s Rep. 589.
160.
Hertzell and Burgoyne (2013, p. 108).
161.
Ibid. 109.
162.
The insured must make disclosure in a manner that would be reasonably clear and accessible to a prudent insurer: s3 (3) (b) of the Insurance Act 2015 (UK).
163.
Section 3 (4) (a) of the Insurance Act 2015 (UK).
164.
Section 4 (6) of the Insurance Act 2015 (UK).
165.
Section 6 (1) of the Insurance Act 2015 (UK).
166.
Section 3 (4) (b) of the Insurance Act 2015 (UK).
167.
These would include (a) special or unusual facts relating to the risk; (b) any particular concerns that led the insured to seek insurance cover for the risk; and (c) anything which those concerned with the class or field of insurance or activity in question would generally require a fair presentation of risks.
168.
[1994] 3 All ER 581, 625–26.
169.
Section 8 (6) of the Insurance Act 2015 (UK).
170.
It should be noted that a similar set of remedies are provided for in Paragraphs 7–11 of Schedule 1 to the Act with respect to qualifying breaches of the duty of fair presentation in relation to variations made to non-consumer insurance contracts.
171.
Law Reform Committee (1957).
172.
Ibid. [11]–[12].
173.
Ibid. [14].
174.
Law Commission (1980).
175.
Law Commission and Scottish Law Commission (1975).
176.
Ibid. [240]–[47].
177.
The exception to this being death and personal injury, for which there could be no exclusion of liability.
178.
Forte (1986, p. 767).
179.
Association of British Insurers, Statement of General Insurance Practice (1986a).
180.
Association of British Insurers, Statement of Long Term Insurance Practice (1986b).
181.
Financial Services Authority, Insurance Conduct of Business (2005b).
182.
Financial Services Authority, Conduct of Business (2005a).
183.
See: Law Commission (1980) [28]–[29]; Insurance Law: Non-disclosure and Breach of Warranty (1979) [9].
184.
This is because the SOGIP was drawn up by the British Insurance Association and Lloyds and SOLTIP was drawn up by the Life Offices’ Association and the Associated Scottish Life Offices.
185.
Law Reform Committee (1957). See: Law Commission (1980) [10.9].
186.
This is in fact what was enacted by Australia via s14 of the Insurance Contracts Act 1984 (Cth).
187.
Birds (1982, p. 452).
188.
See: Hasson (1984); Birds, above n 187, 453.
189.
Hasson, above n 188, 509.
190.
The ICOB and COB were issued by the Financial Services Authority pursuant to s138 of the Financial Services and Markets Act 2000 (UK).
191.
See: Financial Ombudsman Service (1990–1991) [2.17] and [2.3] where the Insurance Ombudsman had in situations where an insured negligently misrepresented (or failed to disclose) a material fact, indicated that insurers would not be entitled to avoid liability entirely. They would instead be required to pay a proportionate sum based on the difference between the premium which was actually paid and that which ought to have been paid, had the insurer known the truth, despite Clause 2 (b) of SOGIP technically permitting avoidance of the policy in its entirety.
192.
Hamilton (1995, p. 366), who upon analysing a sample of 10 proposal forms in relation to life insurance and five in relation to ‘home and contents’ insurance (as representing general insurance policies), attempted to ascertain the extent to which the self-regulatory measures were complied with in practice in the United Kingdom.
193.
ICOB 4.3.2.
194.
ICOB 4.3.3.
195.
ICOB 7.3.6.
196.
ICOB 7.3.6 (d) (ii).
197.
ICOB 7.5.18.
198.
This is by virtue of s150 of the Financial Services and Markets Act 2000 (UK).
199.
Section 66 of the Financial Services and Markets Act 2000 (UK).
200.
English and Scottish Law Commission Joint Consultation Paper Summary (2007, p. 6).
201.
Roberts v Plaisted [1989] 2 Lloyd’s Rep. 341; Winter v Irish Life Assurance Plc [1995] 2 Lloyd’s Rep. 274.
202.
Newsholme Bros v Road Transport and General Insurance [1929] 2 KB 356.
203.
Stockton v Mason [1978] 2 Lloyd’s Rep. 430; Woolcott v Excess Insurance Co Ltd [1979] 1 Lloyd’s Rep. 231. See: Birds, above n 3, 210–211.
204.
[1929] 2 KB 356.
205.
Conditions and Exceptions in Insurance Policies (1957).
