Back
1996 MarsdenLR 1164
HIGH COURT MALAYA, KOTA BHARU
NIK HASHIM NIK AB.RAHMAN, JC
AZIZAH BINTI ABDULLAH – Appellant
Versus
ARABMALAYSIAN EAGLES SDN. BHD. – Respondent
CIVIL APPEAL NO. 12-10-1995
Under statutory insurance provisions, an insurer cannot challenge a life policy after two years unless it proves the insured made a material misrepresentation or suppression of fact fraudulently, with specific knowledge that the information provided was false.
Headnote:(A) Insurance Act 1963 - Section 15C(4) - Life assurance policy - Challenge of policy after two years - Insurer required to prove material non-disclosure or suppression must be fraudulent and made with knowledge of falsity.
(B) Insurance Law - Contract of utmost good faith - Duty of disclosure is reciprocal between insurer and insured - Ambiguous terms in proposal forms or policies are to be construed against the party relying on them to avoid injustice.
Facts of the case:
The appellant sought payment under a life insurance policy for additional units acquired by the deceased. The insurer denied liability, claiming the deceased failed to disclose a pre-existing medical condition of diabetes, which constituted a breach of warranty. The lower court dismissed the claim based on the insured's alleged failure to disclose this condition.
Findings of Court:
The court determined that the insurer failed to produce original medical records to substantiate the diagnosis of the alleged illness. Furthermore, the evidence provided by medical experts indicated that the deceased did not exhibit symptoms of the condition shortly before death and likely did not know of any such diagnosis. The policy had been in effect for more than two years, invoking statutory protections requiring the insurer to prove actual fraud.
Issues: Whether the insurer could avoid liability after two years on the grounds of non-disclosure and whether the medical condition constituted a material fact known to the deceased.
Ratio Decidendi: To challenge a policy after two years, the insurer must establish that a statement was made on a material matter, that it suppressed a material fact, and that such suppression was done fraudulently with the knowledge of its falsity. Vague or ambiguous terms in an insurance contract cannot be used to impute knowledge or hold an insured liable for non-disclosure of unknown or poorly defined medical conditions.
Result: Appeal allowed; lower court order set aside; judgment for the appellant.
JUDGMENT
Nik Hashim Nik Ab. Rahman JC:
The deceased, 44, a major in the Armed Forces, died on 13 December 1990 due to high fever. Prior to his death he bought a total of 10 units in the Group Insurance Scheme Policy of the respondents/defendants, Arab-Malaysian Eagles Sdn. Bhd. through the Koperasi Tentera. He named his wife appellant/plaintiff as the sole beneficiary. The insurer paid her only for the 5 units which the deceased bought on 1 May 1981, while for the balance 5 units, bought on 10 July 1987, the insurer denied liability. It is in respect of this that the appeal lies.
The defendants refused to pay her on the ground of non-disclosure of the material fact by the deceased in the proposal form (D6) dated 10 July 1987. The plaintiff sued the defendants for the sum of RM89,500 being the assured amount for the additional 5 units, and interest thereon.
The defendants alleged that the deceased had breached the condition under clause 8(d)(i) Second Schedule of the Group Policy No. G.P. 1025 (D7) in that he had made a declaration at clause 5 claiming that:
- Saya mengaku Darjah Kecergasan Tubuh (DKT) saya adalah FE pada masa saya menandatangani borang permohonan ini. Saya juga mengaku bahawa saya adalah di dalam keadaan kesihatan yang baik, tidak mempunyai penyakit yang berlarutan atau berulang, sakit jiwa/otak dan lain-lain kecacatan/ kelemahan tertentu pada masa saya menandatangani borang permohonan ini. (Emphasis added).
whereas according to the medical report (D2), he was diagnosed to be suffering from diabetes since February 1986.
Clause 8 (d)(i) of D7 provides:
- d) Exclusions:
This Group Insurance Scheme does not provide coverage on deaths or accidents arising from or under the following situations:
(i) Prolonged illnesses which have been diagnosed prior to the date of joining the insurance scheme based on the contents in the medical report of the deceased. [Emphasis added]
The learned Sessions Court Judge in dismissing the plaintiff's claim ruled at page 11 of record:
- Mahkamah pada penemuan faktanya memutuskan bahawa Mahkamah meragui sama ada benar pada 10 Julai 1987 suami si mati tidak mempunyai penyakit yang berlarutan. Ini adalah kerana pada ujian bulan Februari 1986 dan bulan Januari 1987, dia didapati mengidap penyakit kencing manis, satu penyakit yang berlarutan.
Encik R.G. Naidu, leading Counsel for the plaintiff submitted that the life policy has lapsed more than two years after it was effected and hence s. 15C(4) of the Insurance Act 1963 applies to the present case. Encik Mohd. Roslan bin Hassan, learned Counsel for the defendants shared his view on this point. Counsel for the plaintiff further argued that the non-disclosed information must not only be material but must also have been fraudulent, and stressed that the burden is on the defendants to prove the non-disclosure. I with respect agree with his submission. It is trite law that the burden of proof is on the insurer to prove non-disclosure and they have the right to begin (see Goh Chooi Leong v. Public Life Assurance Co. Ltd. [1963] 1 LNS 30[1964] 30 MLJ 5). The policy has been in force for more than 2 years and therefore s. 15C(4) rightly applies to this case.
Section 15C(4) provides:
- No life policy... shall after the expiry of two years from the date on which it was effected be called in question by an insurer on the ground that a statement made in the proposal for insurance or in a report of a doctor, referee or any person, or in a document leading to the issue of the policy, was inaccurate or unless the insurer shows that such statement was on a material matter or suppressed a material fact and that it was fraudulently made by the policyholder with the knowledge that the statement was false or that it suppressed a material fact.
There seems to be, as far as I am aware, no decided case in the country on the application of s. 15C(4). In the absence of local authority, perhaps it is useful to examine the Indian laws on this point.
The learned author Dr. Nik Ramlah Mahmoo
