LEGAL EFFECT OF BREACH OF WARRANTY IN CONSTRUCTION INSURANCE IN
MALAYSIA
MAHMOUD SODANGI
UNIVERSITI TEKNOLOGI MALAYSIA
III
LEGAL EFFECT OF BREACH OF WARRANTY IN CONSTRUCTION
INSURANCE IN MALAYSIA
MAHMOUD SODANGI
A master’s research project report submitted in partial fulfilment of the
requirements for the award of the degree of
Master of Science in Construction Contract Management.
Faculty of Built Environment
Universiti Teknologi Malaysia
July 2009.
V
DEDICATION
To my late beloved Grandmother, Hajiya Saude,
Your loss has left a hole in my heart; you remain forever etched in my heart,
I dearly missed you.
I will hold on to your legacies,
VI
ACKNOWLEDGEMENT
All praise be to Allah who in His infinite mercy gave me the ideas and
physical strength in preparing this master’s research project. My deepest heart
appreciation goes to my supervisor En Jamaluddin Yaakob who kindly and gently
took me through the rigors of this research work bringing it to a logical conclusion.
To DR. Rosli AbdulRashid, I could not find the perfect words to acknowledge all
you did to me. Without your concern and efforts, I would have missed out on the
chance of coming to study M.Sc. Construction Contract Management in UTM. You
remain dear to my heart.
To all the M.Sc. Construction Contract Management lecturers, I say a VERY
BIG THANK YOU for all your efforts in providing us with the requisite knowledge
and experience in the field of Construction Contract Management, and above all, you
have added value to our lives in no small measure.
I am immensely indebted to my parents for all the support rendered selflessly
to me. I shall not fail to pay glowing tribute to Khadija Yusuf, Inspector Shugaba,
Yahya Goma, Samaila Danwasa, and the ever resourceful Rabiu Ibrahim Fasaha.
Your contribution to the success of obtaining this master’s degree cannot be
quantified. An enormous acknowledgement goes to Engr. Samaila Adamu, Titus
Olalekan, Wallace Enegbuma, En Malik, Zuhaili bn Mohd Ramli, Yow Lee Ping and
to the rest of my eminent classmates. You guys have truly been friends worth having,
and I pray this friendship is one we shall keep and cherish as long as we live. The
memories of the time we spent together shall ever remain on my mind. I will miss
you.
VII
ABSTRACT
The English insurance law underwent some changes and development with
regards to breach of warranty in insurance contracts. In the UK today, once the
insured breaches a continuing warranty, the insurer is simply discharged from
liability as from the date of the breach of warranty but the insurance policy remains
in existence. However, court decisions in Malaysia seem to suggest that a breach of
warranty in construction insurance policy entitles the insurer to repudiate liability
and prevents the contract of insurance from coming into existence. This
misunderstanding by Malaysian courts has resulted in a legal dilemma in insurance
law in Malaysia with regards to breach of warranty. Also, The Malaysian Insurance
Act 1963 mainly deals with regulations of the insurance business to ensure there is
proper control but the Act does not seem to have covered the matter of breach of
warranty in insurance policies. Therefore, in the light of the current developments in
the insurance law in the United Kingdom, this research project examined the legal
effect of breach of warranty in insurance contracts in Malaysia. In doing so, the
required data and information were collected from various sources which included
books, articles, seminar papers, journals, Malayan Law Journal Articles, etc. It was
found out that the effect of breach of a continuing warranty will result in the contract
of insurance remaining in existence and the risk is being treated as having incepted at
the outset but automatically coming to an end as of the date of the breach. More so,
the insurer is being discharged from any future liability, although any liabilities of
the insurer before the date of the breach are unaffected.
VIII
ABSTRAK
Perundangan insuran Inggeris telah melalui perubahan dan perkembangan berkaitan
kemungkiran jaminan dalam kontrak insuran. Pada masa sekarang di UK, sekiranya
pemegang insuran memungkiri suatu jaminan yang berterusan, syarikat insuran itu
akan dikecualikan daripada liabiliti atau tanggungjawab dari tarikh kemungkiran
jaminan. Walaupun begitu, polisi insuran tetap wujud. Namun demikian, keputusan
mahkamah di Malaysia mencadangkan bahawa kemungkiran jaminan dalam polisi
insuran pembinaan membolehkan syarikat insuran membatalkan atau menafikan
liabiliti, dan mengelakkan kewujudan kontrak insuran. Salah faham oleh mahkamah
Malaysia telah menyebabkan dilema dalam perundangan insuran di Malaysia tentang
kemungkiran jaminan. Selain itu, Akta Insuran Malaysia 1963 lebih menyentuh
tentang aspek peraturan perniagaan insuran untuk memastikan pengawalan yang
tetap. Walaupun begitu, akta tersebut tidak meliputi perkara berkaitan dengan
kemungkiran jaminan dalam polisi insuran. Maka, dengan perkembangan
perundangan insuran di United Kingdom, penyelidikan ini dijalankan untuk
memastikan kesan perundangan kemungkiran jaminan dalam kontrak insuran di
Malaysia. Data dan maklumat diperoleh daripada pelbagai sumber termasuk buku,
artikel, kertas persidangan, jurnal, artikel Malayan Law Journal dan sebagainya.
Keputusan penyelidikan menunjukkan bahawa kesan kemungkiran jaminan
berterusan akan wujud dalam kontrak insuran dan risiko kemungkiran ini dianggap
telah dirangkumi pada awal kontrak dan akan tamat berdasarkan tempoh masa
kemungkiran. Tambahan pula, syarikat insuran telah dikecualikan daripada liabiliti
masa depan walaupun sebarang liabiliti sebelum tempoh masa kemungkiran tidak
dipengaruhi.
X
TABLE OF CONTENTS
Chapter
Title
Page
DECLARATION....................................................................................IV
DEDICATION......................................................................................... V
ACKNOWLEDGEMENT.....................................................................VI
ABSTRACT .......................................................................................... VII
ABSTRAK ...........................................................................................VIII
TABLE OF CONTENTS........................................................................ X
LIST OF FIGURE ..............................................................................XIII
LIST OF ABBREVIATION...............................................................XIV
LIST OF CASES .................................................................................XVI
1
INTRODUCTION.................................................................................... 1
1.1 BACKGROUND OF THE STUDY ......................................................... 1 1.2 PROBLEM STATEMENT ........................................................................ 11 1.3 OBJECTIVE OF THE STUDY ............................................................... 17 1.4 SCOPE OF THE RESEARCH ................................................................ 17 1.5 SIGNIFICANCE OF THE STUDY ....................................................... 18 1.6 Research Methodology ............................................................................. 19 XI
1.6.1. Identifying the Research Issue ........................................ 20
1.6.2. Literature Review............................................................ 20
1.6.3. Data and Information Collection..................................... 21
1.6.4 Research Analysis........................................................... 21
2
WARRANTIES IN INSURANCE LAW ............................................ 24
2.1 MALAYSIAN LAW ..................................................................................... 24 2.2 English Law ................................................................................................. 25 2.3 English Commercial Law ........................................................................ 29 2.4 Insurance Governing Laws ..................................................................... 32 2.5 Applicability of English Decisions to Insurance Law ..................... 33 2.6 Distinction between warranties and conditions in insurance law 36 2.6.1 Warranty ......................................................................... 37
2.6.2 Condition ........................................................................ 39
2.8 Classification of Warranties ................................................................... 43 2.8.1 Classification of warranties according to the time and
nature of undertaking ................................................................ 44
2.8.2 Classification of warranties according to their structure 46
3
CONSTRUCTION INSURANCE ....................................................... 49
3.1 Overview ....................................................................................................... 49 3.2 Contract of insurance ............................................................................... 50 3.3 Types of risks ............................................................................................... 51 3.4 Parties ........................................................................................................... 51 3.5 Period of insurance cover ....................................................................... 52 3.6 Types of Insurance Policies .................................................................... 53 3.7 WARRANTIES AND CONDITIONS IN CONTRACTORS’ ALL
RISK INSURANCE POLICY .............................................................................. 59 4
EFFECT OF BREACH OF WARRANTY IN CONSTRUCTION
INSURANCE ........................................................................................................... 65
XII
4.1 Overview ........................................................................................................... 65 4.2 Legal effect of breach of warranty ........................................................ 68 4.2.1 Effect of breach of warranties which relate to a period
before the attachment of the risk............................................... 69
4.2.2 Effect of breach of warranties which relate to a period
after the attachment of the risk.................................................. 71
5
CONCLUSION AND RECOMMENDATION ................................. 78
5.1 Introduction ................................................................................................. 78 5.2 Summary of Research Findings ............................................................. 79 5.3 Problems Encountered During Research ........................................... 80 5.4 Further Studies ........................................................................................... 80 5.5 Conclusion ................................................................................................... 81 REFERENCE .......................................................................................... 82 BIBLIOGRAPHY
85
XIII
LIST OF FIGURE
Figure 1.1.:
Flow chart of research methodology
23
XIV
LIST OF ABBREVIATION
App. Cas.
Appeal Cases
CAR
Contractors’ All Risk
Co.
Company
Ibid
Ibidem (from same source)
ICE
Institution of Civil Engineers
JCT
Joint Contracts Tribunal
JKR
Jabatan Kerja Raya
(Public Works Department)
KB
King Bench
Lloyd’s Rep
Lloyd’s List Reports
Ltd
Limited
MIA
Marine Insurance Act 1906
MLJ
Malayan Law Journal
Ors.
Others
PAM
Pertubuhan Akitek Malaysia
(Malaysian Institute of Architects)
PWD
Public Works Department
QBD
Queen Bench Division
XV
Rev
Revised
RIBA
Royal Institute of British Architects
Sdn Bhd
Sendirian Berhad (Incorporated)
Term Rep
Term Report
UK
United Kingdom
UTM
Universiti Teknologi Malaysia
WLR
Weekly Law Report
XVI
LIST OF CASES
Title
Arab Bank Plc v Zurich Insurance Co Ltd [1999] 1 Lloyd’s Rep 262
Page
63
Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The
Good Luck)
11, 63, 67
Carter v Boehm
39
Chong Kok Hwa v Taisho Marine & fire insurance Co. Ltd
37
Chou Choon Neoh v Spottiswoode
26
De Hahn v Hartley
34, 65
De Maurier (Jewels) Ltd v Bastion Insurance Co Ltd
69
Ellinger & Co v Mutual Life Insurance Co of New York (1905)
43
Euro-Diam Ltd v Bathurs (1990)
43
insurance Co. Ltd.v Ngau Ah Kau
7
JA Chapman & Co Ltd v Kadirga Denizcilik ve Ticaret,
71
Jamil bin Harun v Yang Kamsiah & Anor.
26
Jamil bin Harun v Yang Kamsiah & Anor.,
13
Kettlewell v Refuge Assurance Company
7
Kon Thean Soong v Tan Eng Nam
29
Kumar v AGF Insurance Ltd [1998], 4 AII ER
63
Liong (EM) Sdn Bhd v Hong Leong Assurance Sdn Bhd
62
London Guarantie Company v Fearnley
37
Medical Defence Union Ltd v Department of Trade
Mokhtar v Arumugam
6
25
Printpak v AGF Insurance
XVII
73
Prudential Insurance v IRC
5, 46
Putra Perdana Construction Sdn Bhd v AMI Insurance Bhd
Re Bradley and Essex and Suffolk accident Society
9
37
Rust v Abbey Life Assurance Co. Ltd
6
Shaik Sahied bin Abdullah Bajerai v Sockalingam Chettiar
29
Simpson SS Co Ltd v Premier Underwriting Association Ltd
61
Smith Kline & French Laboratories Ltd v Salim (Malaysia) Sdn. Bhd.
25
Stoneham v Ocean Railway and General Accident Insurance Co
36
Syarikat Batu Sinar Sdn. Bhd. & Ors v UMBC Finance Bhd. & Ors
26
Taylor v Allon,
6
Teck Liong (EM) Sdn Bhd v Hong Leong Assurance Sdn Bhd
8
Thomson v Weems
41, 64, 65
United Malayan Banking Corp Bhd & Anor v Pemungut Hasil Tanah, Kota Tinggi
27
Woolmer v Muliman
65
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Risk simply means uncertainty and the results of uncertainty; it also refers to
a lack of predictability about problem structure, outcomes or consequences in a
decision or planning situation.”1 Construction risk is an exposure to economic loss or
gain arising from involvement in the construction process.2 Today, the construction
industry is subject to more risks and uncertainties than many other industries.3 The
construction sector is indeed one of high risk, which grows even higher for bigger
projects where many people are involved at a construction site and the possibilities
for accidents are virtually countless, as such, when employers and contractors enter
1
Hertz, D B & Thomas, H (1999) Practical Risk Analysis: and Approach Through Case Histories.
John Wiley and Sons. Chichester, UK: taken from Edwards, P and Bowen, P (1999). P.16
2
Perry, J.G and Hayes, R.W (2001), Construction Projects – Know the Risks, CME UMIST, London.
P.29
3
Heidenhain, D. (2001) Managing technological risks: a challenge for professional engineering
insurers. Geneva Papers on Risk and Insurance - Issues and Practice, 26(2), 268-276.
2
into construction contracts, they are basically taking risks. These construction
4
contracts are associated with various aspects of risks, be it political risk, financial
risk, technology risk, environmental risk, social risk and risks associated with the
feasibility stage, design stage, construction stage and post construction stage.5
Therefore, in order to complete the project successfully, the parties involved must be
able to manage the risks associated with the project.6
Risk management involves managing risks with both negative and positive
outcomes.7 Risk management is a continuous process where the sources of
uncertainties are systematically identified, their impact assessed and qualified, and
their effect and likelihood managed to produce an acceptable balance between the
risks and opportunities.8 In other words, risk management is a systematic process of
identifying, assessing and responding to project risk with the overall goal of
maximizing the opportunities and minimizing the consequences of a risk event.9
Risk identification is the first step of the risk management process.10 It is
aimed at determining potential risks, i.e. those that may affect the project. During
risk assessment, identified risks are evaluated and ranked. The goal is to prioritise
risks for management.11 The risk response process is directed at identifying a way of
dealing with the identified and assessed project risks.12 There are four main risk
4
Rahman, M. M. and Kumaraswamy, M. M. (2002) Risk management trends in the construction
industry: moving towards joint risk management. Engineering, Construction and Architectural
Management, 9(2), 131-151.
5
Rahman, M. M. and Kumaraswamy, M. M. (2002) Risk management trends in the construction
industry: moving towards joint risk management. Engineering, Construction and Architectural
Management, 9(2), 131-151
6
Ibid, p.131
7
Williams, C. A., Smith, M. L. and Peter, C. Y. (1998) Risk management and insurance,
Irwin/McGraw-Hill, Boston, Mass. p.143
8
Dawson, P. J. (1997) A hierarchical approach to the management of construction project risk,
University of Nottingham, Nottingham. P.18
9
PMI (2000) A guide to the project management body of knowledge, Newton Square, Project Management
Institute. P.216
10
Ibid, p.217
11
PMI (2000) A guide to the project management body of knowledge, Newton Square, Project Management
Institute. P.219
12
Smith, N.J., Tony, M., and Jobling, P. (2006) Managing risk in construction projects, 2th ed: Blackwell
Publishing. Pp 205-213
3
13
response strategies: risk avoidance, risk reduction, risk retention and risk transfer.