206.
It is in line with the approach adopted by Australia via s71 of the Insurance Contracts Act 1984 (Cth).
207.
Poh (2005, p. 385).
208.
New Zealand Insurance Co Ltd v Ong Choon Lin [1992] 1 CLJ 44, 53 (Vohrah J).
209.
De Maurier (Jewels) Ltd v Bastion Insurance Co [1967] 2 Lloyd’s Rep. 550; L’Union des Assurance de Paris IARD v HBZ International Exchange Co (Singapore) Pte Ltd [1993] 3 SLR 161.
210.
Stoneham v Ocean Railway and General Accident Insurance Co (1887) 19 QBD 237.
211.
Chong Kok Hwa v Taisho Marine & Fire Insurance Co Ltd [1977] 1 MLJ 244.
212.
A promissory warranty requires performance by the insured of a warranty in the future during the duration of the policy, for example, maintaining the sprinkler systems in a commercial fire insurance policy; whereas a warranty of existing fact is often made in the proposal form, for example, that the insured of a life insurance policy is a non-smoker.
213.
Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) [1991] 2 Lloyd’s Rep 191.
214.
Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) [1991] 2 Lloyd’s Rep 191.
215.
[1996] 1 Lloyd’s Rep 627.
216.
[1999] Lloyd’s Rep IR 147.
217.
[1966] 1 MLJ 140.
218.
Huddleston v RAC Insurance Pty Ltd [1975] VR 683.
219.
Hasson (1971, p. 29).
220.
McKay v London General Insurance Co. (1935) 51 Ll L R 201.
221.
Birds, above n 3, 173–174.
222.
(1853) 4 HLC 483.
223.
Ibid. 514.
224.
The first reported decision was Duckett v Williams (1834) 2 C & M 348.
225.
See: Hasson, above n 188.
226.
See: Bean v Stupart (1778) 1 Doug 11; De Hahn v Hartley (1786) 1 TR 343, both concerning the number of seaman on board the insured vessel. McDowell v Fraser (1779) 1 Doug 266, in turn, concerned the sighting of a ship which was in fact lost at the time.
227.
(1761) 1 Wm Bl 313.
228.
Parson v Barnevelt (1779) 1 Doug 12; Bize v Fletcher (1779) 1 Doug 284.
229.
See: Lord Eldon in Newcastle Fire Insurance Co v Macmorran (1815) 3 Dow 255, 265.
230.
(1834) 2 C & M 348.
231.
(1853) 4 HLC 483.
232.
(1884) 9 App Cas 671.
233.
Ibid. 682.
234.
Yorkshire Insurance Co v Campbell [1917] AC 218 (PC).
235.
[1922] 2 AC 413.
236.
Ibid. 435 (Lord Dunedin).
237.
(1935) 51 Ll L R 201, 202. See also: West v National Union and Accident Insurance Co [1954] 2 Lloyd’s Rep 461.
238.
Hasson, above n 188, 32 and 38.
239.
See: Law Commission (1980). Australia has long abolished the same via s24 of the Insurance Contracts Act 1984 (Cth) (Australia).
240.
Teh Say Cheng v North British and Mercantile Insurance Co Ltd (1921) 2 FMSLR 248; Wong Lang Hung v National Employees’ Mutual General Insurance [1972] 2 MLJ 191.
241.
[1975] 2 Lloyd’s Rep 485.
242.
[1974] 1 MLJ 149.
243.
Ibid. 151.
244.
Mahmood, above n 47, 55.
245.
[1984] 1 MLJ 260.
246.
[1974] 1 MLJ 149.
247.
[2000] 5 MLJ 696.
248.
[2001] 1 MLJ 227. It should be noted that although this case was decided after the Insurance Act 1996 (Malaysia) came into effect, the provisions of the Act were not considered, as the events giving rise to the claim occurred prior to the enforcement of the said Act, hence based on the earlier repealed Insurance Act 1963 (Malaysia).
249.
[2006] 1 CLJ 1.
250.
[2011] MLJU 719.
251.
[2012] 7 MLJ 179.
252.
Hammer Waste Pty Ltd v QBE Mutual Ltd [2002] NSWSC 1006.
253.
This is analogous to s150 (1) (a) of the Insurance Act 1996 (Malaysia).
254.
Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd [2001] 50 NSWLR 679.
255.
This is analogous to s 150 (1) (b) of the Insurance Act 1996 (Malaysia).
256.
