The extent of an insurer’s liability in a third party claim

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IN Malaysia, it is mandatory under the Road Transport Act 1987 (RTA) for you to insure your vehicle against damage and/or third party risks. A third party insurance policy insures you against risks such as death and injury to a third party as well as damage to the third party’s property. This article will discuss the extent of an insurer’s liability in a third party policy claim following the recent Court of Appeal case of Pacific & Orient Insurance Co. Bhd and Kamacheh a/p Karuppen on March 6, 2015. Specifically, this article considers whether an insurer is liable to pay the third party if, at the time of the accident, the insured vehicle was used for illegal purposes.

Brief facts of the case

On March 2009, Kamacheh was riding her motorcycle when a pillion rider on another motorcycle snatched her handbag from behind. She tried to resist and, as a result, fell off her motorcycle and sustained injuries. The other motorcycle was ridden by the son of the insured which was covered by Pacific Orient. Kamacheh filed a civil claim against the pillion rider and the son of the insured for the injuries sustained by her in the Sessions Court. Pacific Orient had repudiated the insurance policy after realising that the insured had breached the terms and conditions of the policy. On March 2011, Kamacheh obtained a judgement in default against both the pillion rider and the son of the insured. Damages were assessed by the Sessions Court in the sum of RM219,112. As no payment was made either by the pillion rider or the son of the insured, Kamacheh sent the sealed copy of the judgement to Pacific Orient. However, Pacific Orient did not make any payment to Kamacheh, and she later commenced a recovery action against Pacific Orient for the full judgement sum of RM219,112.

Liability of the insurer for the injuries caused to a third party

Both the Sessions Court and the High Court held that Pacific Orient was liable to pay the sum of RM219,112 to Kamacheh because there is a statutory obligation under section 96 of the RTA requiring an insurer to pay (Kamacheh) the judgement sum. Section 91(1)(b) of the RTA stipulates that a policy of insurance must be a policy which insures such person or class of persons as may be specified in the policy in respect of any liability which may be incurred by him or them in respect of the death of, or bodily injury to, any person caused by or arising out of the use of the motor vehicle.

The judges agreed that the word “arising out of the use of the motor vehicle” connotes not only the actual driving of the vehicle but also the use of the vehicle on the road. Furthermore, as the liability of Pacific Orient is statutory in nature, there was nothing in the RTA that could exempt Pacific Orient from its liability to pay Kamacheh even though, at the time of the incident, the motorcycle was used for an illegal purpose. The Court of Appeal held that Section 91(1)(b) also included liability for damages arising from acts of a criminal nature. In any event, the court held that Kamacheh’s injuries were indeed caused by or arose out of the insured’s use of his motorcycle and that there is nothing in the RTA that restricts the right of a third party to make a claim arising out of the use of the vehicle in the commission of a criminal act.

Conclusion

Whilst this case appears to allow an insured to avoid the personal liability of paying an aggrieved third party by “transferring” his liability to the insurer, the courts will not allow an insured to profit from his wrongful actions. In the event a third party obtains judgment against an insured, the insured, if he is at fault, would not be entitled to claim against his insurer. The objective of the law is to protect the third party who has suffered loss and not the insured, if he is at fault, whose asset may be insufficient to satisfy the losses suffered by the third party. Therefore, the insured’s (in)ability to pay damages to the third party is mitigated or “insured” by the insurer. It is unsurprising that the courts decided in favour of the third party given the reasons above. The position taken by the courts mirror the law in other countries such as Singapore, the United Kingdom and India. Whether or not this decision will now cause Malaysian insurers to raise insurance premiums remains to be seen, and if premiums are increased, whether this would run afoul of the Price Control and Anti-Profiteering Act 2011.

Contributed by Nur Ayuni binti Ab Rahim of Christopher & Lee Ong (www.christopherleeong.com)