Risk avoidance deals with the risks by changing the project plan or finding methods
to eliminate the risks.14 Risk reduction aims at reducing the probability and/or
consequences of a risk event.15 It involves methods that reduce the severity of the
loss.16 Risk retention or acceptance indicates that the risk remains present in the
project.17 It involves accepting the loss when it occurs.18 Those risks that remain in
the project after risk avoidance and reduction may be transferred to another party
either inside or outside the project.19 Risk transfer means causing another party to
accept the risk, typically by contract or by hedging.20 Insurance is one type of risk
transfer that uses contracts.21 Other times it may involve contract language that
transfers a risk to another party without the payment of an insurance premium.22
Liability among construction or other contractors is very often transferred this way.23
Construction insurance is a practice of exchanging a contingent claim for a
fixed payment to protect the interests of parties involved in a construction project.24
Construction insurance is a major method of managing risks in the construction
industry.25 Its primary function is to transfer certain risks from clients, contractors,
subcontractors and other parties involved in the construction project to insurers to
provide contingent funding in time of difficulty.26 In a construction project, insurance
is perceived to be the primary tool for risk control only when the risk management
13
Smith, N.J., Tony, M., and Jobling, P. (2006) Managing risk in construction projects, 2th ed: Blackwell
Publishing. Pp 205-213
14
Ibid, pp.205-213
15
Oztas, A. and Okmen, O. (2005). Judgmental risk analysis process development in construction
projects. Building and Environment, 40(9), 124-125.
16
Ibid, pp 124-125
17
Barber, R. B. (2005), Understanding internally generated risks in projects. International Journal of
Project Management, 23(8), 584-590.
18
Ibid, 584-590
19
Akintoye, A.S. and MacLeod, M.J. (1997) Risk analysis and management in construction, International Journal
of Project Management, Vol. 15, No. 1, pp. 31-38.
20
Ibid, pp 31-38
Ibid, pp 31-38
22
Ibid, pp 31-38
23
Ibid, pp 31-38
21
24
Lyons, T. and Skitmore, M. (2004), Project risk management in the Queensland engineering
construction industry: a survey. International Journal of Project Management, 22(1), 51-61.
25
26
Ibid, 51-61
Ibid, 51-61
level is high and the management’s strategic consciousness is low.
27
4
However, it is
not always the best option for risk management.28 When management’s strategic
consciousness increases to a certain extent, there are alternative ways to deal with
risks.29
Generally, standard forms of contract have been developed for the purpose of
providing a balanced distribution of risk; for efficient administration of the
contractual activities; for building on the experience gained from repeated use of
these forms, but most of all for the optimum protection of one or both parties’
interest.30
In Malaysian construction industry, there are clear insurance clauses in the
Standard Forms of Contracts. Under the PAM Form of Building Contract 2006;
clause 18 provides for the contractor to indemnify the employer against any damage,
expense, liability, loss, claim, or proceedings in respect of injury to persons or loss
and or damage of the property. More so, clause 19 has explicitly provided for a
contractor to insure against injury to person and loss and/or damage of property.
More so, clauses 20A and 20B provide for the contractor and Employer to undertake
an insurance policy for new building/works respectively. Furthermore, clause 20C
provides for the Employer to take out and maintain an insurance policy for the
existing building or extension.
In JKR 203A Form of Contract (Rev 2007), clause 14 is clearly requiring the
contractor to indemnify the government in respect of personal injuries and damages
to property while clause 15 mandates the contractor take out an insurance policy
against personal injuries to persons and damages to property and to insure the works.
27
Heidenhain, D. (2001) Managing technological risks: a challenge for professional engineering
insurers. Geneva Papers on Risk and Insurance - Issues and Practice, 26(2), 268-276.
28
Ibid, 268-276
29
Ibid, 268-276
30
Ibid, p.16
5
Also, clause 16 requires the contractor to effect and maintain “workmen
compensation insurance” throughout the contract period for the government
personnel, servants, agents or employees required under the laws of Malaysia. On the
other hand, clause 18 requires the contractor to take out an insurance policy to insure
the works, all materials and goods until the completion of the whole of the works
notwithstanding any arrangement for sectional completion or partial occupation by
the government under the contract.
The main feature of an insurance contract is that the contract is made to
depend on the occurrence of an uncertain event.31 In Prudential Insurance v IRC32,
Channel J., in dealing with the characteristic of a contract of insurance, stated as
follows:
“It must be a contract whereby for some consideration, usually but not
necessarily in periodical payments called premium, you secure to yourself
some benefit, usually but not necessarily the payment of a sum of money,
upon the happening of some event. Then next thing that is necessary is that
the event should be one which involves some amount of uncertainty. There
must be either uncertainty whether the event will ever happen or not, or if the
event is one which must happen at some time there must be uncertainty as to
the time at which it will happen.”
Section 3(1) of the Insurance Act, 1963 (Revised 1972) provides for the
requirements necessary for carrying out business as insurer. The section reads as
follows:
3 (1) subject to this Act, insurance business shall not be carried on in
Malaysia by any person as insurer except-
31
Poh, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers (Pte)
Ltd. P.143
32
[1904] 2 KB 658 at p 663
6
a) By a company as defined in the Companies Act, 1965, or a company
incorporated outside Malaysia which has an established place of
business in Malaysia;
b) By a society registered under the Co-operative societies Ordinance or
c) By an unincorporated company established in the United Kingdom
before the year 1862 which has been carrying on business as insurer in
Malaysia since before the 21st January, 1963, and has an established
place of business in Malaysia.
It is worth noting however, that section 41 of the Insurance Act, 1963
(Revised 1972) has made provision for the capacity of infant to insure.33 The section
reads as follows:
“41(1) Notwithstanding any law to the contrary, a person over the age of ten
years shall not by reason only of being under the age of majority lack the
capacity to enter into a contract of insurance; but a person under the age of
sixteen years shall not have the capacity to enter into such a contract except
with the consent in writing of his parent or guardian.”
Generally, in order to establish that there is agreement between the parties,
the contract must have arisen as a result of an offer by one of the parties and an
acceptance of the offer by the other.34 In the case of Taylor v Allon,35 it was held that
to constitute a binding contract, the contract must have been arrived at through
mutual agreement and a unilateral undertaking by an insurer to run the risk without
the assent of the insured did not constitute a binding agreement.” Also in the Rust v
Abbey Life Assurance Co. Ltd,36 it was held that a contract between an insured and
33
Poh, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers (Pte)
Ltd. P.143
34
Poh, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers (Pte)
Ltd. P.143
35
[1966] 1 Q.B. 304
36
[1979] 2 Lloyd’s Rep. 334
7
the insurer was concluded when the insurer accepted an application made by the
insured.
On the insurer’s liability to pay on policy, the insurer must pay the
indemnity promptly, on the occurrence of the insured event. If a longer period is
required for the assessment of the full extent of the loss, the insurer shall be obliged
to pay the undisputed amount forthwith.37 It was held by Megarry V.C. in the case of
Medical Defence Union Ltd v Department of Trade,38that “the contract of
insurance must provide that the assured will be entitled to payment on the occurrence
of the insured event”. However, the insurer shall not be obliged to pay the insurance
indemnity if the insured event, in case of non-life insurance, occurred due to wilful
misconduct or gross negligence of the insured.39 The insurer shall only be entitled to
collect the premiums accrued.40 Where a policy is avoided on grounds of
misrepresentation or fraud, the policy is avoided ab initio and the premium paid by
the insured is returned by the insurer.41 More so, in Kettlewell v Refuge
Assurance Company, 42 it was decided by the English Court of Appeal that where
an insured has been induced by the fraudulent misrepresentation of an insurance
agent to keep up an insurance policy taken out by the insured, the premium paid
under the policy could be recovered. Not that alone, where a policy of insurance is
avoided on the ground of mistake of fact, the contract is thereby avoided and the
premium paid is returned by the insurer owing to a failure of consideration.
Among the methods used by insurers to avoid liability in insurance policy is
the incorporation of the basis of contract clause.43 When a person proposes to take
out an insurance contract, he is usually required by the insurer to fill in a proposal
37
Davis, S. D. (1996) In Construction insurance, bonding, and risk management(Ed, Palmer, W. J.,
Maloney, J. M. and John L., I. H.) McGraw-Hill Professional, New York, pp. 1-7.
38
[1972] 2 W.L.R. 686 at p.690
39
Davis, S. D. (1996) In Construction insurance, bonding, and risk management(Ed, Palmer, W. J.,
Maloney, J. M. and John L., I. H.) McGraw-Hill Professional, New York, pp. 1-7.
40
Ibid, pp 1-7
41
Ibid, pp1-7
42
[1908] 1 K.B. 545
43
Poh, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers (Pte)
Ltd. P.107
44
form containing a number of questions to be answered correctly.
8
A standard
practice of insurer is to make answers to the questions in the proposal the basis of the
contract.45 The legal effect is that their truth is made a fundamental term of the
contract so that any mis-statement, whether material or not, is a ground on which the
insurers may avoid liability on the policy.46 In China insurance Co. Ltd.v Ngau Ah
Kau,47 the insurer relied on the basis clause to avoid liability because the proposal
form included mis-statement that the insured had made no previous claims under a
motor policy when in actual fact he had made a claim six years earlier. The Federal
Court held, inter alia, that the truth of the statements and answers in the proposal
form had become terms of the contract so that a mis-statement entitled the insurers to
repudiate liability and escape paying out the insurance indemnity.
Breach of warranty or condition is another method insurers use to avoid
paying out the insurance indemnity.48 A warranty or condition must be precisely
complied with and need not be material to the risk.49 A breach may entitle the insurer
to repudiate, even if remedied before the date of loss.50 In insurance law, a warranty
must be strictly observed because in most instances it is a condition precedent to
recovery by the insured51. This reflects the fact that the rationale of warranties in
insurance law is that the insurer only accepts the risk provided the warranty is
fulfilled.
44
AUN, W. M., AND VOHRAH, B. (2000) The Commercial Law of Malaysia, Selangor, Malaysia,
Pearson Malaysia Sdn Bhd. P.302
45
Ibid, p 302
46
AUN, W. M., AND VOHRAH, B. (2000) The Commercial Law of Malaysia, Selangor, Malaysia,
Pearson Malaysia Sdn Bhd. P.302
47
[1972] 1 MLJ 32
48
SOE, M. (1999) Insurance Law of Malaysia, Johore Bahru, Malaysia, Quins PTE Ltd, Johore
Bahru, Malaysia. P. 51
49
AUN, W. M., AND VOHRAH, B. (2000) The Commercial Law of Malaysia, Selangor, Malaysia,
Pearson Malaysia Sdn Bhd. P.305
50
Ibid, p. 305
51
AUN, W. M., AND VOHRAH, B. (2000) The Commercial Law of Malaysia, Selangor, Malaysia,
Pearson Malaysia Sdn Bhd. P.305
9
Any breach is sufficient to enable the insurer to disclaim liability. Clearly
52
the term warranty in insurance law bears a different meaning from that term in a
contract of sale of goods.53 Warranties must appear in the contract expressly or by
incorporation such as a declaration that “this proposal forms the basis of the
contract’.54 In the former, they are usually in the form of a promise by the insured to
do or to refrain from doing something, such as maintaining alarms or sprinkler
systems in commercial fire policies.55 In return, the insurer will guarantee to
indemnify the insured in respect of any loss covered by the loss.56
In Teck Liong (EM) Sdn Bhd v Hong Leong Assurance Sdn Bhd,57 The
plaintiff was issued a fire insurance policy by the defendant to cover his stock in
trade stored in a warehouse. The stock in trade was destroyed by fire. The plaintiff
claimed for the insured sum. The defendant argued that the plaintiff on the date of
the fire did not hold any valid trading license from the Local Authority to operate its
business which was a breach of warranty 9(a) of the policy. Dismissing the claim, it
was held that the plaintiff was in breach of the warranty 9(a) when the fire occurred
for not having such a license. Therefore, the defendant was entitled to repudiate
liability to the plaintiff in respect of the plaintiff’s claim under the policy.
In Putra Perdana Construction Sdn Bhd v AMI Insurance Bhd,58 the plaintiff
obtained an insurance policy from the defendants. The policy included a warranty
concerning fire fighting facilities and fire safety at the construction site. A fire broke
out at the basement car park of one of the blocks which was still under construction
causing considerable damages. Upon the plaintiff’s claim on the policy, the
52
Ibid, p.305
Ibid, p 305
54
Ibid, p 305
55
AUN, W. M., AND VOHRAH, B. (2000) The Commercial Law of Malaysia, Selangor, Malaysia,
Pearson Malaysia Sdn Bhd. P.305
56
Ibid, p 305
57
[2002] 1 MLJ 301
58
[2005] 2 MLJ 123
53
10
defendants issued a notice of repudiation of liability under the policy on the ground
that a warranty on fire fighting facilities and fire safety at the construction site was
breached. Dismissing the claim with costs, it was held that, the defendants were
entitled to repudiate liability to the plaintiff in respect of the plaintiff’s claim under
the policy. Also, warranties have to be strictly complied with, like conditions
precedent. Therefore, if there is a breach of warranty entitling the insurer to repudiate
liability, it matters not if the breach has no bearing or connection with the loss. When
a term in a policy is stipulated to be a warranty or a condition precedent to the
liability of the insurer, the warranty/condition has to be strictly complied with by the
insured before the insured is entitled to bring a claim on the policy.
11
1.2
PROBLEM STATEMENT
English common law and the rules of equity form part of the laws of
Malaysia.59 English law can be found in the English common law and rules of equity,
however, not all of England’s common law and rules of equity form part of
Malaysian law.60 Section 3(1) of the Civil Law Act 1956 (Revised 1972) provides
that in Peninsular Malaysia, the courts shall apply the common law of England and
the rules of equity as administered in England up to the 7th day of April, 1956, while
in Sabah and Sarawak, the courts shall apply the common law of England and the
rules of equity, together with statutes of general application, as administered in
England up to the 1st day of December 1951 and the 12th day of December 1949
respectively.61
However, in West Malaysia, further developments or changes in English
common law and equity after April 7, 1956 do not become binding law, at best, they
are only persuasive.62 Although there is no continuing reception of English law even
for insurance matters as far as West Malaysia is concerned, it makes little difference
in practice as more or less the same English statutes dealing with insurance matters
would still be received in the whole of Malaysia.63 This is because, between 7th April
1956 (the date the Civil Law Ordinance came into force for Peninsular Malaysia) and
21st January, 1963 when the Insurance Act came into force for Peninsular Malaysia,
there is hardly any English insurance legislation which was enacted.64 It is therefore
submitted that the English Marine Insurance Act 1906, Life Assurance Act, 1774,
Life Policies Assurance Act, 1867 and Marine Insurance (Gambling Policies) Act,
59
rd
Aun, W.M. (2005). An Introduction To The Malaysian Legal System. Revised 3 ed.
Malaysia:Pearson Malaysia Sdn. Bhd. P. 123
60
Ibid, P 123.
61
Lee, M.P. (2005). General Principles of Malaysian Law. 5th ed. Selangor: Oxford Fajar Sdn. Bhd p
23.