Examples of this would be the level of informality attendant upon negotiations, whether cover was arranged over the telephone, the type of policy in issue, exposure to advertising, etc.
257.
[2008] HCA 30.
258.
[1990] VR 919.
259.
Australian Law Reform Commission (1982) [183].
260.
Section 29 is the equivalent provision applying to life insurance. Both sections apply to non-disclosure and misrepresentations as well. This section draws on research appearing in: Thanasegaran (2004, p. 154).
261.
Insurance Manufacturers of Australia Pty Ltd v Heron [2005] VSC 482. Under s31 the court has a discretion to disregard the insurer’s avoidance if it ‘would be harsh and unfair not to do so’ thereby allowing the insured recovery of the whole or part of the claim as it thinks ‘just and equitable,’ provided the insurer has not been prejudiced by the fraudulent non-disclosure or misrepresentation in question.
262.
See: Prime Form Cutting Pty Limited v Balitca General Insurance Co Ltd [1991] 6 ANZ Ins Cas ¶61-028; Fruehauf Finance Corporation Pty Ltd v Zurich Australia Insurance Limited [1990] 20 NSWLR 359; and more recently, Prepaid Services v Atradius (no 2) [2014] NSWSC 21 which have established that the remedy under s28(3) can include reducing the insurer’s liability under the policy to nil (if the insurer can prove that it would not have entered into the contract at all but for the non-disclosure or misrepresentation) and reducing its liability for a claim to nil (if it can prove that it would have excluded the relevant claim from cover by way of an excess or exclusion under an alternative policy which it would have issued had there been a proper disclosure or if the additional premium which it would have charged would have exceeded the amount of the claim): Mann and Lewis (2014, p. 197).
263.
Hawke (2006, p. 13). This section draws on research appearing in: Thanasegaran (2008, p. 158).
264.
Gan (1997, p. 191).
265.
Tan Mooi Sim & Anor v United Overseas Bank (M) Bhd & Anor [2011] 8 MLJ 556.
266.
Abdul Mubarak (2002, p. 8).
267.
(1995) 8 ANZ Ins Cas ¶61-287.
268.
Orb Holdings Pty Ltd v Lombard Insurance Co (Aust) Ltd [1995] 2 Qd R 51.
269.
Butcher v Dowlen [1981] 1 Lloyd’s Rep 310.
270.
Section 150 (2) departs from s18 (3) of the Marine Insurance Act 1906 (UK) in some important respects, namely, the proviso ‘in the absence of inquiry’ appearing in s18 (3) has been dropped, along with s18 (3) (d) which deals with circumstances which are superfluous to disclose by reason of any express or implied warranty.
271.
Section 150 (3) is in fact a reproduction of the Australian s21 (3) of the Insurance Contracts Act 1984 (Cth).
272.
Mazzarol v United Oriental Assurance [1983] 1 MLJ 328.
273.
[1995] LRLR 443.
274.
Section 21(3) in turn provides that:
Where a person failed to answer or gave an obviously incomplete or irrelevant answer to a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter (emphasis added).
275.
Rocco Pezzano Pty Ltd v Unity Insurance Brokers Pty Ltd [1995] 8 ANZ Ins Cas ¶61-288; The fact that only one claim was disclosed for a business which was in existence for more than 20 years was held not to be unusual enough a circumstance so as to put the insurer on notice that the information given was ‘obviously’ incomplete.
276.
Dew v Suncorp Life and Superannuation Ltd [2001] QCA 459.
277.
Delphine v Lumley General Insurance [1990] 6 ANZ Ins Cas ¶60-986.
278.
Law Reform Committee (1957) [14].
279.
Under s16A, it was an offence for any person to make misleading statements, promises or forecasts in order to induce another person to enter into any contract of insurance.
280.
Section 44A(3) however, prevented the application of subsections (1) and (2) where there was collusion between the insured and agent or the insurer has taken reasonable steps to notify all concerned of the cessation of the agency. It is worth noting that s44A was enacted to replace s18E introduced in 1975, as the latter only applied to home-service policies and even then, contained an opening phrase providing that ‘where an agent or servant of an insurer fills in a proposal form,’ hence not addressing the ‘transferred agency’ problem because an agent helping the insured to fill in proposal forms was not deemed to be the insurer’s agent.
281.
[1929] 2 KB 356.
282.
[1994] 2 CLJ 405.
283.
[1996] 1 CLJ 105.
