Abstract
This concluding chapter summarizes the main theme of the book which is to address the question of ‘why and what legal reform’ is needed with respect to utmost good faith in insurance and takaful contracts in Malaysia. In doing so, it starts with a summary of the proposals for reform of the law and practice governing insurance and takaful contracts in Malaysia, that have been suggested throughout the book. This is followed by an examination of the proposed legal reforms to ascertain whether they are viable from a law and economics perspective, so as to strike a fair and workable balance between the competing interests of insurers and takaful operators on the one hand and insureds and takaful participants on the other.
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Notes
- 1.
Hadfield (1999, p. 61).
- 2.
In fact, there have been increasing calls for economic analysis to be used as a ‘filter’ in judicial decision-making as well, in cases where the law is unclear or the use of the law alone is inadequate (bearing in mind that not all cases come within this category, as some issues concern non-economic considerations of ethics and justice): Kirby (1999, p. 125). Note: The use of the ‘Brandeis’ brief by the Supreme Court in the United States for the past century, where information about the economic and social consequences of the potential decisions is placed before the judges: Mason (1991, p. 174).
- 3.
This section draws on research appearing in: Thanasegaran (2004, pp. 158–159).
- 4.
Some examples of these are ss149 (4), 150 and 151 of the Insurance Act 1996 (Malaysia).
- 5.
The law of transplants is however, beyond the scope of this book.
- 6.
Section 37 which covers the notification of unusual terms, provides that:
An insurer may not rely on a provision included in a contract of insurance (not being a prescribed contract) of a kind that is not usually included in contracts of insurance that provide similar insurance cover unless, before the contract was entered into, the insurer clearly informed the insured in writing of the effect of the provision (whether by providing the insured with a document containing the provision, or the relevant provisions of the proposed contract or otherwise).
- 7.
See: Section 21 of the Insurance Contracts Act 1984 (Cth) (Australia).
- 8.
See: Section 2 (2) of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK) and s21A of the Insurance Contracts Act 1984 (Cth) (Australia).
- 9.
See: Paragraph 6 (2) of Schedule 9 to the Financial Services Act 2013 (Malaysia) and Islamic 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). This section draws on research appearing in: Thanasegaran and Shaiban (2014, p. 339), but is used throughout this chapter in the context of both the Financial Services Act 2013 (Malaysia) and the Islamic Financial Services Act 2013 (Malaysia), as an examination of both statutes shows that the Malaysian legislature has used the same numeric sections in referring to this area of the law in both statutes.
- 10.
This section draws on research appearing in: Thanasegaran and Shaiban, above n 9, 339.
- 11.
Section 31 in fact gives the court 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,’ in cases where the insurer has not been prejudiced by the fraudulent non-disclosure or misrepresentation in question.
- 12.
Section 28 (3); The remedy under s28 (3) can include reducing the insurer’s liability under the policy to nil (where 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 (where 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 where the additional premium which it would have charged would have exceeded the amount of the claim): Mann and Lewis (2014, p. 197).
- 13.
Section 29(4) provides that:
If the insurer has not avoided the contract, whether under subsection (2) or (3) or otherwise, the insurer may, by notice in writing given to the insured before the expiration of 3 years after the contract was entered into, vary the contract by substituting for the sum insured (including any bonuses) a sum that is not less than the sum ascertained in accordance with the formula SP/Q where:
-
“S” is the number of dollars that is equal to the sum insured (including any bonuses).
-
“P” is the number of dollars that is equal to the premium that has, or to the sum of the premiums that have become payable under the contract; and
-
“Q” is the number of dollars that is equal to the premium, or to the sum of the premiums, that the insurer would have been likely to have charged if the duty of disclosure had been complied with or the misrepresentation had not been made.
-
- 14.
Hawke (2006, p. 13).
- 15.
See: Paragraphs 7 (7) and 7 (5) respectively of Schedule 9 to the Financial Services Act 2013 (Malaysia) and Islamic 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/takaful operator asked a clear and specific question was relevant to the insurer/takaful operator. This section draws on research appearing in: Thanasegaran and Shaiban, above n 9, 340.
- 16.
See: Paragraphs 13 (4) and 13 (3) respectively of Schedule 9 to the Financial Services Act 2013 (Malaysia) and Islamic Financial Services Act 2013 (Malaysia).This section draws on research appearing in: Thanasegaran and Shaiban, above n 9, 340.
- 17.
Ibid.
- 18.
Ibid.
- 19.
Ibid 341.