62
Soe, M. (1999) Insurance Law of Malaysia, Johore Bahru, Malaysia, Quins PTE Ltd, Johore Bahru,
Malaysia p 20
63
Ibid, p.20
64
Ibid, p.20
12
1909 would become applicable in all question or issues which arise with respect to
the law of insurance for the whole of Malaysia.65
The English Marine Insurance Act 1906 is the earliest and comprehensive
governing law on general insurance warranties in The United Kingdom. With regards
to warranty issues in insurance law in the UK, The Act provided the legal framework
for warranties used in contract of marine insurance but this does not mean that the
use of such terms is unique solely to marine insurance contracts.66 Warranties also
appear in all types of non-marine insurance contracts.67 The rules laid down by the
MIA 1906 for Marine warranties are also applied to non marine warranties in the
UK.68 It has in fact been observed on numerous occasions that the judges refer to
marine insurance principles or the provisions of the MIA 1906 when dealing with a
non-marine warranty.69
In relation to breach of warranty in non-marine insurance contract, the dictum
of Lord Mansfield in De Hahn v Hartley70 suggested that “a breach of warranty
entitled the insurer to repudiate the contract”. However, in the early nineties, the
English insurance law had undergone further developments and changes with regards
to breach of warranty.71 Soyer (2006) pointed out that in the UK, if a breach of
warranty occurs, it has to be considered whether the warranty breached is a present
or continuing warranty because their legal effects are not the same. It is only in the
breach of present warranty that an insurer will repudiate liability and bring the
65
Soe, M. (1999) Insurance Law of Malaysia, Johore Bahru, Malaysia, Quins PTE Ltd, Johore Bahru,
Malaysia p 20
66
SOYER, B. (2006) Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK p.3
67
Ibid, p.3
68
Ibid, p.3
69
For example, in thomson v Weems (1884) 9 App Cas 671, p 684, Lord Blackburn, obiter dictum,
said: ‘In my own opinion, as regards the effect of breach of warranty, the same principles apply
whether the insurance is marine insurance or not’.
70
(1786) 1 Term. Rep. 343
71
Soyer, B. (2006) Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK p.199
13
contract to an end. But if the breach is of a continuing warranty, the insurer is simply
discharged from liability as from the date of the breach of warranty but the insurance
policy remains in existence.
It was the decision of the of the House of Lords in the case of Bank of Nova
Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck)72
that led to the significant developments in the English insurance law.73 Before The
Good Luck case, the dictum of Lord Mansfield in De Hahn v Hartley74 directly or
indirectly handed an unfair advantage to insurers over the insured in the sense that
insurance companies were using it as a tool of avoiding their own liability and escape
payment on the occurrence of the perils insured against.75 The effect of this is that
parties willing to take out an insurance policy become very wary of doing so.76
Contractors in the construction industry need to undertake a policy to insure the
works, materials and goods and insure against injury to persons, loss and or damage
to property.77
The decision of the House of Lords in The Good Luck case brought the much
needed reform in the area of breach of warranty in English insurance law and to
some extent promoted a sense of fairness to parties to insurance contract.78 It was
affirmed in The Good Luck case79 that:
“Once a breach of continuing warranty occurs, the insurer is simply
discharged from liability as from the date of the breach. The discharge of the
insurer from liability is automatic and is not dependent on any decision by
72
[1991] 2 Lloyd’s Rep 191 (HL); [1992] 1 AC 233.
Ibid, p.199
74
(1786) 1 Term. Rep. 343
75
Soyer, B. (2006) Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK p.199
76
Ibid, p.199
73
77
Lyons, T. and Skitmore, M. (2004), Project risk management in the Queensland engineering
construction industry: a survey. International Journal of Project Management, 22(1), 51-61.
78
Soyer, B. (2006) Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK p.199
79
Bank of Nova Scotia v Hellenic Mutual War Risks Association Ltd (The Good Luck). [1992] 2
Lloyd’s Rep 191
14
the insurer to treat the insurance contract as at end. The insurance contract
remains in existence”.
According to Soyer, this decision is a better approach to adopt than to state that an
insurer is entitled to repudiate liability for breach of warranty because the legal effect
of a breach of warranty depends on whether the warranty that is breached is a present
warranty (that is, warranty that relates to a period before the attachment of the risk)
or a continuing warranty (warranty that relates to a period after the attachment of the
risk).80
Some warranties relate in terms of time to circumstances at the inception of
the risk.81 In such cases, the warranted event or condition must be complied with at
some time before the risk attaches.82 Lord Blackburn in Thomson v Weems83 asserted
that in cases where the warranty relates in time to circumstances at the inception of
the risk, breach will result in the insurer never coming on the risk. Compliance with a
warranty of this type was considered as condition precedent to the attaching of the
risk. In cases where the warranty relates in time to circumstances after the inception
of the risk, the breach of such warranties will not have any effect on the existence of
the contract, unlike breach of present warranties.84 In the case of breach of
continuing warranty, the risk is treated as having incepted at the outset but
automatically coming to an end as of the date of breach.85
80
Soyer, B. (2006) Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK p.199
81
Ibid, p.140
82
Ibid, p.140
83
(1884) 9 App Cas 671, p 684.
84
Tharmakulasingam, S. G. (2006) Putra Perdana Under Fire: 'An analysis into the legal effects of
breaches of warranties and the Waiver/Estoppel Dichotomy in insurance law' The Malayan Law
Journal Articles 2, 11 p.3
85
Ibid, p.3
15
The governing statute in Malaysia in the field of insurance law is the
Insurance Act 1996.86 This Act mainly deals with regulations of the insurance
business to ensure there is proper control but the Act has no provision relating to
warranties and conditions in insurance policies, as such the issues of breach of
warranty in insurance policies are not covered.87 As such, the provisions of the Civil
Law Act 1956 may be referred to in order to provide valuable guidance on the
matter.88
Section 5(1) of the Civil Law Act 1956 provides that:
“In all questions or issues which arise or which have to be decided in the
States of West Malaysia ... with respect to the law of ... marine insurance,
average, life and fire insurance ... the law to be administered shall be the
same as would be administered in England in the like case at the date of the
coming into force of this Act, if such question or issue had arisen or had to be
decided in England, unless in any case other provision is or shall be made by
any written law.”
With the aid of this provision, English common law has often been referred to
for guidance in resolving legal dilemmas in the field of insurance law.89 Since the
Malaysian Insurance Act 1963 does not seem to have covered the matter of breach of
warranty in insurance policies, by virtue of section 5(1) of the Act, the decision of
the House of Lords in The Good Luck case should be adopted by Malaysian courts.90
According to Professor Wu Min Aun (2005), there is no legal barrier against
courts in Peninsular Malaysia from making reference to subsequent developments in
86
Singh, B. (2002) Insurance Law Manual, Selangor, Malaysia, Pelanduk Publications (M) Sdn Bhd,
Selangor, Malaysia. P12
87
Ibid, p.12
88
Ibid, p.12
89
Ibid, p.12
90
Ibid, p.12
91
English law.
16
Though strictly not binding, local courts may accept subsequent
English authorities if in their view, it is desirable to do so in the absence of local
statutory provisions or judicial guidance.92 Lord Scarman took note of this approach
in Jamil bin Harun v Yang Kamsiah & Anor.,93 when he said:
“Their Lordships do not doubt that it is for the courts of Malaysia to decide,
subject always to the statute of the Federation, whether to follow English
case law. Modern English authorities may be persuasive, but are not binding.
In determining whether to accept their guidance, the courts will have regard
to the circumstances of the States of Malaysia and will be careful to apply
them only to the extent that the written law permits, and no further than, in
their view, it is just to do so”.
Although local courts are not bound to follow decisions of English courts,
their decisions have traditionally been treated with the greatest respect.94 When
points of law are argued in local courts, English cases are frequently cited along with
local cases, if any.95 Since England has a much larger body of reported case law than
Malaysia, it often happens that a point of law will be covered by an English
precedent but not a local one.96
However, the Malaysian insurance law is yet to adopt post Good Luck
principles with regards to breach of warranty.97 The courts in Malaysia have
continued to adopt the pre Good Luck principles which unfairly distribute the rights
and obligations of parties to insurance contract.98 This could be justified by the
91
rd
Aun, W.M. (2005). An Introduction To The Malaysian Legal System. Revised 3 ed.
Malaysia:Pearson Malaysia Sdn. Bhd. P.124
92
Ibid, P. 124
93
[1984] 1 MLJ 217.
94
rd
Aun, W.M. (2005). An Introduction To The Malaysian Legal System. Revised 3 ed.
Malaysia:Pearson Malaysia Sdn. Bhd. P. 137.
95
Ibid, p.137.
96
Ibid, p. 137.
97
[2006] 2 MLJ 44
98
Ibid at p 44
17
decision of Putra Perdana Construction v AMI Insurance, where the court held that
99
a breach of warranty would entitle the insurer to repudiate liability and bring the
insurance contract to an end. Similarly, in the case of Teck Liong v Hong Leong
Assurance,100 the court held that the insurer is entitled to repudiate liability to the
plaintiff in respect of breach of warranty. Such principles of law are clearly
outmoded and do not take into account the significant development in insurance law
since The Good Luck case.
1.3
OBJECTIVE OF THE STUDY
There is a need to analyze the legal effect of breach of warranty in insurance
contracts in light of the current developments in The English insurance law with the
aim of offering judicial guidance to courts in Peninsular Malaysia in order to resolve
the legal dilemma associated with breach of warranty in Malaysian insurance law.
1.4
SCOPE OF THE RESEARCH
The court cases referred to in this research work are Malaysian and English
cases. Since the Marine Insurance Act 1906 provides the legal framework for
warranties used in marine insurance and also applicable to general insurance
99
[2005] 2 MLJ 135 Judge Ramly Ali J. High Court of Malaya
[2002] 1 MLJ 307
100
18
contracts in the UK, it became pertinent to refer to court decisions that deal with
breach of warranties in English marine insurance law.
The analysis will focus on legal effects of breach of continuing warranty in
insurance contracts in West Malaysia. The cases are chosen from the online Malayan
Law Journal published on the LexisNexis online database and from published
textbooks related insurance warranties.
1.5
SIGNIFICANCE OF THE STUDY
The courts in West Malaysia have continued to adopt the pre-Good Luck
principles with regards to breaches of warranty. In the decision of Putra Perdana
Construction v AMI Insurance,101 the court held that “a breach of warranty would
entitle the insurer to repudiate liability”. Such principles of law are clearly outmoded
and do not take into account the significant development in the law since The Good
luck.102
As a matter of fact, the misunderstandings of the courts in West Malaysia on
their decisions on breaches of warranty are untenable because the English insurance
law has long departed from such principles.103 In the United Kingdom today, the
legal effect of breach of continuing warranty is clearly different from legal effect of
101
2005] 2 MLJ 135- supra
102
Ibid, p 138
[2006] 2 MLJ 83
103
104
breach of present warranty.
19
However, going by the court decisions in the above
mentioned cases, it is not encouraging to see that in Malaysian courts, the legal effect
of both continuing and present warranties were considered to be the same.105
Since the Malaysian Insurance Act 1963 is silent on breach of warranty, and
there is no legal barrier against courts in West Malaysia making reference to
subsequent developments in English law, it became necessary for Malaysian courts
to adopt the developments in the English insurance law with regards to breach of
continuing warranty so as to resolve the legal dilemma that unfairly favours the
insurers against the detriment of the insured. The time has come for the Malaysian
courts to do so.
The bells of change in Malaysian insurance law are sounding; the time has
come for Malaysian courts to ring out the old and ring in the new.106
1.6
Research Methodology
Briefly, this research will be carried out in five (5) different stages:
104
[2006] 2 MLJ 83
[2006] 2 MLJ 83
106
[2006] 2 MLJ 44
105
20
1.6.1. Identifying the Research Issue
Identifying the research issue is the very initial stage from the whole research.
Initial literature review was done in order to obtain the overview of the research
topic. In identifying the issue, firstly, it involved reading on various sources of
published materials such as journals, articles, seminar papers, cases, previous
research papers, or other related research materials, and electronic resources as well
as World Wide Web and online e-databases from UTM library’s website.107 At the
same time, discussions with supervisor, as well as course mates have been done to
gain more ideas and knowledge relating to the topic.
1.6.2. Literature Review
The second stage in executing this research is literature review. Literature
review stage is basically a stage when the researcher will be reading and also need to
criticize on each and every material that has been read. Published resources, like
books, journals, various standard forms of contract are the most helpful sources in
this stage. Literature review involved collection of documents from the secondary
data research, such as books, journals, newspapers.108
107
108
http://www.psz.utm.my
Blaxter, L., et al. (1996). How to Research. Buckingham; Open University Press, pp. 109
21
1.6.3. Data and Information Collection
The next stage in this research is data and information collection stage. This
is an important stage where it will lead the researcher towards achieving the main
objectives. The sources are mainly from books, articles, seminar papers, journals,
Malayan Law Journal, etc. All collected data and information will be systematically
recorded. Basically the data will be divided into two types of data:
1- Primary data
- Mainly collected from Malayan Law Journal, Building Law Report and
other law journals and all of it were collected through LexisNexis law
database and hardcopies.
2- Secondary Data
Sources of secondary data consist of book, act, articles and seminar papers.
1.6.4
Research Analysis
During this stage, all the collected data, information, ideas, opinions and
comments were specifically arranged, analyzed and interpreted based on the
literature review which has been carried out. This stage could also be called the heart
of the research in the sense that from this chapter; we can see how the objective has
been achieved.
22
1.6.5
Conclusions and Recommendations
The final stage of the research is the conclusion and recommendations. It
basically involves the conclusion for the findings. After the objective has been
successfully achieved, a conclusion need to be made up and also at the same time,
some appropriate recommendations related to the problems may be made for a better
solution in relation to the arising issues or else for further research purposes.
23
Literature Review:
Books, articles, journals, internet
Brief Discussion:
INITIAL
Discussion with lecturers,
supervisor and course mates
Formation of issues, objective and
scope of research
Identify type of data needed and data
source:
•
•
DATA COLLECTION
&
ANALYSIS STAGE
Law Journals, e.g. Malayan
Law Journal,
Books, articles, seminar papers,
newspaper
•
Internet sources
•
•
•
Data Recording
Data Arrangement
Analyse data
Research writing up and
FINAL STAGE
Conclusion and Recommendation
Final report preparation and
checking
Figure 1.1.:
Flow chart of research methodology
CHAPTER 2
WARRANTIES IN INSURANCE LAW
2.1
MALAYSIAN LAW
Malaysian law can be classified into written, unwritten and Muslim law.109
Written law is the most important source of law and it refers to that portion of
Malaysian law which includes the Federal and State Constitutions; the Federal
Constitution is the supreme law of land while the Constitutions of the thirteen States
comprising the Federation from part of written law in Malaysia.110 Also included is
the Legislation enacted by Parliament and the State Assemblies, (e.g. Acts of
Parliament, Ordinances, Enactments, etc.) and Subsidiary legislation made by
persons or bodies under powers conferred on them by Acts of Parliament or State
Assemblies (e.g. Rules and Regulations, By-laws, guidelines, etc.).111
Unwritten law is simply that portion of Malaysian law which is not written,
i.e. law which is not being enacted by Parliament or the State Assemblies and which
109
Lee, M.P. (2005). General Principles of Malaysian Law. 5th ed. Selangor: Oxford Fajar Sdn. Bhd p
17.