284.
[1996] 2 MLJ 160.
285.
[2006] 1 CLJ 1. Mahmood, above n 47, 114, is however, of the view that although s44A reversed the ‘transferred agency’ rule, it did not address the fact that the proposer was responsible for what he signs and the effect of the parol evidence rule in ss91and 92 of the Evidence Act 1950 (Malaysia). Nevertheless, in practice, a specific provision like s44A governing the area should take precedence over the general evidentiary rules in ss91 and 92.
286.
Section 151 (1) provided that:
A person who is authorised by a licensed insurer to be its insurance agent and who solicits or negotiates a contract of insurance in that capacity shall be deemed, for the purpose of the formation of the contract of insurance, to be the agent of the licensed insurer and the knowledge of that insurance agent shall be deemed to be the knowledge of the licensed insurer.
Section 151 (2) provided that:
A statement made, or an act done, by the insurance agent shall be deemed, for the purposes of the formation of the contract of insurance, to be a statement made, or act done, by the licensed insurer notwithstanding the insurance agent’s contravention of subsection 150 (4) or any other provision of this Act.
Section 151 (3) provided that:
Subsection (1) shall not apply—(a) where there is collusion or connivance between the insurance agent and the proposer in the formation of the contract of insurance; or (b) where a person has ceased to be an insurance agent of a licensed insurer and it has taken all reasonable steps to inform, or bring to the knowledge of potential policy owners and the public in general of the fact of such cessation.
287.
[1999] 1 CLJ 179.
288.
This was in fact the view taken by Mahmood, above n 47, 121.
289.
This would be similar to s12 of the repealed Insurance (Agents & Brokers) Act 1984 (Cth) (Australia), instead of just referring to the formative part of the insurance contract.
290.
The Act came into effect on 11 March 2002 (subject to a two year transition period for some measures) and was the result of the Corporate Law Economic Reform Program (1997) (CLERP 6).
291.
Mahmood, above n 47, 48.
292.
This is by virtue of s147 of the Insurance Act 1996 (Malaysia).
293.
This is facilitated by s5 of the Civil Law Act 1956 (Malaysia).
294.
Section 147 is similar to the Australian s30 of the Insurance Contracts Act 1984 (Cth).
295.
Section 147 (2) provided that:
Where the true age as shown by the proof is greater than that on which the life policy is based, the licensed life insurer may vary the sum insured by, and the bonuses allotted to, the life policy so that, as varied, they bear the same proportion to the sum insured by, and the bonuses allotted to, the life policy before variation as the amount of the premiums that have been paid under the life policy as issued bears to the amount of the premiums that would have become payable if the life policy had been based on the true age.
Section 147(3) provided that:
Where the true age as shown by the proof is less than that on which the life policy was based, the licensed life insurer—
1. (a)
  may vary the sum insured by, and the bonuses allotted to, the life policy so that, as varied, it bears the same proportion to the sum insured by, and the bonuses allotted to, the life policy, before variation as the amount of the premiums that have been paid under the life policy as issued bears to the amount of the premiums that would have become payable if the life policy had been based on the true age; or
2. (b)
  may reduce the premium as from the date of issue of the life policy, to the amount that would have been payable if the life policy had been based on the true age and repay the policy owner the amount of over-payments of premium less any amount that has been paid as the cash value of bonuses in excess of the cash value that would have been paid if the life policy had been based on the true age.
296.
Azizah bt Abdullah v Arab Malaysian Eagles Sdn Bhd [1996] 5 MLJ 569.
297.
[1966] 1 MLJ 140. The decision in Dawsons v Bonnin [1922] AC 413 was applied here.
298.
[1952] MLJ 246.
299.
[2013] 5 MLJ 195.
300.
[2006] 1 CLJ 1. This has been discussed in detail in Chap. 2. This section draws on research appearing in: Thanasegaran (2007, p. clv).
301.
Section 29 of the Insurance Contracts Act 1984 (Cth) (Australia).
302.
Section 28 of the Insurance Contracts Act 1984 (Cth) (Australia). Limited recourse to avoidance is only available (subject to s31) in the event of fraudulent misrepresentation by the insured.
303.
Section 27 of the Insurance Contracts Act 1984 (Cth) (Australia).
304.
Section 26 (2) of the Insurance Contracts Act 1984 (Cth) (Australia).
305.
Section 26 (1) of the Insurance Contracts Act 1984 (Cth) (Australia).