- 20.
Ibid.
- 21.
Brown (1994, p. 205).
- 22.
This should entail the use of simple and consumer friendly language in drafting proposal forms, insurance/takaful policies and cover notes.
- 23.
Such approval should be given in consultation with the relevant trade associations, with the standard cover being re-examined from time to time by the Central Bank, to accommodate possible revision so as to permit flexibility in keeping abreast with changes in insurance and takaful practices as well as the reasonable expectations of insureds and takaful participants: Australian Law Reform Commission (1982a) [81]. The appropriate terms or content of the said standard cover are however, outside the scope of this book.
- 24.
- 25.
This essentially depends on whether the intermediary concerned has the insurer or takaful operator’s authority to receive the same, which in turn needs further proof.
- 26.
See: Wong Cheong Kong Sdn Bhd v Prudential Assurance Sdn Bhd [1998] 3 MLJ 722; Cheong Heng Loong Goldsmiths (KL) Sdn Bhd v Capital Insurance Bhd [2004] 1 CLJ 357 (insurance); Seah Cheoh Wah v Malayan Banking Bhd & Anor [2009] 7 CLJ 485; TK0216—Total and Permanent Disability and TK0218—Death Claim, Financial Mediation Bureau, Compilation of Cases 2010, Kuala Lumpur, 2011, 21 (takaful). This section draws on research appearing in: Thanasegaran (2013, pp. 115–116).
- 27.
See: Table of Cases Referred to the Financial Mediation Bureau from 2000 to 2014 in the Appendix. The breakdown of the number of cases referred to the Financial Mediation Bureau according to the types of complaint is however, no longer available from 2012.
- 28.
Central Bank of Malaysia (2003).
- 29.
See: Financial Mediation Bureau (2009, pp. 8–10).
- 30.
See: Table of Cases Referred to the Financial Mediation Bureau from 2000 to 2014 in the Appendix for the percentage of cases in which the insurers’ and takaful operators’ decision was revised by the Mediator. This section draws on research appearing in: Thanasegaran (2011, pp. 197–198).
- 31.
[2006] 1 CLJ 1.
- 32.
This section draws on research appearing in: Thanasegaran and Shaiban, above n 9, 342.
- 33.
This was done to implement the Australian Law Reform Commission’s recommendations made in 1982 that ‘legislation should make it clear that the duty of utmost good faith applied to all aspects of the relationship between insurer and insured, including the settlement of claims’: Australian Law Reform Commission (1982b) [328]; Further endorsement of this can be found in the Explanatory Memorandum, Insurance Contracts Bill 1984 (Cth) [35]. This section draws on research appearing in: Thanasegaran, above n 3, 158–159.
- 34.
In fact, the Notes to the draft Insurance Contracts Bill 1982 (Cth) described the duty of utmost good faith as being ‘paramount’ and should not be displaced by further or other duties imposed by the Act.
- 35.
As a result, damages is available as a substantive remedy and gives the duty of utmost good faith a wide and overarching reach over all aspects of an insurance contract, from the pre-contractual stage right up to claims settlement.
- 36.
Report No 20 (1982b) [228]. In order to achieve this, the Law Commission envisaged that the application of s54 should not be affected by matters of form and would also cover matters such as breaches of conditions subsequent and exclusions and has been given effect to by the Australian courts.
- 37.
Section 55 provides that the remedies in s54 apply exclusively to such post-contractual breaches; and s55A in turn, empowers the Australian Securities and Investment Commission (ASIC) to bring representative actions on behalf of insureds who have or are likely to suffer damage as a result of the terms of the contract or conduct of the insurer in breach of the Act.
- 38.
In doing so however, the court shall have regard to the need to deter insurance fraud and other relevant matters: Section 56(3). Also, s54 would not apply to cases involving fraudulent claims under s56, as the grounds for and manner of assessing the remedies therein are inconsistent with each other.
- 39.
Australian Law Reform Commission (1982b) [243] and [187].
- 40.
Settlement Wine Co Pty Ltd v National & General Insurance Co Ltd (1994) 62 SASR 40; See: Australian Law Reform Commission (1982b) [323] and [324].
- 41.
This section draws on research appearing in: Thanasegaran and Shaiban, above n 9, 352.
- 42.
This is so, despite showing a propensity for laws, with a very high uncertainty avoidance score, as shown in Chap. 6.
- 43.