110
Ibid, p.18
111
Ibid, p.18
25
is not found in the written Federal and State Constitutions. Unwritten law is found in
cases decided by the courts, local customs, etc.112 The unwritten law comprises the
principles of English law applicable to local circumstances, judicial decisions of the
superior courts, (i.e. the High Courts, Court of Appeal and the Federal Court) and
customs of the local inhabitants which have been accepted as law by the courts.113
Muslim law is also an important source of Malaysian law but it is applicable
to Muslims only, regardless of race and is administered by a separate system of state
Syariah Courts except in the Federal Territories of Kuala Lumpur, Putrajaya and
Labuan which have their own.114 In Malaysia, Muslim or Islamic law is increasingly
being applied in the local laws.115 For instance, there was a move to incorporate
some Islamic principles into land laws and banking laws.116 However, Muslim law
applies to all persons who are Muslims and of particular importance are the laws
relating to family matters (e.g. marriage and divorce) and estate matters relating to
the division of property and assets when a person dies.117
2.2
English Law
English common law and the rules of equity form part of the laws of
Malaysia.118 English law can be found in the English common law and rules of
112
Lee, M.P. (2005). General Principles of Malaysian Law. 5th ed. Selangor: Oxford Fajar Sdn. Bhd p
17
113
114
Ibid, p.18
rd
Aun, W.M. (2005). An Introduction To The Malaysian Legal System. Revised 3 ed.
Malaysia:Pearson Malaysia Sdn. Bhd. P. 119
115
Lee, M.P. (2005). General Principles of Malaysian Law. 5th ed. Selangor: Oxford Fajar Sdn. Bhd p
18
116
Ibid, p.18
117
Ibid, p.18
118
rd
Aun, W.M. (2005). An Introduction To The Malaysian Legal System. Revised 3 ed.
Malaysia:Pearson Malaysia Sdn. Bhd. P. 123
26
equity. However, not all of England’s common law and rules of equity form part of
Malaysian law.119
Section 3(1) of the Civil Law Act 1956 (Revised 1972) provides that:
a.
In west Malaysia or any part of thereof , apply the common law of
England and the rules of equity as administered in England on the
7thApril, 1956
b.
In Sabah, apply the common law of England and the rules of equity,
together with statutes of general application, as administered or in
st
force in England on the 1 day of December, 1951;
c.
In Sarawak, apply the common law of England and the rules of
equity, together with statutes of general application, as administered
or in force in England on the 12th day of December, 1949…
It is to be noted that, Section 3(1) (a) applicable to West Malaysia mentions
the application of “the common law of England and the rules of equity” whereas
Section 3(1) (b) and (c) applicable to Sabah and Sarawak allows the application of
“the common law of England and the rules of equity, together with statutes of
general application”.120
This significant difference in words used gives rise to controversy as to
whether only common law and equity unmodified by statutes or whether the whole
of English law including statutes is applicable to peninsular Malaysia.121 In the case
of Mokhtar v Arumugam,122 Smith J in a dictum said that the court could not award
damages in the nature of interest for delay in the return of specific goods on the basis
that such relief had been provided by section 29 of the Civil Procedure Act 1833
119
Ibid, P 123.
Lee, M.P. (2005). General Principles of Malaysian Law. 5th ed. Selangor: Oxford Fajar Sdn. Bhd.
P 24
121
Ibid, P 24.
122
[1959] MLJ 232
120
27
(English). He added that by virtue of section 3(1) of the Civil Law Ordinance 1956,
such relief, being a creature of English statute, is not available here.
More so, the judge in Smith Kline & French Laboratories Ltd v Salim (Malaysia)
Sdn. Bhd.123 stated that if it were found that the general provisions of imported
legislation are inapplicable in the country, the courts have the jurisdiction, and will
not hesitate to exercise such jurisdiction, to strike down such inapplicable law on the
principle lex non cogit impossibilia.
However, the application of the law of England throughout Malaysia is
subjected to two limitations:124
a. Firstly, it is applied only in the absence of local statutes on the particular
subjects. Local law takes precedence over the England law as the latter is
meant only to fill in gaps in the local system.
b.
Secondly, only that part of the England law that is suited to local
circumstances will be applied. The provision to Section 3 (1) of the
Civil Law Act is the authority for this.
The date, 7 April, 1956 is significant because only English common law and
equity as administered in England on that date is receivable in Peninsular
Malaysia.125 It is the date “of coming into force” of the repealed 1956 Civil Law
Ordinance.126 Further developments or changes in English common law and equity
after the stated date do not become binding law in Malaysia, at best, they are only
persuasive.127
123
124
[1989] 2 MLJ 380.
Lee, M.P. (2005). General Principles of Malaysian Law. 5th ed. Selangor: Oxford Fajar Sdn. Bhd p
25
125
rd
Aun, W.M. (2005). An Introduction To The Malaysian Legal System. Revised 3 ed.
Malaysia:Pearson Malaysia Sdn. Bhd. P.123.
126
Ibid, P. 123.
127
Ibid, P. 123.
28
There is no legal barrier against local courts making reference to subsequent
developments in English law.128 Though strictly not binding, local courts may accept
subsequent English authorities if in their view, it is desirable to do so in the absence
of local statutory provisions or judicial guidance.129 Lord Scarman took note of this
approach in Jamil bin Harun v Yang Kamsiah & Anor.,130 when he said:
“Their Lordships do not doubt that it is for the courts of Malaysia to decide,
subject always to the statute of the Federation, whether to follow English
case law. Modern English authorities may be persuasive, but are not binding.
In determining whether to accept their guidance, the courts will have regard
to the circumstances of the States of Malaysia and will be careful to apply
them only to the extent that the written law permits, and no further than, in
their view, it is just to do so”.
In Chou Choon Neoh v Spottiswoode,131 Maxwell C.J. held that the English
Superstitious Uses Act, 1947 and the Mortmain Acts of 1531 and 1735 were not
applicable in Peninsular Malaysia. The extent of the application of common law of
England in Malaysia was also decided in Syarikat Batu Sinar Sdn. Bhd. & Ors v
UMBC Finance Bhd. & Ors.132 This case concerned ownership claim over a secondhand tractor. The problem of double financing arose because the first purchaser’s
(UMBC Finance’s) ownership was not indorsed on the registration card of the
vehicle. UMBC Finance Bhd. wanted to repossess the tractor. The plaintiffs sued
them, seeking a declaration that the defendants were not entitled to the tractor. The
High Court allowed the plaintiffs’ application. It was held that, all buyers of secondhand cars in Peninsular Malaysia have always depended on the absence of any
registered endorsement of claim to ownership in the registration card to be a ‘green
light’ to deal with sellers whose names are registered as owners on the registration
128
129
Ibid, P. 124
rd
Aun, W.M. (2005). An Introduction To The Malaysian Legal System. Revised 3 ed.
Malaysia:Pearson Malaysia Sdn. Bhd. P.123.
130
[1984] 1 MLJ 217.
131
[1869] 1 K.B. 216
132
[1990] 3 MLJ 468.
29
cards or their mercantile agents. The practice in Peninsular Malaysia combined with
local statutory provisions in regard to the registration of ownership claims would
constitute such a distinctive local circumstance of the inhabitants of Peninsular
Malaysia that the decisions in English cases on the point of failure to have an
ownership claim registered should not be followed.
In relation to the proposition that English law is applicable only in the
absence of local statute, the privy council restated the principle in United Malayan
Banking Corp Bhd & Anor v Pemungut Hasil Tanah, Kota Tinggi.133 One of the
questions to be decided was whether the English equitable rule with regard to relief
against forfeiture could be applied to a forfeiture of alienated land resulting from an
action duly brought under the local National Land Code. The Privy Council held that
since the National Land Code was a complete and comprehensive code of law
governing land tenure and other matters affecting land in Malaysia, there was no
room for the importation of any relevant rules of English law save in so far as the
code itself might have expressly provided.
2.3
English Commercial Law
Section 5(1) introduces into the former Malay States principles of English
th
Commercial Law as it stood on 7 April, 1956 in the absence of local legislation.
This section states that:
“In all questions or issues which arise or which have to be decided in the
states of West Malaysia other than Malacca and Penang with respect to the
law of partnerships, corporations, banks and banking, principals and agents,
carriers by air, land and sea, marine insurance, average, life and fire
133
[1984] 2 MLJ 87.
30
insurance, and with respect to mercantile law generally, the law to be
administered shall be the same as would be administered in England in the
like case at the date of the coming into force of this Act, if such question or
issue had arisen or had to be decided in England, unless in any case other
provision is or shall be made by any written law.”
On the other hand, section 5(2) of Civil Law Act, which applies to the States
of Penang, Malacca, Sabah and Sarawak provides that English Commercial Law
shall apply to the matter which has to be decided in the named States as it would in
England. The said subsection provides that:
“…the law to be administered shall be the same as would be administered in
England in the like case at the corresponding period, if such question or issue
had arisen or had to be decided in England”.
Thus, in the four States mentioned above, there is still a continuing reception
of English commercial Law in the absence of local legislation.134 However, since
there are so many local statutes already passed which deal with commercial subjects,
there is no total reliance on English commercial Law.135 Such local statues include
the Companies Act 1956 (Revised 1973), Partnership Act 1961 (Revised 1974),
Banking and Financial Institutions Act 1989 Contracts Act 1950 (Revised 1974),
Insurance Act 1963 (Revised 1972), and Bills of Exchange Act 1949 (Revised
1978).136 In Kon Thean Soong v Tan Eng Nam,137 it was held that English Law of
partnership was not applicable in Malaysia since there is a local statute applicable,
that is, the Contract (Malay States) Ordinance 1959. More so, in Shaik Sahied bin
134
Lee, M.P. (2005). General Principles of Malaysian Law. 5th ed. Selangor: Oxford Fajar Sdn. Bhd p
27-28
135
Ibid, p 27-28.
136
Ibid, p 27-28.
137
[1982] 1 MLJ 323.
138
Abdullah Bajerai v Sockalingam Chettiar,
31
the issue was whether the English
Money Lenders Act 1900-1927 were applicable locally in Malaysia. Both the Court
of Appeal and Privy Council held that they were not.
Although local courts are not bound to follow decisions of English courts,
their decisions have traditionally been treated with the greatest respect.139 When
points of law are argued in local courts, English cases are frequently cited along with
local cases, if any.140 Since England has a much larger body of reported case law
than Malaysia, it often happens that a point of law will be covered by an English
precedent but not a local one.141
It may also be noted that once an English rule is voluntarily accepted by local
courts, it becomes a local law that is binding under the judicial precedent.142 The
origin may be English but for all intents and purposes, it has become a local law.143
Indeed, a Malaysian court has a choice whether to apply the foreign rule or not, but
where it has chosen to do so, it takes on a local character.144 This process is not
reception in the strict sense because reception refers to a situation where a rule of
another jurisdiction is applied in Malaysia by virtue of some other rule requiring such
application.145\
138
139
[1933] 2 MLJ 81.
rd
Aun, W.M. (2005). An Introduction To The Malaysian Legal System. Revised 3 ed.
Malaysia:Pearson Malaysia Sdn. Bhd. P. 137.
140
rd
Aun, W.M. (2005). An Introduction To The Malaysian Legal System. Revised 3 ed.
Malaysia:Pearson Malaysia Sdn. Bhd. P. 137.
141
Ibid, p. 137.
142
Ibid, p. 137.
143
Ibid, p. 137.
144
Ibid, p. 137.
145
Ibid, p. 137.
32
2.4
Insurance Governing Laws
Until 1963, Malaysia had no comprehensive legislation for the regulation of
insurance business.146 The existing law on insurance in the then Federation of
Malaya was drawn from legislation enacted in the united kingdom in 1909.147 It
comprised mainly of Life Assurance Companies Ordinance, 1948 and Fire Insurance
Companies Ordinance, 1948.148 It was known to be inadequate and out of date.149
About the same time as the passing of the Banking Ordinance in 1958, the Malayan
Government had begun to take actions for remedying the aforesaid unsatisfactory
state of affairs.150 The help of Mr. Caffin (Insurance Commissioner of Australia) was
enlisted and a report by him was received in 1960, as such, the Act of 1963 was
mainly based on his recommendations; though they were modified in the light of
experience.151
Before the insurance Act, 1963 was enacted, “stop-gap” legislation was
passed.152 Thus, there was the life Assurance Companies (Amendment) Act, 1961;
the Life Assurance Act, 1961, and the
Life assurance companies (Compulsory
153
Liquidation) Act, 1962.
146
Soe, M. (1999) Insurance Law of Malaysia, Johore Bahru, Malaysia, Quins PTE Ltd, Johore
Bahru, Malaysia. P.3
147
Ibid, p.3
148
Soe, M. (1999) Insurance Law of Malaysia, Johore Bahru, Malaysia, Quins PTE Ltd, Johore
Bahru, Malaysia. P.3
149
Ibid, p.3
150
Ibid, p.3
151
Ibid, p.3
152
Ibid, p.3
153
Ibid, p.3
33
The Insurance Act came into force on 21 January 1963 for West Malaysia
and 1st January, 1965 for East Malaysia.154 The main purpose of the Act seems to be
to control the growth of “mushroom” insurance companies and to stop gamblers and
speculators from taking out policies on others in the hope that they would live long
enough for the policy holder to collect.155 In other words, there was no local
legislation to prohibit expressly the taking out of life policies unless there was an
insurable interest.156 Apparently, insurers did not take much heed of the provisions of
the English Life Assurance Act, 1774 which did prohibit the ‘gambling’ on lives by
laying down the requirement of insurable interest.157 This Act would be applicable to
Malaya by virtue of section 5 of the Civil Law Ordinance, 1956. Moreover, they
would be void as wagering contracts under the Contracts Act, 1950.158
2.5
Applicability of English Decisions to Insurance Law
Sections 5(1) and (2) of the Civil law Act refer to British “law”. This as has
been pointed out, is wider than mere common law and equity.159 The question now is
to what extent will House of Lords decisions apply to issues or questions arising out
of insurance law to West Malaysia under section 5(1) of the Civil Law Act; and to
Malacca, Penang, Sabah and Sarawak under section 5(2) of the Act.
a. West Malaysia (excluding Penang and Malacca)
154
Ibid, p.3
Soe, M. (1999) Insurance Law of Malaysia, Johore Bahru, Malaysia, Quins PTE Ltd, Johore
Bahru, Malaysia. P.3
156
Ibid, p.3
157
Ibid, p.4
158
Soe, M. (1999) Insurance Law of Malaysia, Johore Bahru, Malaysia, Quins PTE Ltd, Johore Bahru,
Malaysia. P 4
159
Soe, M. (1999) Insurance Law of Malaysia, Johore Bahru, Malaysia, Quins PTE Ltd, Johore
Bahru, Malaysia. P.20
155
34
To West Malaysia, it seems that House of Lords decisions will be regarded as
‘binding’ to the above issues and questions under section 5(1) of the Act up
to the 7th April, 1956 as House of Lords decisions constitute the authority.160
They would not be binding on west Malaysian Courts under the doctrine of
precedent, as House of Lords was never part of the “Malayan Curial
Hierarchy”,161 however, these observations will apply only up to the 7th April,
1956.162
The question that therefore arises is, what about the applicability of House of
Lords decisions to issues or questions relating to insurance law after 7th April 1956,
in West Malaysia?