306.
Central Bank of Malaysia (2006). Similarly, Clause 8 of the Central Bank of Malaysia (1997) which came into effect on 1 January 1998, requires proposal forms to be written in clear and simple language and questions posed therein to be specific in nature.
307.
Central Bank of Malaysia (2003). This is presumably the most important of the Guidelines issued by the Central Bank, with the revised version coming into effect on 16 September 2003. The purpose of which is to further enhance the minimum standards to be observed by insurers in claims processing and settlement including fraud control and risk management measures: Clause 2.
308.
See: Leong Kum Whay v QBE Insurance (M) Sdn Bhd [2006] 1 CLJ 1. This section draws on research appearing in: Thanasegaran (2011, pp. 197–198).
309.
This is acknowledged and reported in the Financial Mediation Bureau (2008, p. 14). It is in line with and pursuant to the Financial Mediation Bureau’s Terms of Reference as embodied in its Memorandum and Articles of Association:
Mediators are required (i) to have regard to and act in conformity (a) with the terms of any contract; (b) any applicable rule of law, judicial authority or statutory provision; and (c) the general principles of good insurance, investment or market practice, the Central Bank’s Guidelines on Claims Settlement Practices for insurance and takaful matters but with (c) prevailing over (b) in favour of the complainant; (ii) to have regard to (without being bound by) any previous decision of any Mediator; (iii) in light of (i) and (ii), to assess what solution would be fair and reasonable in all the circumstances.
310.
Acknowledgment of this fact is reflected in the Financial Mediation Bureau (2009, p. 20), where the Mediator stressed that the Claims Settlement Guidelines have been adopted by the Bureau and its predecessor since 1995 as being reflective of good insurance practice rather than industry practice per se.
311.
This is apparent from the fact that the Financial Mediation Bureau is very popular amongst complainants, with an average of more than 1000 new cases being referred annually from 2000 to 2014 and a large proportion of them comprising allegations by insurers of breach of utmost good faith by insureds in one form or another: See: Table of Cases Referred to the Financial Mediation Bureau from 2000 to 2014 in the Appendix. This can be compared to there being less than 100 reported decisions on insurance from the courts for the same period. In fact, the Mediator’s Report in the Financial Mediation Bureau (2006, p. 19), acknowledged this trend of a scarce number of insurance cases being filed in the courts in recent years, stating that insurance intermediaries have now resorted to the Case Review published in the Bureau’s Annual Reports for their guidance and reference.
312.
Section 271 of the Financial Services Act 2013 (Malaysia) repeals the Insurance Act 1996 (Malaysia) but s272 retains the application of the Insurance Regulations 1996 as amended in 2013.
313.
See: Section 21 of the Insurance Contracts Act 1984 (Cth) (Australia).
314.
See: Section 2 (2) of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK) and s21A of the Insurance Contracts Act 1984 (Cth) (Australia).
315.
See: Paragraph 6 (2) of Schedule 9 to the Financial Services Act 2013 (Malaysia) which is based on s3 of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK) and s21A of the Insurance Contracts Act 1984 (Cth) (Australia).
316.
See: Paragraphs 7 (7) and 7 (5) respectively of Schedule 9 to the Financial Services Act 2013 (Malaysia). It should be noted that Paragraph 7 (8) contains a balanced provision that unless the contrary is shown, it is presumed that the consumer knew that a matter about which the insurer asked a clear and specific question was relevant to the insurer.
317.
See: Paragraphs 13 (4) and 13 (3) respectively of Schedule 9 to the Financial Services Act 2013 (Malaysia).
318.
This provision takes into account the improvement made to s22 of the Insurance Contracts Act 1984 (Cth) (Australia) by the Insurance Contracts Amendment Act 2013 (Cth) (Australia).
319.
See: Clause 3.4 of the Claims Settlement Guidelines. A major drawback is that the Guidelines have no clear sanctions set out as being applicable in the event of non-compliance.
320.
See: Financial Mediation Bureau (2009, p. 20). This section draws on research appearing in: Thanasegaran and Shaiban (2014, p. 343).

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Haemala Thanasegaran

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Thanasegaran, H. (2016). Pre-contractual Duty of Disclosure and Misrepresentation. In: Good Faith in Insurance and Takaful Contracts in Malaysia. Springer, Singapore. https://doi.org/10.1007/978-981-10-0383-7_3

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Published: 23 January 2016
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