Insurance 2 assignment
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INSURANCE LAW - BY Nurul Iffah & Partners

INSURANCE LAW - BY Nurul Iffah & Partners

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    Insurance 2 assignment Insurance 2 assignment Document Transcript

    • QUESTION 8 [Nurul Iffah & Partners] Silpa operates a car service station at Jalan Bukit, Petaling Jaya. Zantax sent his car to the said service station regularly to have it washed. He left instructions with the service station that the car was to be returned to him after it had been washed at a certain address and if he was not at that address, the car was to be returned to the service station. Silpa has been providing this additional service to Zantax in the past by sending the car back to him after it had been washed. On 1.1.2000 Bungee, an employee of Silpa, drove the car after it had been washed to the address given by Zantax and not finding him at that address, drove the car back to the service station. On the way back, he knocked into and injured a cyclist at Jalan Kuda, Petaling Jaya. The car was badly damaged at the front. On 1.4.2001 Bungee was found liable by the Magistrates Court for reckless driving. Zantax’s insurers, Simply Good Insurers, settled the claims of the cyclist and Zantax on 1.5.2001. Then Simply Good Insurers arranged for Zantax to sue Silpa and Bungee. Advise Silpa.
    • ANSWER In this case, the insured is Zantax, the Insurer is Simply Good Insurer. The facts of this case did not mention about the policy and what it covers but presumably it is a motor insurance policy which cover Zantax’ car, Zantax and Third Party against any loss or damage cause by Zantax or permitted driver. The tort-feasor is Bungee which knocked a victim, the cyclist. The person having cause of action (plaintiff) is Zantax while the defendants are Silpa, the owner of car service station and Bungee, an employee of the car service station. This case revolves around the principle of Subrogation. The General Principle of Insurance policy is that, when the Insured suffered loss of insured peril, they have the right to be indemnified by the Insurer, subject to the maximum amount stated in the policy1 . They must also observe Indemnity Principle, where claim of sum insured when the insured peril occurs must not be more than the cost of actual loss2 . Several issues arise especially on who can claim, whether an insured can claim from more than one party, ie: insurer and tort-feasor and who has the right to sue the tort-feasor, the insured or the insurer? On the question of who can make the claim, we must first determine the type of insurance policy. Since this is a motor insurance policy which presumably give a comprehensive cover, the person that can make a claim are the insured policy holder and also the third party involved. However, the claimants must satisfy the requirements to give notice of claim to the insurer. It must be a written request for payment of claim, made within a reasonable time from date of notice of loss and prove that the notice is made under the policy. There is not much issue on this. Zantax and the cyclist may claim from Simply Good Insurer. The main issue in this case is whether Simply Good Insurers can pursue subrogated action against Silpa and Bungee. The case of Burnand v Rodocanachi (1882)3 defines Subrogation as the right of one person (insurer) having indemnified another (insured) under a legal obligation to do so, to stand in the place of that other (insured) of all the rights and remedies of that other (insured), whether already enforced or not. Subrogation is a common law principle which is implied in every contract of indemnity by the operation of law4 . Courts 1 John Birds, Bird’s Modern Insurance Law, Seventh Edition, Sweet & Maxwell, 2007 2 Ibid 3 Burnand v Rodocanachi (1882) 7 APP. CAS. 333 HL, (per Lord Blackburn) 4 Nik Ramlah Mahmood, Insurance Law in Malaysia, Butterworths, 1992
    • do allow modifications and even exclusion of Subrogation by express terms in the contract5 . By principle of Subrogation, where a contract of insurance is one of indemnity, after the insured is indemnified for his loss by the insurer, the insurer acquires two distinct rights from the insured; Firstly, the right to any benefit already in the hands of the insured which extinguishes or diminishes the loss and secondly, the right to any cause of action which the insured may have against a Third Party (TP) in relation to the said loss6 . The transference of both of these rights from the insured to the insurer amounts to Subrogation. There are two elements that must be satisfied; firstly, it must be a contract of indemnity