The answer seems to be that as far as West Malaysian Courts are concerned,
House of Lords decisions after 7th April, 1956, will be treated as being merely of the
highest persuasive authority, but not as binding.163
b. Penang, Malacca, Sabah and Sarawak
“Since section 5(2) of the civil Law Act refers to a “continuing reception” of
English law to issues and questions relating to insurance law, it seems that
House of Lords decisions will be regarded as binding as long as those
provisions exist on the statute book.164”
The governing statute in Malaysia in the field of insurance law is the
Insurance Act 1996.165 This Act, however, does not seem to mention the issue of
breach of warranty in insurance policies.166 As such, the provisions of the Civil Law
160
Ibid, p.20
Ibid. p.21
162
Ibid, p.21
163
Ibid, p.21
164
Soe, M. (1999) Insurance Law of Malaysia, Johore Bahru, Malaysia, Quins PTE Ltd, Johore
Bahru, Malaysia. P. 21
165
Singh, B. (2002) Insurance Law Manual, Selangor, Malaysia, Pelanduk Publications (M) Sdn Bhd,
Selangor, Malaysia. P12
166
Ibid, p.12
161
35
Act 1956 and the case of Jamil bin Harun v Yang Kamsiah & Anor., may be referred
to in order to provide valuable guidance on the matter.167
Section 5(1) of the Civil Law Act 1956 provides that:
“In all questions or issues which arise or which have to be decided in the
States of West Malaysia ... with respect to the law of ... marine insurance,
average, life and fire insurance ... the law to be administered shall be the
same as would be administered in England in the like case at the date of the
coming into force of this Act, if such question or issue had arisen or had to be
decided in England, unless in any case other provision is or shall be made by
any written law.”
Lord Scarman in Jamil bin Harun v Yang Kamsiah & Anor.,168said:
Though strictly not binding, local courts may accept subsequent English
authorities if in their view, it is desirable to do so in the absence of local
statutory provisions or judicial guidance. Their Lordships do not doubt that it
is for the courts of Malaysia to decide, subject always to the statute of the
Federation, whether to follow English case law. Modern English authorities
may be persuasive, but are not binding. In determining whether to accept
their guidance, the courts will have regard to the circumstances of the States
of Malaysia and will be careful to apply them only to the extent that the
written law permits, and no further than, in their view, it is just to do so”.
With the aid of these provisions, English law has often been referred to for
guidance in resolving legal dilemmas in the field of insurance law.169 Since the
Malaysian Insurance Act 1963 does not seem to have covered the matter of breach of
warranty in insurance policies, by virtue of section 5(1) of our Civil Law Act 1956,
167
Ibid, p.12
[1984] 1 MLJ 217.
169
Ibid, p.12
168
36
the decision of the House of Lords in The Good Luck case can be adopted by
Malaysian courts.170
2.6
Distinction between warranties and conditions in insurance law
In contract of insurance, the terms provided in the agreement may have
varying legal effect, depending on the importance of the term.
171
The mere labeling
of a term as a “condition”, “condition precedent”, or “warranty” does not
automatically confer a definite legal status on the term, although it will go some way
in showing the intentions of the parties.172 Ultimately, the test is primarily one of
determining the intentions of the parties.173
The terms “warranty” and “condition” in the context of an insurance contract
have acquired a meaning peculiar only to insurance law.174 For instance, under the
English Sale of Goods Act 1979, a stipulation in a contract of sale is a condition that
if breached, it will give rise to a right to treat the contract as repudiated, and a
warranty is a term, the breach of which may give rise to a claim for damages but not
a right to reject the goods and treat the contract as repudiated.175 In insurance law, the
terms are used with the opposite effect.176
170
Ibid, p.12
Poh, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers
(Pte) Ltd. P.193
172
Ibid, p.193
173
Ibid, p.193
174
Ibid, p.193
175
Ibid, p.193
176
Ibid, 193.
171
37
Davis (1996)177 asserted that in construction insurance policy, warranty plays
a key role. He added also that warranty is a condition precedent, and unless it is
performed, there is no contract. It is perfectly immaterial for what purpose a warranty
is introduced, but, being inserted, the contract does not exist unless it is literally
complied with.178 According to Poh (1990),179 warranties are said to serve a very
significant function in the law of insurance, that is, determining the scope of the
cover agreed by the insurer. He added also that from the insurer’s point of view, the
extent of the risk is crucial, as his liability will largely depend on it. The warranties
incorporated into the contract play an essential role in assessing the risk.
2.6.1
Warranty
The Malaysian Insurance Act has no provision relating to warranties and
conditions in insurance contracts; however, in De Hahn v Hartley,180 Lord Mansfield
described a warranty as follows:
“A warranty in a policy of insurance is a condition or a contingency, and
unless it is performed, there is no contract. It is perfectly immaterial for what
purpose a warranty is introduced, but, being inserted, the contract does not
exist unless it is literally complied with”.
A warranty is defined in section 33(3) of the English Marine Insurance Act
1906 as follows:
177
178
179
180
Construction insurance, bonding, and risk management, McGraw –Hill Prof. NY, P 1De Hahn v Hartley (1786) 1Term. Rep. 343
Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers
(1786) 1Term. Rep. 343
38
“A warranty is a condition which must be exactly complied with, whether it is
material to the risk or not. If it is not complied with, then subject to any
express provision in the policy, the insurer is discharged from liability as
from the date of the breach of warranty.”
The word warranty in a technical sense is used to refer to a certain term of an
insurance contract, breach of which has particular legal consequences.181 With a
warranty, one party of the insurance contract, the assured, undertakes certain
obligations that need to be complied with within a certain period of time and the
liability of the insurer, under the insurance contract, depends on the assured’s
compliance with these obligations.182 In this respect, warranties are used by the
insurer as a shield against liability.183
Warranties are said to serve a very significant function in the law of
insurance, that is, determining the scope of the cover agreed by the insurer.184 A
contract of insurance is described as a contract whereby the insurer undertakes to
indemnify the assured, in manner and to the extent thereby agreed, against certain
losses in return of a payment known as premium.185Accordingly, from the insurer’s
point of view, the extent of the risk is crucial, as his liability will largely depend on
it.186 The warranties incorporated into the contract play an essential role in assessing
the risk.187
181
SOYER, B. (2006) Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK p.2
182
SOYER, B. (2006) Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK p.2
183
Ibid, p.2
184
SOYER, B. (2006) Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK p.2
185
Ibid, p.3
186
Ibid, p.3
187
Ibid, p.3
39
Warranties are quite commonly used in marine insurance and the Marine
Insurance Act 1906 has provided the legal frame work, however, this does not mean
that the use of such terms is unique solely to marine insurance contracts.188
Warranties also appear in all types of non-marine insurance contracts.189 Generally
speaking, the rules laid down by the Marine Insurance Act 1906 for marine
warranties could also be applied to non marine warranties.190 It has, in fact, been
observed on numerous occasions that the judges refer to marine insurance principles,
or the provisions of the Marine Insurance Act 1906, when a non-marine warranty is
involved.191
As pointed out by Soyer (2006),192 in the event of a breach of a present
warranty, the contract never comes into existence because compliance with this type
of warranty is condition precedent to the attaching of the risk. However, a breach of
continuing warranty will not have any effect on the existence of the contract. The
risk is treated as having incepted at the outset but automatically coming to an end as
of the date of the breach, thus, the insurer is discharged from any future liability,
although any liabilities of the insurer before the date of the breach are unaffected.
2.6.2
Condition
A condition in an insurance policy is a term which would entitle an insurance
company to claim damages in the event of a breach but not to disclaim liability under
188
Ibid, p.3
Ibid, p.3
190
Ibid, p3
191
Ibid, p3
192
Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited, London, UK p.2
192
Ibid, p.3
189
193
the policy.
40
In Stoneham v Ocean Railway and General Accident Insurance Co,
194
it was decided by the English Court of Appeal that where an insured is in breach of a
condition in the policy, the insurers were entitled to claim damages for breach of the
condition but could not disclaim liability under the policy.
2.6.2.1 Condition Precedent
If an insurance company is to be entitled to disclaim liability for breach of a
condition, the insurance company must make the condition a condition precedent.195
In London Guarantie Company v Fearnley,196 it was decided by the House of Lords
that:
“Where a condition in a policy is stipulated to be a condition precedent, the
insurers were under no liability under the policy unless that condition has
been complied with. Whether a term in a policy is a condition or condition
precedent is a matter of construction. The mere fact that an insurer has
labeled a term as a condition precedent does not turn that term as a condition
precedent unless the context in which the term appears is capable of making
the term a condition precedent”.
193
POH, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers
(Pte) Ltd. P.194
194
(1877) 19 Q.B.D. 237
195
196
Ibid, p.194
(1880) 5 App. Cas. 911
197
In Re Bradley and Essex and Suffolk accident Society,
41
it was decided by
the English Court of Appeal that:
“A term expressed to be a condition precedent in the policy could not be
construed as a condition precedent if it was inappropriate in the context of
the policy”.
However, where a condition in the policy is stipulated to be a condition
precedent, then that condition has to be complied with before the insured can bring
an action on the policy.198 In Chong Kok Hwa v Taisho Marine & fire insurance Co.
Ltd.,199 it was decided by Ajaib singh J. that “where a condition in the policy has
been made a condition precedent, the insurer was not liable under the policy if the
insured fails to comply with that condition”.
2.7
Utmost Good Faith
At common law, a person entering into a contract is under no legal obligation
to voluntarily disclose information to the other party to the contract.200 Insurance
contracts are special in the sense that they are based upon mutual trust and
confidence between the insured and the insurer.201 That is why contracts of insurance
are said to be uberrimae fidei, that is, of the utmost good faith.202
197
[1912] 1 K.B. 415
POH, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers
(Pte) Ltd. P.198
199
[1977] 1 MLJ 244
200
POH, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers
(Pte) Ltd. P.198
201
Ibid, p.198
202
Poh, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman singapore Publishers (Pte)
Ltd.
198
42
Poh (1990) pointed out that under this legal principle, each party to a
proposed contract is under a duty to disclose to the other all information which
would influence his decision to enter into the contract, whether such information is
requested or not. Stating further, failure to disclose material information gives the
other party the right to avoid the contract (Material information here refer to facts
that would influence the mind of a prudent insurer in accepting or rejecting proposal
or even fixing the premium). This dto yauty usually rests more heavily on the insured
than the insurer because the insured alone knows or should know more about himself
or the subject matter of the insurance.203
Lord Mansfield explained this requirement in the case of Carter v Boehm
(1733)204 where He said:
“Insurance is a contract upon speculation. The special facts, upon which the
contingent chance is to be computed, lie most commonly in the knowledge of
the insured only: the underwriter trusts to his representation, and proceed
upon the confidence that he does not keep back any circumstance in his
knowledge, to mislead the underwriter into a belief that the circumstance
does not exist, and to induce him to estimate the risqué (sic), as if it did not
exist.
The keeping back of such circumstance is a fraud, and therefore the policy is
void. Although the suppression should happen through mistake, without any
fraudulent intention; yet still the underwriter is deceived, and the policy is
void; because the risqué run is really different from the risqué understood
and intended to be run, at the time of the agreement.
203
Aun, W. M., AND Vohrah, B. (2000) The Commercial Law of Malayisa, Selangor, Malaysia,
Pearson Malaysia Sdn Bhd.
204
(1766) 3 Q.B.D 905
43
Good faith forbids either party by concealing what he privately knows, to
draw the other into a bargain, from his ignorance of that fact, and his
believing the contrary”.
With regards to uberrimae fidei in insurance policy, breach of warranty is
said to occur when there is a failure to disclose material information that gives the
other party the right to avoid the contract.
2.8
Classification of Warranties
A warranty in an insurance policy is a promise by the insured party that
statements affecting the validity of the contract are true.205 Most insurance contracts
require the insured to make certain warranties.206 Therefore, it is paramount to
classify warranties in insurance contracts.
Warranties in insurance contracts can be categorized according to the
following classification:207
a) According to the time and nature of undertaking.
b) According to their structure.
205
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. p.8
206
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. p.8
207
Ibid, p.8
44
2.8.1 Classification of warranties according to the time and nature of
undertaking
This classification depends on whether the warranty relates to a period before
the attachment of the risk or relates to a period after the attachment of the risk. Based
on this classification, warranty is classified as a present warranty or continuing
warranty.208
i.
Present/affirmative warranty:
This warranty relates in time to the circumstances at the inception of the risk.
In such a case, the warranted event must be complied with before the risk
attaches.209 In other words, present or affirmative warranty is a statement
made by the insured to the insurer upon which the validity of the policy
depends and the insurance contract will not be binding unless the warranty
statement is literally true.210 In the case of Thomson v Weems (1884),211 the
assured made a false statement as to the present fact in the proposal form,
which was a breach, and where such a warranty is breached, the insurer never
comes on the risk and, accordingly, the premium is refundable due to total
failure of consideration, unless the breach of the warranty is in fact,
fraudulent. Compliance to this kind of warranty is considered to be a
condition precedent to the attachment of the risk. As such, the validity of the
insurance policy depends on the compliance with this warranty.212
208
[2006] 2 MJA 83
Ibid, p.8
210
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. p.8
211
(1884) 9 App. Cas. 671
209
212
Ibid, P.8
45
ii.
Promissory/Continuing warranty:
This warranty relates to circumstances after the attachment of the risk.213 In
other words, some warranties undertake that a given state of affairs will be
satisfied or avoided at some time after the inception of the risk.214 More so,
the warranty might undertake that a given state of affairs will not only exist at
the inception of the risk, but also during its continuation.215 Common
examples include warranties to maintain alarms or sprinkler systems in
commercial fire policies216.
In cases where a promissory/continuing warranty is breached, it will not have
effect on the existence of the contract, unlike breach of Present/Affirmative
warranty.217 In the case of breach of promissory/continuing warranty, the risk
is treated as having incepted at the outset but automatically coming to an end
as of the date of the breach.218 Thus, the insurer is discharged from any future
liability, although any liabilities of the insurer before the date of the breach
are unaffected.219 The insurer is entitled to retain the full amount of the
premium even though the insurer may have been on the risk for a short period
only.220 This is due to the fact that the risk that has incepted has simply come
to an end; as such there has not been a total failure in consideration on the
part of the insurer.221
213
Ibid, p.9
Ibid, p.9
215
Ibid, p.9
216
[2006] 2 MJA 83
217
Ibid, p.3
218
Ibid, p.4
219
Ibid, p.5
220
[2006] 2 MJA 83
221
Ibid, p.3
214
46
2.8.2
Classification of warranties according to their structure
Soyer (2006)222 pointed out that; according to their structure, warranties could
be express or implied. An express warranty is specifically stated in the contract,
while an implied warranty is one that is presumed.
i.
Express warranties:
Express warranties appear in the policy, or are incorporated therein by
reference to them. Under the principle of freedom of contract, the number and
extent of express warranties depend on the consensus of the insured and
insurer. However, an express warranty does not include an implied warranty,
unless there is inconsistency.
Section 35(1) of the Marine Insurance Act (1906) clearly provides that no
formal or technical wording is required for the creation of an express
warranty. An express warranty can be created with any kind of wording,
provided that the parties’ intentions are to give warranty status to the clause
in question. Therefore, the word warranty is not essential in order to create an
express warranty.
However, it must not be thought, that the use of these words is of no
importance. They may be good evidence of the parties’ intentions to create an
express warranty. It was stated in Ellinger & Co v Mutual Life Insurance Co
of New York (1905),223 the use of the word ‘warranted’ shows prima facie that
the parties understood that a breach of it should be a permanent or temporary
bar to the insurer’s liability.
222
Soyer, B. (2006), Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK. p.10
223
[1905] 1 KB 31
47
ii.