This is apparent in the number of complaints being referred to the Financial Mediation Bureau annually from 2000 to 2014, which is an average of more than 1000 cases per year, as compared to a total of not more than 100 decided cases on insurance and takaful in the civil courts for the entire period. See: Table of Cases Referred to the Financial Mediation Bureau from 2000 to 2014 in the Appendix. This section draws on research appearing in: Thanasegaran, above n 30, 198.
- 44.
Ibid 199.
- 45.
Ibid.
- 46.
The Star (Kuala Lumpur) (2008) p. 8. Ibid.
- 47.
This section draws on research appearing in: Thanasegaran, above n 26, 119.
- 48.
Ibid. Positive economic analysis is based on the assumption that ‘individuals are rational maximizers of their satisfactions in their non-market as well as their market behaviour’ responding to ‘price incentives’ and ‘legal rules and legal outcomes can be assessed on the basis of their efficiency properties’: Mercuro and Medema (2006, p. 102).
- 49.
Normative questions such as ‘what is good’ and ‘what is just’ is ‘the stuff of law’: Hadfield, above n 1, 55; whereas the ‘rational maximization of satisfaction’ using efficient means is the stuff of economics: Mercuro and Medema, above n 49, 102. This is epitomized by the opposing concepts of ‘the reasonable man’ and ‘the rational man’ respectively.
- 50.
This section draws on research appearing in: Thanasegaran, above n 26, 119.
- 51.
Trebilcock (1999, pp. 18–20).
- 52.
This section draws on research appearing in: Thanasegaran, above n 26, 119.
- 53.
Trebilcock, above n 52, 22; Ibid 120.
- 54.
The opposite of this is effect evaluation which is in the realm of positive economics and has an organizational perspective of law and economics which focuses on transactional costs instead: Hirsch (1999, pp. 5–6).
- 55.
Polinsky (1983, pp. 123–124). This section also draws on research appearing in: Thanasegaran, above n 26, 120.
- 56.
van Boom (2008, p. 11). Ibid.
- 57.
- 58.
A similar approach involving a trade-off between competing interests based on efficiency and equity in order to justify the imposition of certain burdens or standards on certain parties to a contract involving equitable principles like unconscionable dealing was adopted by Duggan (1997).
- 59.
In fact, it has been said to have ‘a great deal of impact on law-making’ despite its limits in terms of relevance to some spheres of legal issues, such as child abuse, race and gender discrimination: Trebilcock, above n 52, 27.
- 60.
Australian Law Reform Commission (1982a) [20]–[29].
- 61.
These are in fact similar to and are based on the response articulated by the Australian Law Reform Commission in 1982 when assessing the package of reforms contained in the Insurance Contracts Act 1984 (Cth): Australian Law Reform Commission (1982b) [20]–[30].
- 62.
This has been done through the 10-year Consumer Education Programme launched by the Central Bank of Malaysia in August 2003.
- 63.
Australian Law Reform Commission (1982b) [175] and [183].
- 64.
Ibid [326].
- 65.
Ibid [51].
- 66.
See: Duggan, above n 59, 614, which is akin to the socially costless option of refraining from engaging in exploitative and unconscionable conduct envisaged by him.
- 67.
Australian Law Reform Commission (1982b) [55]. The reference to ‘insurance’ in the report is construed to include ‘takaful’ as well for the purposes of this book. It should be noted that the possible cost of anti-competitiveness in terms of inhibiting insurers’ (and takaful operators’) development of new and improved products as a result of the introduction of standard cover, has been dealt with by Australia by permitting insurers to derogate from standard cover, provided they specifically draw the limit on cover to the insured’s attention at the onset: [57]. However, it is doubtful whether such a proposal would be suitable for Malaysia, in view of the socio-cultural climate within which it is to operate.
- 68.
This is because there are ‘so many insureds (and participants) and because the combination of non-disclosure and subsequent loss is so infrequent, the effect of the proposed change on premiums would be negligible’: Ibid [183].
- 69.
Ibid [187]; A combination of proportionate damages for life insurance (and family takaful) and contractual damages for general insurance (and general takaful), appropriately addresses the matter: Ibid [226]–[228].
- 70.
Bennett (1999, pp. 214–215).
- 71.
Hasson (1969, p. 636).
- 72.
Coonan (2003).
- 73.
Merkin (2006, p. 6).
- 74.
Ibid.
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Thanasegaran, H. (2016). Conclusion. In: Good Faith in Insurance and Takaful Contracts in Malaysia. Springer, Singapore. https://doi.org/10.1007/978-981-10-0383-7_7
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