Implied warranties:
Implied warranties do not appear in the policy, but are tacitly understood by
the parties to be present. They are implied by law from the circumstances in
which the bargain was effected. Implied warranties are not present in any
areas of insurance law except marine insurance. There is for example, no
implied warranty in life insurance that the life is in good health or free from
disease and, similarly, there is warranty in fire insurance that the premises are
well built and incorporate fire precautions. In the case of Euro-Diam Ltd v
Bathurs (1990),224 it was stressed by the court of Appeal that there was no
implied warranty of legality in non-marine insurance.
By way of summarizing this chapter, it has been seen that the sources of
insurance law in Peninsular Malaysia are thelocal law as well as applicable English
statutes and English principles of common law and equity. The reception of English
law in insurance is made possible by sections 3 and 5 of the Civil Law Act 1956. The
Civil Law Act 1956 renders decisions of English common law and to some extent
statutes of general application binding on Malaysian courts unless the law is
displaced by local statutes or local circumstances render them inapplicable.
However, the English law is only applied in Malaysia in the absence of local statutes
on the particular subject or where the part of the English law suits local
circumstances in Malaysia. As a matter of fact, the English Law is not binding on
west Malaysia but it is treated as being merely of the highest persuasive authority.
224
[1987] 1 Lloyd’s Rep. 178
48
The Insurance Act 1963 came into force in Peninsular Malaysia on 21
January 1963. It came into force for East Malaysia on 1 January 1965. The said Act
mainly deals with regulation of the insurance business to ensure there is proper
control. The portion of substantive law in the Act is minimal. More so, it is silent on
issues dealing with breach of warranty in insurance policy, as such, the provisions of
the Civil Law Act 1956 may be referred to in order to provide valuable guidance on
the matter.
In insurance law, warranties and conditions are used with opposite effect
different from law of contract. A warranty in a policy of insurance is a condition that
if it is not performed, there is no contract while a condition is a term which would
entitle an insurer to claim damages in the event of breach but not to disclaim liability
under the policy. More so, for an insurer to be entitled to disclaim liability for breach
of a condition, the insurer must make the condition a condition precedent. In
insurance contract, warranties are grouped as based on their time/nature of
undertaking (present and continuing warranties) and structure (express and implied
warranties).
Therefore, warranties serve a very significant function in the law of insurance
that is, determining the scope of the cover agreed by the insurer. In construction
projects, the warranties incorporated into an insurance policy play an essential role in
assessing the risk.
CHAPTER 3
CONSTRUCTION INSURANCE
3.1
Overview
In the execution of any construction project there is invariably an element of
risk involved.225 First, there is the possible risk of a loss as a result of damage to
property, plant or machinery.226 Secondly, the workers involved in the project might
sustain bodily injuries.227 Therefore, the parties involved in a project -- the employer,
contractor, engineer, architect, etc -- ought to be mindful of this and in order to
protect and guard against the possible risks, it is highly imperative that insurance
225 225
Perry, J.G and Hayes, R.W (2001), Construction Projects – Know the Risks, CME UMIST,
London. P.20
226
Ibid, p.20
227
Ibid, p.20
228
cover is obtained.
50
In view of the importance, most engineering or building
contracts have express provisions dealing with insurance.229
3.2
Contract of insurance
The main feature of a contract of insurance is that the contract is made to
depend on the occurrence of an uncertain event.230
In Prudential Insurance v IRC231 Channell J., in dealing with the
characteristic of a contract of insurance, stated as follows:
“It must be a contract whereby for some consideration, usually but not
necessarily in periodical payments called premiums, you secure to yourself
some benefit, usually but not necessarily the payment of a sum of money,
upon the happening of some event. Then the next thing that is necessary is
that the event should be one which involves some amount of uncertainty.
There must be either uncertainty whether the event will ever happen or not,
or if the event is one which must happen at some time there must be
uncertainty as to the time at which it will happen”.
228
Ibid, p.20
Ibid, p.20
230
Poh, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers
(Pte) Ltd. P.143
231
[1904] 2 KB 658 at p 663
229
51
3.3
Types of risks
The nature and extent of insurance cover needed would vary depending on
the project.232 Numerous risks are involved in building and engineering projects.233
Any two projects are unlikely to carry the same risks.234 Risks are classified into;
Risk against loss or damage to property, plant, machinery and other equipment on the
site; Risk against claim for death or bodily injuries sustained by persons working on
the site; Risk against claim for damage to property of third parties arising from the
execution of the project; and Risk against claim for death or bodily injuries sustained
by third parties arising from the execution of the project.235
3.4
Parties
In a given construction project, a number of parties are normally involved and
each party might be financially affected by the occurrence or incidence of the risks in
the course of the execution of the project.236 The parties normally involved would
include; employer, main contractor, sub-contractors, engineers, architects and
quantity surveyors.237
232
Heidenhain, D. (2001) Managing technological risks: a challenge for professional engineering
insurers. Geneva Papers on Risk and Insurance - Issues and Practice, 26(2), 268-276.
233
Heidenhain, D. (2001) Managing technological risks: a challenge for professional engineering
insurers. Geneva Papers on Risk and Insurance - Issues and Practice, 26(2), 268-276.
234
Ibid, p. 268-276
235
Ibid, p 268-276
236
[1995] 2 MLJ 109
237
Ibid at p 126
52
It will be necessary to consider the exposure to liability of each party in
obtaining insurance cover.238 If each party obtains a separate cover for his part of the
work, the total cost of insurance will be high.239 Therefore in the case of a large
engineering or construction project it might be advisable to obtain a composite or
wrap-up policy cover for the entire project.240 However, it is normally not possible to
include in such a composite policy a cover which extends to the professional
negligence of professional men such as engineers and architects involved in a
project.241
Therefore a composite policy might be limited to cover the liability of the
owner, the main contractor and the sub-contractors and professional negligence cover
is taken separately.242
3.5
Period of insurance cover
It is important to determine carefully the period of insurance cover that is
required for a given project.243 Insurance cover is limited in time.244 The insurance
company will only provide an indemnity for the loss sustained during the currency of
the policy.245 The commencement and termination of the cover is governed by the
contract of insurance.246 When the policy is renewed the period of the new term will
238
Ibid at p 126
Ibid at p 126
240
[1995] 2 MLJ 109
241
Ibid at p 126
242
Ibid at p 126
243
Rahman, M. M. and Kumaraswamy, M. M. (2002) Risk management trends in the construction
industry: moving towards joint risk management. Engineering, Construction and Architectural
Management, 9(2), 131-151.
244
Ibid, p 131-151
245
Ibid, p 131-151
246
Ibid, p 131-151
239
247
be presumed to begin after the old term had expired.
53
However, no such
presumption will arise if the insured enters into a new contract with a new insurance
company.248
In the case of a building contract it is absolutely essential that the period of
cover is not confined to the project period.249 Provision must be made to extend the
cover to the period of maintenance after completion.250 Sometimes it might not be
possible to complete the project within the contract period and hence the project
might be delayed.251 To meet such a contingency it would be prudent when
negotiating a contract of insurance to make provision for extension of cover if the
need arises.252
3.6
Types of Insurance Policies
There are various types of insurance policies that are available in the
construction industry.253 These policies include “Contractor’s All Risks” (CAR),
“professional Indemnity”, “Claims Made”, and Latent Defects Policies.254 However,
the most commonly issued policy nowadays is the CAR policy.255 This policy is
247
Ibid, p 131-151
Rahman, M. M. and Kumaraswamy, M. M. (2002) Risk management trends in the construction
industry: moving towards joint risk management. Engineering, Construction and Architectural
Management, 9(2), 131-151
248
249
Lyons, T. and Skitmore, M. (2004), Project risk management in the Queensland engineering
construction industry: a survey. International Journal of Project Management, 22(1), 51-61.
250
Ibid, p 51-61
Ibid, p 51-61
252
Ibid, p 51-61
253
Rahman, M. M. and Kumaraswamy, M. M. (2002) Risk management trends in the construction
industry: moving towards joint risk management. Engineering, Construction and Architectural
Management, 9(2), 131-151
254
Ibid, p 135
255
Ibid, p 135
251
54
perceived by many to create a comprehensive cover for all parties to a construction
contract.256 In the parties’ haste to accept any particular CAR policy, it must not be
forgotten that such policy creates contractual obligations like warranties and
conditions and should therefore be carefully scrutinized to determine what extent of
the cover as well as the exclusions are.257
The contractors' all risks policy, commonly referred to as CAR policy, is a
classic example of a composite policy.258 It is proposed to consider this policy in
greater detail because of its importance in building and engineering projects.259 The
parties named in the policy would include the owner, the main contractor and subcontractors.260 The policy is insured in the joint names of the parties involved in the
project for their respective rights and interests.261 Each party named in the policy
could make a claim directly in their own name.262
In a standard CAR policy, after identifying the insured and the nature of the
project insured, the policy liability is divided into sections.263 Section 1 deals with
the material damage loss.264 Under this section the property insured is identified in
the schedule under the heading 'Items insured'.265 This will normally include the
contract work (permanent and temporary work); materials or items supplied by the
256
Rahman, M. M. and Kumaraswamy, M. M. (2002) Risk management trends in the construction
industry: moving towards joint risk management. Engineering, Construction and Architectural
Management, 9(2), 131-151
257
Ibid, p 135
258
Perry, J.G and Hayes, R.W (2001), Construction Projects – Know the Risks, CME UMIST,
London. P.20
259
Ibid, p.24
260
Ibid, p.24
261
Ibid, p.24
262
Ibid, p.24
263
Lyons, T.
construction
264
Lyons, T.
construction
265
and Skitmore, M. (2004), Project risk management in the Queensland engineering
industry: a survey. International Journal of Project Management, 22(1), 51-61
and Skitmore, M. (2004), Project risk management in the Queensland engineering
industry: a survey. International Journal of Project Management, 22(1), 51-61
Ibid, p 51-61
55
owner or principal; construction plant and equipment; construction machinery and
clearance of debris.266
If there are any items which fall outside the scope of the above then it will be
necessary to include them as additional items.267 In a big project the insurance
company will normally require the party seeking the cover to furnish a detailed list of
any one of the above items and this list is attached to the policy.268
It should be noted that the monetary value of each item is indicated against
each item under the heading 'Sums insured'.269 One should exercise great care in
determining the sum that would fairly reflect the loss because the maximum limit of
liability of the insurance company in the event of a claim is governed by the figure
indicated in the policy.270 It is also common to find another column after the 'Sums
insured' column making provision for deduction under the heading 'Deductible'.271
This is commonly referred to as the 'excess clause' under which the insured will bear
an agreed amount of loss himself in respect of each and every loss or occurrence
leading to the claim covered under the policy.272
Section 1 usually provides that if at any time during the period of insurance
the items insured should suffer any unforeseen and sudden physical loss or damage
from any cause other than those specifically excluded, the insurance company will
266
Ibid, p 51-61
Ibid, p 51-61
268
Ibid, p 51-61
267
269
Smith, N.J., Tony, M., and Jobling, P. (2006) Managing risk in construction projects, 2th ed: Blackwell
Publishing. Pp 205-213
270
Ibid, p 205-213
Ibid, p 205-213
272
Ibid, p 205-213
271
56
indemnify the insured for such loss by payment in cash, replacement or repair at their
own option up to an amount not exceeding in respect of each of the items specified in
the schedule the sum indicated against each item.273 Therefore, if a risk is not
excluded it is deemed to be included in the cover.274 It is imperative that a party
taking a CAR policy cover carefully examine the exclusions which are set out under
the heading 'General exclusions' and 'Special exclusions'.275 The general exclusions
apply to the entire policy whereas the special exclusions only apply to the relevant
sections.276 If one requires cover for any of the risks excluded it is possible upon
payment of additional premium to have the particular exclusion deleted.277
The following risks are usually set out under the heading 'General exclusions' and
these risks are not covered by the policy:278
i.
War, invasion, act of foreign enemy, hostilities, civil war, rebellion,
revolution, insurrection, mutiny, riot, strike, lock-out, civil commotion,
military or usurped power etc.
ii.
Nuclear reaction, nuclear radiation or radioactive contamination.
iii.
Wilful act or wilful negligence of the insured or his representatives.
iv.
Cessation of work whether total or partial.
Having dealt with the general exclusions it is appropriate now to consider the
special exclusions. This is embodied under each section of the policy. The following
risks are usually excluded under Section 1.
i.
deductibles;
273
Smith, N.J., Tony, M., and Jobling, P. (2006) Managing risk in construction projects, 2th ed: Blackwell
Publishing. Pp 205-213
274
Lyons, T. and Skitmore, M. (2004), Project risk management in the Queensland engineering
construction industry: a survey. International Journal of Project Management, 22(1), 51-61
275
Ibid, p 51-61
Ibid, p 51-61
277
Rahman, M. M. and Kumaraswamy, M. M. (2002) Risk management trends in the construction
industry: moving towards joint risk management. Engineering, Construction and Architectural
Management, 9(2), 131-151
278
Ibid, p 131-151
276
ii.
57
consequential loss of any kind or description whatsoever including penalties,
losses due to delay, lack of performance, loss of contract;
iii.
loss or damage due to faulty design;
iv.
cost of replacement, repair or rectification of defective material and/or
workmanship but this exclusion shall be limited to the items immediately
affected and shall not be deemed to exclude loss of or damage to correctly
executed items resulting from accident due to such defective material and/or
workmanship;
v.
wear and tear, corrosion, oxidation, deterioration due to lack of use and
normal atmospheric condition;
vi.
mechanical and/or electrical breakdown or derangement of construction
plant, equipment and construction machinery;
vii.
loss or damage to vehicles licensed for general road use or waterborne
vessels or aircraft;
viii.
loss or damage to files, drawings, accounts, bills, currency, stamps, deeds,
evidence of debt, notes, securities, cheques;
ix.
loss or damage discovered only at the time of taking an inventory.
Section 2 of the CAR policy usually deals with the third party liability
cover.279 In the schedule relating to Section 2, there is a limit of liability indicated
and the sum representing the deductibles.280 The insurance company might be
prepared to provide unlimited indemnity for third party liability under Section 2.281
279
Rahman, M. M. and Kumaraswamy, M. M. (2002) Risk management trends in the construction
industry: moving towards joint risk management. Engineering, Construction and Architectural
Management, 9(2), 131-151
280
Rahman, M. M. and Kumaraswamy, M. M. (2002) Risk management trends in the construction
industry: moving towards joint risk management. Engineering, Construction and Architectural
Management, 9(2), 131-151
281
Ibid, p 131-151
58
This section will normally state that the insurance company will indemnify
the insured up to but not exceeding the amount specified in the schedule against such
sums which the insured shall become legally liable to pay as damages consequent
upon accidental bodily injury to or illness of third parties (whether fatal or not) and
accidental loss of or damage to property belonging to third parties occurring in direct
connection with the construction or erection of the items insured under Section 1 and
happening on or in the immediate vicinity of the site during the period of cover.282
The insurance company, in addition to the compensation for the above, will
also indemnify the insured against all costs and expenses of litigation recovered by
any claimant from the insured and all costs and expenses incurred with the written
consent of the insurance company.283
There are a number of special exclusions for the cover under Section 2 and
the following exclusions are normally set out in a standard policy:284
i.
deductibles stated in the schedule;
ii.
expenditure incurred in doing or redoing or making good or repairing or
replacing anything covered or coverable under Section 1.
iii.
damage to any property or land or building caused by vibration or by the
removal or weakening of support or injury or damage to any person or
property occasioned by or resulting from any such damage (unless specially
agreed upon by endorsement);
iv.
liability consequent upon;
282
Smith, N.J., Tony, M., and Jobling, P. (2006) Managing risk in construction projects, 2th ed: Blackwell
Publishing. Pp 205-213
283
284
Ibid, p 205-213
Ibid, p 205-213
59
a. bodily injury to or illness of employees or workmen of the contractor(s)
or the principal(s) or any other firm connected with the project which or
part of which is insured under Section 1 or members of their families;
b.
loss of or damage to property belonging to or held in care, custody or
control of the contractor(s), the principal(s) or any other firm connected
with the project which or part of which is insured under Section 1 or an
employee or workman of one of the aforesaid;
It should be noted that the third party cover under Section 2 will include the
following risks: occupiers' liability to visitors to the premises or the site; nuisance
and Rylands v Fletcher liability (non-natural use of land).285
3.7
WARRANTIES AND CONDITIONS IN CONTRACTORS’ ALL RISK
INSURANCE POLICY
In construction insurance policy, warranty plays a key role.286 It is a condition
precedent, and unless it is performed, there is no contract.287 It is perfectly
immaterial for what purpose a warranty is introduced, but, being inserted, the
contract does not exist unless it is literally complied with.288 Warranties are said to
serve a very significant function in the law of insurance, that is, determining the
scope of the cover agreed by the insurer.289 Accordingly, from the insurer’s point of
285
Smith, N.J., Tony, M., and Jobling, P. (2006) Managing risk in construction projects, 2th ed: Blackwell
Publishing. Pp 205-213
286
Davis, S. D. (1996) In Construction insurance, bonding, and risk management(Ed, Palmer, W. J.,
Maloney, J. M. and John L., I. H.) McGraw-Hill Professional, New York, pp. 1-7.
287
Ibid,p 1-7
288
De Hahn v Hartley (1786) 1Term. Rep. 343
289
Poh, C. C. (1990) Law of Insurance, Jurong Town, Singapore, Longman Singapore Publishers
(Pte) Ltd. P 4
290
view, the extent of the risk is crucial, as his liability will largely depend on it.
60
The
warranties incorporated into the contract play an essential role in assessing the
risk.291
Mentioned below are some of the wordings of warranty clauses incorporated
in Contractors’ All Risk Insurance Policy by Tokio Construction Contract Insurans
(Malaysia) Bhd292 for usage in insuring construction projects.
•
The due observance and fulfilment of the terms of this policy in so far as
they relate to anything to be done or complied with by the insured and the
truth of the statements and answers in the questionnaire and proposal
made by the insured shall be a condition precedent to any liability of the
insurers.
•
The insured shall at his own expense take all reasonable precautions and
comply with all reasonable recommendations of the insurers to prevent
loss, damage or liability and comply with statutory requirements and
manufacturers’ recommendations.
•
The insurers will only indemnify the insured in respect of loss of or
damage to existing underground cables and/or pipes or other underground
facilities only if , prior to the commencement of works, the insured has
inquired with the relevant authorities about the exact position of such
cables, pipes or other underground facilities. The indemnity shall in any
case be restricted to the repair costs of such cables, pipes, or other
underground facilities, any consequential damage being excluded from
the cover.
290
Ibid, p7
Ibid, p7
292
www.tokiomarine.com.my
291
•
61
Representatives of the insurers shall at any reasonable time have the right
to inspect and examine the risk and the insured shall provide the
representatives of the insurers with all details and information necessary
for the assessment of the risk.
•
The insured shall immediately notify the insurers by telegram or fax and
in writing of any material change in the risk and cause at his own expense
such additional precautions to be taken as circumstances may require, and
the scope of cover and/or premium shall, if necessary, be adjusted
accordingly.
•
No material alteration shall be made or admitted by the insured whereby
the risk is increased, unless the continuance of the insurance is confirmed
in writing by the insurers.
•
If any difference shall arise as to the amount to be paid under this policy
(liability being otherwise admitted) such difference shall be referred to
the decision of an Arbitrator to be appointed in writing by the parties in
difference or if they cannot agree upon a single arbitrator to th decision of
two Arbitrators, one to be appointed in writing by each of the parties,
within one calendar month after having been required in writing so to do
by either of the parties, or, in case the Arbitrators do not agree, of an
Umpire to be appointed in writing by the Arbitrators before the latter
enter upon the reference. The Umpire shall sit with the Arbitrators and
preside at their meetings. The making of an award shall be a condition
precedent to any right of action against the insurers.
•
If a claim is in any respect fraudulent, or if any false declaration is made
or used in support thereof, or if any fraudulent means or devices are used
by the insured or anyone acting on his behalf to obtain any benefit under
this policy, or if a claim is made and rejected and no action or suit
62
commenced within three months after such rejection or, in case of
arbitration taking place as provided herein, within three months after the
Arbitrator or Arbitrators or Umpire have made their award, all benefit
under this policy shall be forfeited.
In a policy of construction insurance, a condition is a term which would
entitle an insurance company to claim damages in the event of a breach but not to
disclaim liability under the policy.293
The conditions incorporated into the Contractors’ All Risk insurance policy
by Tokio Construction Insurans (Malaysia) Bhd294 for usage in insuring construction
projects read as follows:
1. The schedule and the sections shall be deemed to be incorporated in and form
part of this policy and the expression “this policy” wherever used in this
contract shall be read as including the schedule and the sections. Any word or
expression to which a specific meaning has been attached in any part of this
policy or of the schedule or of the sections shall bear such meaning wherever
it may appear.
2. In the event of any occurrence which might give rise to a claim under this
policy, the insured shall:
•
Immediately notify the insurers by telephone, telegram or fax as well as in
writing, giving an indication as to the nature and extent of loss or damage;
•
Take all steps within his power to minimize the extent of the loss or
damage;
•
Preserve the parts affected and make them available for inspection by a
representative or surveyor of the insurers;
293
294
Stoneham v Ocean Railway and General Accident Insurance Co, (1877) 19 Q.B.D. 237
www.tokiomarine.com.my
•
63
Furnish all such information and documentary evidence as the insurers
may require;
•
Inform the police authorities in case of loss or damage due to theft or
burglary.
The insurers shall not in any case be liable for loss, damage or liability of
which no notice has been received by the insurers within 14 days of its occurrence.
Upon notification being given to the insurers under this condition, the insured
may carry out the repairs or replacement of any minor damage; in all other cases a
representative of the insurers shall have the opportunity of inspecting the loss or
damage before any repairs or alterations are effected. If a representative of the
insurers does not carry out the inspection within a period of time which could be
considered as adequate under the circumstances the insured is entitled to proceed
with the repairs or replacement.
The liability of the insurers under this policy in respect of any item sustaining
damage shall cease if said item is not repaired properly without delay.
3. The insured shall at the expense of the insurers do and concur in doing and
permit to be done all such acts and things as may be necessary or required by
the insurers in the interest of any rights or remedies, or of obtaining relief or
indemnity from parties (other than those insured under this policy) to which
the insurers shall be liable or would become entitled or subrogated upon their
paying for or making good any loss or damage under this policy, whether
such acts and things shall be or become necessary or required before or after
the insured’s indemnification by the insurers.
4. If at the time any claim arises under the policy there is any other insurance
covering the same loss, damage or liability the insurers shall not be liable to
64
pay or contribute more than their rateable proportion of any claim for such
loss, damage or liability.
In summarizing this chapter, it is clear that in the execution of any
construction project there is invariably an element of risk involved. In order to
protect and guard against the possible risks, it is highly imperative that insurance
cover is obtained. There are various types of insurance policies that are available in
the construction industry but the most commonly issued policy nowadays is the CAR
policy because it creates a comprehensive cover for all parties to a construction
contract. This policy creates contractual obligations like warranties and conditions
which must be complied with throughout the period of the insurance cover.
It was mentioned that a breach of condition in an insurance policy would
entitle an insurance company to claim damages but not to disclaim liability under the
policy. however, a breach of warranty discharges the insurer from liability as from
the date of the breach and in some instances, the insurer is entitled to repudiate
liability for breaches of warranties, and the insurance contract comes to an end.
Considering the significant role played by warranties in Contractors’ All Risk
insurance policy, it became pertinent therefore, to analyze the legal effect of breach
of warranty in insurance policies.
CHAPTER 4
EFFECT OF BREACH OF WARRANTY IN CONSTRUCTION INSURANCE
4.1 Overview
With regards to warranty issues in insurance law in the UK, The English
Marine Insurance Act (MIA) 1906 provided the legal framework for warranties used
in contract of marine insurance but this does not mean that the use of such terms is
unique solely to marine insurance contracts.295 Warranties also appear in all types of
non-marine insurance contracts.296 The rules laid down by the MIA 1906 for Marine
warranties are also applied to non marine warranties in the UK.297 It has in fact been
295
SOYER, B. (2006) Warranties in Marine Insurance, London, UK, Cavendish Publishing Limited,
London, UK p.3
296
Ibid, p.3
297
Ibid, p.3
66
observed on numerous occasions that the judges refer to marine insurance principles
or the provisions of the MIA 1906 when dealing with a non-marine warranty.298
The effects of breach of a warranty arise in cases where there is an actual
299
breach.
For example in marine insurance, a warranty of locality is breached from
the moment the insured vessel travels outside the warranted area.300 Intention to
commit a breach of warranty does not itself constitute a breach.301 Thus, in Simpson
SS Co Ltd v Premier Underwriting Association Ltd,302 where a policy contained a
warranty of locality that prevented the vessel from proceeding east of Singapore and
she sailed from Cardiff bound for a port east of Singapore, underwriters were not
held to be relieved of liability when she sailed as there was at most an intention to
breach.303
Court decisions in insurance law in Malaysia seem to suggest that a breach of
warranty entitles the insurer to repudiate liability and prevents the contract of
insurance from coming into existence.304 This chapter demonstrated that the above
proposition is untenable in the light of the current development in the insurance law
in the United Kingdom concerning breach of warranty.305
At this point, it would be necessary to discuss the facts of the two Malaysian
cases where the there was a misunderstanding by the Judges on their decisions
relating to breach of warranties in insurance contracts.
298
For example, in thomson v Weems (1884) 9 App Cas 671, p 684, Lord Blackburn, obiter dictum,
said: ‘In my own opinion, as regards the effect of breach of warranty, the same principles apply
whether the insurance is marine insurance or not’.
299
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. P.139
300
Ibid, P.139
301
Ibid, P.139
302
(1905) 10 App. Cas 198.
303
Baines v Holland (1885) 10 Exch 802 to the same effect.
304
[2006] 2 MLJA 83 Putra Perdana construction sdn Bhd v Ami Insurans Bhd
305
[2006] 2 MLJA 83 Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd
(The Good Luck) [1991] 2 Lloyd’s Rep 191
In Teck Liong (EM) Sdn Bhd v Hong Leong Assurance Sdn Bhd,
306
67
The
plaintiff was issued a fire insurance policy by the defendant to cover his stock in
trade stored in a warehouse. The stock in trade was destroyed by fire. The plaintiff
claimed for the insured sum. The defendant argued that the plaintiff on the date of
the fire did not hold any valid trading license from the Local Authority to operate its
business which was a breach of warranty 9(a) of the policy. Dismissing the claim, it
was held that the plaintiff was in breach of the warranty 9(a) when the fire occurred
for not having such a license. Therefore, the defendant was entitled to repudiate
liability to the plaintiff in respect of the plaintiff’s claim under the policy.
In Putra Perdana Construction Sdn Bhd v AMI Insurance Bhd,307 the plaintiff
obtained an insurance policy from the defendants. The policy included a warranty
concerning fire fighting facilities and fire safety at the construction site. A fire broke
out at the basement car park of one of the blocks which was still under construction
causing considerable damages. Upon the plaintiff’s claim on the policy, the
defendants issued a notice of repudiation of liability under the policy on the ground
that a warranty on fire fighting facilities and fire safety at the construction site was
breached. Dismissing the claim with costs, it was held that, the defendants were
entitled to repudiate liability to the plaintiff in respect of the plaintiff’s claim under
the policy. Also, warranties have to be strictly complied with, like conditions
precedent. Therefore, if there is a breach of warranty entitling the insurer to repudiate
liability, it matters not if the breach has no bearing or connection with the loss. When
a term in a policy is stipulated to be a warranty or a condition precedent to the
liability of the insurer, the warranty/condition has to be strictly complied with by the
insured before the insured is entitled to bring a claim on the policy.
306
307
[2002] 1 MLJ 301
[2005] 2 MLJ 123
68
4.2
Legal effect of breach of warranty
It is submitted that the above court decisions in the cases of Putra Perdana and Teck
Liong are misguiding in the light of the UK decision of Lord Goff in Bank of Nova
Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) 308
though the Good Luck case strictly speaking applies to breach of warranty in the
marine insurance context, many subsequent cases309have decided that the Good Luck
ruling is applicable to all forms of insurance.310
A more suitable term that should have been employed by the learned judges
in those Malaysian decisions to describe the legal effect of breach of a continuing
warranty is that the insurer is simply discharged from liability from the date of
breach. This would have been a better approach than to state that an insurer is
entitled to repudiate liability for breach of warranty.311
The legal effect of warranty depends on whether the warranty that is breached
relates to a period before the attachment of the risk (present warranty) or the
warranty breached relates to a period after the attachment of the risk (continuing
warranty).312
308
[1991] 2 Lloyd’s Rep 191 (HL); [1992] 1 AC 233.
Kumar v AGF Insurance Ltd [1998], 4 AII ER 788; Arab Bank Plc v Zurich Insurance Co Ltd
[1999] 1 Lloyd’s Rep 262
310
[2006] 2 MLJA 83
311
[2006] 2 MLJA 83
312
[2006] 2 MLJA 83
309
69
4.2.1
Effect of breach of warranties which relate to a period before the
attachment of the risk
Some warranties relate in terms of time to circumstances at the inception of
the risk.313 In such cases, the warranted event or condition must be complied with at
some time before the risk attaches.314 Lord Blackburn in Thomson v Weems315
asserted that in cases where the warranty relates in time to circumstances at the
inception of the risk, breach will result in the insurer never coming on the risk.
Compliance with a warranty of this type was considered as condition precedent to the
attaching of the risk.
In that case, the assured had warranted, in a life policy, the accuracy of the
statements that he had made in the proposal form. When the evidence clearly proved
that the assured’s statement as to his temperance in his habits was untrue, the policy
was held null and void. Accordingly, the validity of the insurance policy depends on
the compliance with the warranty and, once the warranty is breached, the contract
never comes into existence.316 The suspensive effect of contingent condition
precedents, which may arise in some contracts, therefore has no application in this
context due to the special nature of insurance contracts.317
313
Ibid, p.140
Ibid, p.140
315
(1884) 9 App Cas 671, p 684.
316
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. P140
317
W & J Lane v Spratt [1970]2 QB 480.
314
70
One may argue that the principle in relation to breach of warranties, which
relate to period before the attachment of the risk, was derived from a non-marine
case and, therefore, does not apply in the context of marine insurance.318 However,
this point cannot be argued forcefully for two reasons. First, Lord Blackburn, in
Thomson v Weems,319 expressly stated his opinion, that as regards the effect of
breach of warranty, the same principles applied whether the insurance is marine or
not.320 Secondly, two different judgments of Lord Mansfield in relation to marine
warranties delivered in the late 18th century adopt a similar language.321 In Woolmer
v Muliman,322 the insured vessel was warranted neutral and was lost by perils of the
sea. At the trial, there was evidence to the effect that she was not neutral property
and Lord Mansfield CJ said that:323 ‘this was no contract, for the man insured
neutral property and this was not neutral property’. Similarly, in De Hahn v
Hartley,324 he described a marine warranty which related to a period before the
attachment of the risk, in a very similar sense as did Lord Blackburn in Thomson v
Weems:325
“A warranty in a policy of insurance is a condition or contingency, and
unless that be performed there is no contract. It is perfectly immaterial for
what purpose a warranty is introduced, but, being inserted, the contract does
not exist unless it is literally complied with”.
In construction insurance policy like CAR, warranties are included and their
fulfillment is considered as condition precedent to the attachment of the risk.
Example of such warranties inserted is
318
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. P140
319
(1884) 9 App. Cas. 671
320
See section 84(1) Marine Insurance Act 1906.
321
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. P140
322
(1763) 3 Q.B.D. 419.
323
Ibid, p 1420
324
(1786) 1 TR 343.
325
Ibid, pp 345-46
71
“The due observance and fulfilment of the terms of this policy in so far as
they relate to anything to be done or complied with by the insured and the
truth of the statements and answers in the questionnaire and proposal made
by the insured shall be a condition precedent to any liability of the insurers”.
According to Poh (1990), warranties are said to serve a very significant
function in the law of insurance, that is, determining the scope of the cover agreed by
the insurer. He added also that from the insurer’s point of view, the extent of the risk
is crucial, as his liability will largely depend on it. The warranties incorporated into
the contract play an essential role in assessing the risk.
4.2.2
Effect of breach of warranties which relate to a period after the
attachment of the risk
Some warranties concern the assured’s future conduct and required him to do
or not to do a particular thing, or fulfill some conditions at some point after the
attachment of the risk.326 Such warranties are termed continuing warranties.327
Common example includes warranties to maintain alarms or sprinkler systems in
commercial fire policies.
In cases where the warranty relates in time to circumstances after the
inception of the risk, the breach of such warranties will not have any effect on the
existence of the contract, unlike breach of present warranties.328 In the case of breach
326
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. P141.
327
Ibid, p.141
328
Tharmakulasingam, S. G. (2006) Putra Perdana Under Fire: 'An analysis into the legal effects of
breaches of warranties and the Waiver/Estoppel Dichotomy in insurance law' The Malayan Law
Journal Articles 2, 11 p.3
72
of continuing warranty, the risk is treated as having incepted at the outset but
automatically coming to an end as of the date of breach.329 Thus, the insurer is
discharged from any future liability, although any liabilities of the insurer before the
date of the breach are unaffected.330 The insurer is entitled to retain the full amount
of the premium even though the insurer may have been on the risk for a short period
only.331 This is due to the fact the risk that has incepted has simply come to an end;
as such there has not been a total failure in consideration on the part of the insurer.332
The legal effect of breach for these kinds of warranties is spelt out in section 33(3) of
the English Marine Insurance Act 1906 as follows:
“A warranty is a condition which must be exactly complied with, whether it is
material to the risk or not. If it is not so complied with, then, subject to any
express provision in the policy, the insurer is discharged from liability as
from the date of the breach of warranty, but without prejudice to any liability
incurred by him before that date.”
The meaning of this subsection became the subject of judicial examination in
the 1990s in the case of Bank of Nova Scotia v Hellenic Mutual War Risks
Association (Bermuda) Ltd (The Good Luck).333 The facts of the case may be
summarized as follows:
The Good Luck (the ship) was insured with the defendant club (the insurance
company) and mortgaged to the plaintiff bank. As required by the mortgage,
the benefit of the insurance was assigned to the bank and the insurer gave a
letter of undertaking to the bank, whereby the insurer promised to advise the
bank promptly if they should ‘cease to insure’ the ship. The rules of the
relevant insurer contained an express warranty prohibiting the insured vessel
329
Ibid, p.3
Ibid, p.3
331
Ibid, p.3
332
Ibid, p.3
333
[1991] 2 Lloyd’s Rep 191 (HL); [1992] 1 AC 233.
330
73
from entering certain declared areas. These areas were areas of such
extreme danger that it was not considered acceptable by the club that they
should cover vessels entering these areas. If an owner wanted such cover
while his vessel was in a prohibited area, special arrangements had to be
made. The owners of the Good Luck were in the practice of sending the vessel
into prohibited areas, but neither the insurer nor the bank was informed. The
managers of the insurance company later discovered what was going on, but
they neither took any steps to deter the owners of the Good Luck from
carrying on nor informed the bank of what they had discovered. On her last
voyage, The Good Luck was sent to part of the Arabian Gulf in breach of
warranty. She was hit by Iraqi missiles and became a constructive total loss.
Both insurance company and bank knew of the total loss, but whereas the
club discovered the breach of warranty, the bank negligently did not
investigate the possibility.334 In the mistaken belief that the loss was covered,
the bank made further loans to the ship-owners. In view of the breach of
warranty, the insurance could not be enforced, but the bank brought an
action against the club for having failed to give prompt notice that they had
ceased to insure the ship. Accordingly, it was contended that the insurance
company was in breach of the letter of undertaking given by them to the bank.
The House of Lords held that breach of a warranty of this nature
automatically discharges the insurer from liability from the date of breach.
Accordingly, the insurance company was in breach of letter of undertaking
since they were automatically discharged from further liability from the
moment the Good Luck entered the prohibited area.
In the wake of the decision of the House of Lords in The Good Luck, it is now
clear that the remedy available in case of a breach of insurance warranty is radically
different than remedies for breach of other contractual terms.335 A breach of warranty
334
The bank was of the opinion that an arrangement was made between the owners and the insurers to
keep the vessel insured while she was in the prohibited areas.
335
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. p.149
74
is distinguished from the general conditions in that the latter, if broken, gives rise to
both damages and discharge, but the discharge occurs only on the election of the
innocent party.336 The insurance warranty is distinguished from general warranty in
that the latter, if broken, gives rise to damages, but not to discharge, whether
automatic or by election.337
The remedy for breach of an insurance warranty is also different than the
remedy available in case of breach of utmost good faith obligations.338 In the latter
case, the innocent party could avoid the contract ab initio, but the contract cannot be
said to be automatically avoided by breach of utmost good faith obligations; it
remains in force until avoided by the insurer.339 Once the innocent party elects to
avoid the contract, however, the avoidance will be effective as of the moment of
agreement.340
The automatic discharge remedy is expected to have serious implications on
the position of parties to an insurance contract.341 Under the automatic discharge
rule, rights and liabilities of the insurer that materialized before the breach remain
unaffected.342 The insurer is entitled to retain the full amount of the premium, unless
the risk is divisible, as he has been on the risk for a while and, therefore, there has
not been a total failure of consideration.343 Similarly, any liability on the insurer,
which had accrued up to the date of the breach of warranty, remains unaffected.344
These points have been illustrated in JA Chapman & Co Ltd v Kadirga Denizcilik ve
336
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. p.149
337
Ibid, p.149
338
Ibid, p.149
339
Ibid, p.149
340
Ibid, p.149
341
Ibid, p.149
342
Ibid, p.149
343
Ibid, p.149
344
Ibid, p.149
345
Ticaret,
75
where the assured had warranted that installments of the premium would
be paid on given dates, but had fallen behind. It was held that the late payment of a
single installment brought the risk to an end so that the insurer could never be liable
for future losses, whereas the assured remained under an obligation to continue to
make payments.346
Where an insurer discovers that a breach has taken place without any claim
arising, even though he is discharged from liability automatically in law, he should
still notify the assured that he is minded to regard himself as discharged from
liability.347 If he does not, he runs the risk of committing an unequivocal conduct,
which could amount to waiver of breach of warranty.348 The notification, without a
doubt, gives the assured sufficient time to arrange alternative cover.349
The insurer should also be entitled to seek a declaration of non-liability from
the court where he contends that his liability has been discharged by a breach of
warranty.350 The remedy is, of course, discretionary and will not be granted if it
would create substantial inconvenience or injustice.351
Similarly, in cases where a claim is made and the insurer, suddenly
discovering a previous breach, refuse to pay, the insurer will be justified in his
refusal, provided he has not acted in any way since the time of the breach that can be
345
[1998] Lloyd’s Rep IR 377
This assumes that the risk is indivisible and does not run from installment to installment.
347
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. P149
348
Ibid, p.149
349
Ibid, p.149
350
Ibid, p.150
351
Ibid, p.149
346
352
considered as waiver of breach.
76
Finally, in a case where the breach and claim are
simultaneous and are related to one another, it is still advisable that the insurer
notifies the assured that he regards himself as discharged, in order to disregard the
possibility of waiver by an act of affirmative conduct.353
Where a policy of insurance covers risks that are clearly and definitely
separate, the courts might be prepared to construe such policy as containing separate
contracts so that insurance on one risk is not invalidated by the breach of a provision
which applies to the other risk.354 A similar approach has been employed in the
context of non marine warranties.355 In Printpak v AGF Insurance,356 the assured
obtained insurance cover for his business premises. The policy had a number of
sections, each of which provided a different form of cover. The precise terms relating
to each risk were prescribed in separate schedules, each of which contained section
endorsements. Section A covered goods, inter alia, against loss or damage by fire.
Section B covered theft. The assured suffered loss as a result of fire. At the time of
the fire, the burglar alarm was not operational in breach of a warranty in Section B of
the policy. The Court of Appeal held that the policy was divisible and that the
warranty did not apply to the fire risk provided by the policy in a different section.
Accordingly, the assured was entitled to recovery.
By way of summarizing this chapter, it has been clearly stated that under the
English insurance law, the effect of breach of warranty in marine insurance contracts
applies to all non marine insurance contracts. Moreover, the ruling in The Good
Luck case though applies to breach of warranty in the marine insurance context;
352
Ibid, P.150
Ibid, p.150
354
See Arab Bank plc v Zurich Insurance Co [1991] 1 Lloyd’s Rep 262.
355
Soyer, B. (2006) Warranties in Marine Insurance, London, Second Edition, Cavendish Publishing
Limited, London, UK. p.150
356
[1999] Lloyd’s Rep IR 542.
353
77
many subsequent cases have decided that The Good Luck ruling is applicable to all
forms of insurance.
It is now readily understandable that, if a continuing warranty is not complied
with, the insurer is discharged from liability as from the date of the breach of
warranty, for the simple reason that the fulfillment of the warranty is a condition to
the liability of the insurer. This moreover reflects the fact that the rationale of
warranties in insurance law is that the insurer only accepts the risk provided the
warranty is fulfilled. This is entirely understandable: and it follows that the
immediate effect of a breach of a continuing warranty is to discharge the insurer
from liability as from the date of the breach. More so, non fulfillment of a continuing
warranty does not prevent the contract from coming into existence. What it does is to
discharge the insurer from liability as from the date of the breach. Certainly, it does
not have the effect of bringing the contract to an end.
In conclusion, a breach of a present warranty will result in the insurer never
coming on the risk, the contract will cease to exist, the insurer will not be facing any
liability for losses and premiums paid are also recoverable by reason of total failure
of consideration. While a breach of a continuing warranty will result in the contract
of insurance remaining in existence; the risk is being treated as having incepted at the
outset but automatically coming to an end as of the date of the breach. More so, the
insurer is being discharged from any future liability, although any liabilities of the
insurer before the date of the breach are unaffected. Most importantly, the insurer
retains the full amount of the premium even though the insurer may have been on the
risk for a short period only.
CHAPTER 5
CONCLUSION AND RECOMMENDATION
5.1
Introduction
This chapter is the final part of the whole research and considered as the
conclusion chapter. It will summarize the findings of the research in accordance with
the research objective. Briefly, this chapter will include the summary on the research
findings, problem encountered during research and also suggestions for further
research.
79
5.2
Summary of Research Findings
It has been found out that the English common law and rules of equity form
part of the laws in Malaysia. Further developments and changes in English common
law after the 7th day of April 1956 became non binding in Peninsular Malaysia but
are persuasive. However, with the provision of section of section 5(1) of the
Malaysian Civil Law Act 1956, English law has been referred to for guidance in
resolving legal dilemmas especially in the field of insurance law. The Malaysian
Insurance Act 1963 mainly deals with regulations of the insurance business to ensure
there is proper control but the portion of substantive law in the Act is minimal. More
so, the Act does not seem to have covered the matter of breach of warranty in
insurance policies and since there is no legal barrier against courts in Peninsular
Malaysia making reference to subsequent developments in English law, and by virtue
of the provision of section 5(1) of the Malaysian Civil Law Act 1956, changes in
English insurance law can be adopted by Malaysian courts.
Also, it has been found out that in the English insurance law, the legal
framework used for insurance warranties is provided by the English Marine
Insurance Act 1906. This Act is applicable to all types of non-marine insurance
contracts such as warranties used in construction insurance policies.
On the effect of breach of warranty, it was found out that a breach of a
present warranty will result in the insurer never coming on the risk, the contract will
cease to exist, the insurer will not be facing any liability for losses and premiums
paid are also recoverable by reason of total failure of consideration. While a breach
80
of a continuing warranty will result in the contract of insurance remaining in
existence; the risk is being treated as having incepted at the outset but automatically
coming to an end as of the date of the breach. More so, the insurer is being
discharged from any future liability, although any liabilities of the insurer before the
date of the breach are unaffected. Most importantly, the insurer retains the full
amount of the premium even though the insurer may have been on the risk for a short
period only.
5.3
Problems Encountered During Research
Several problems were encountered in the course of carrying out this research
work. The main ones among them had to do with finding the right issue and
objective for the research, and then, time constraint was another factor that adversely
affected the researcher especially as the researcher had to work under immense
pressure to meet up with the dateline.
5.4
Further Studies
The following are some possible fields related to this research recommended
for further research in the future:a. Before the Good Luck, following the trend in the decisions of Lord
Mansfield, it was held in a number of non marine cases that breach of a
warranty entitled the insurer to elect to terminate the insurance contract. The
81
question here is whether a distinction between marine and non-marine
insurance has been created by The Good Luck litigation.
b. There have also been no reported cases in Malaysia that have addressed the
waiver/estoppels dichotomy in the law of warranties unlike in the United
Kingdom. The English courts have held that what was once known as waiver
of a breach of warranty must now be regarded as a case of waiver by
estoppels.
5.5
Conclusion
As a conclusion for this research, a lot of water has passed under the bridge
since the decision of the House of Lords in The Good Luck. Courts in the United
Kingdom have moved swiftly ahead in full steam to change and develop their
insurance law with regards to legal effect of breach of continuing warranty. The
courts in Malaysia on the other hand, have continued to adopt the Pre-Good Luck
principles with regards to breach of warranty. In the decisions of Putra Perdana
construction v AMI Insurance and in the case of Teck Liong (EM) v Hong Leong
Assurance, the courts held that a breach of warranty would entitle the insurer to
repudiate liability. Such principles of law are clearly outmoded and do not take into
account the significant developments in the insurance law since The Good Luck.
The learned judges in the above Malaysian cases should have adopted the
term discharge from liability to describe the legal effect of a breach of continuing
warranty rather than to state the insurer is entitled to repudiate liability for such
breaches.
82
The bells are sounding. The time has come for the Malaysian courts to ring
out the old and ring in the new.
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