and secondly the Insured must have been indemnified by the Insurer. With regard the first element, the contract must be one of indemnity ie; property or liability and not contract of contingency for example life and personal accident policies7 . The court in case of Castellain v Preston (1883)8 explains why subrogation must be a contract of indemnity that is to prevent the assured from recovering more than a full indemnity and it has been adopted solely for that reason. An insured cannot recover more than full indemnity for his loss. He also cannot make a profit out of such a contract at the expense of either the Insurer or a TP9 . With regards to the second element, the indemnity nature of a contract merely gives the insurer a contingent right to subrogation. The right would only be translated into vested right when the insured have been indemnified by the Insurer10 . Once the Insured is indemnified for his loss, the insurer is entitled to any other benefit in the Insured’s hands and to any cause of action against a TP which may bring about such a benefit. The insured must be ‘fully indemnified’ or ‘full indemnity’ which means where the insured were given full compensation for the insured’s loss or full indemnity for the loss to the extent of the cover provided by the policy11 . However the court in case of Page v Scottish Insurance Corporation12 implies that there can be a right of subrogation even before the insured is fully compensated for his loss provided the insured remains dominus litis (Master of a suit) in all TP proceedings. There is also a case where the Insured may receive a full indemnity but may later succeed in recovering more than the claim payment from the third party. Provided that 5 Ibid 6 Ibid 7 Ibid 8 Castellain v Preston (1883) 11 QBD 380 9 Nik Ramlah Mahmood, Insurance Law in Malaysia, Butterworths, 1992 10 Ibid 11 Ibid 12 Page v Scottish Insurance Corporation (1929) [140] LT 571
    • the benefits are solely to benefit the Insured for example, gift or a windfall. In case of Burnand v Rodocanachi [1882]13 the court held that payment by TP to Insured was solely for Insured’s benefit. Insurer cannot recover sum from Insured because it was given not for purpose of reducing the loss. As compared to case of Stearns v Village Main Reref Gold Mining Co. [1905]14 , the court held that payment received by Insured was to reduce loss suffered by him. Therefore, the Insurer had a right of subrogation. However this will not be discussed any further as it is not the main concern of this case at hands. The main issue in this case revolves around the Insurer’s Rights against Third Party. Generally by the principle of Subrogation, the Insurer has a right to any cause of action which the insured may have against a TP in relation to the loss suffered by the insured. However, it must be noted that the rights which may be passed to the insurers by virtue of subrogation are only the rights which the insured has, be it in respect of a right in tort, contract, custom or usages15 . In this case it involves torts. Torts is when and where the insured has sustained some damage, lost of rights or incurred liability due to the tortuous acts of some other person. Then the insurer, having indemnified him for his loss is entitled to take action to recover the outlay from the wrongdoer. In Lister v Ramfold Ice (1956)16 , the court held that the insured would have a right in tort against the individuals involved. The Insurers will assume these rights and attempt to recover their outlays from the guilty party. In an action taken by insurers in this situation they shall use the name of the Insured17 . It must be stressed here that neither a TP nor an Insurer can avoid liability for the Insured’s loss simply because one of them has indemnified the Insured18 . An Insurer who has indemnified the Insured can pursue the Insured’s cause of action against the TP. However the Insurer is not conferred with a fresh and independent cause of action. The cause of action remains with the Insured and it is only in the Insured’s name that the Insurer can pursue it19 . Hence, before an Insurer can pursue a subrogated action against a TP, there must be a cause of action vested in and exercisable by the Insured. The Insurer can sue a TP in its own name, only if, the Insured has assigned his rights against the TP to the Insurer. Besides, an Insured 13 Burnand v Rodocanachi (1882) 7 APP. CAS. 333 HL 14 Stearns v Village Main Reef Gold Mining Co Ltd (1905) 10 Com Cas 89 (CA) 15 Nik Ramlah Mahmood, Insurance Law in Malaysia, Butterworths, 1992 16 Lister v Romford Ice and Cold Storage Co Ltd [1956] AC 555 17 Nik Ramlah Mahmood, Insurance Law in Malaysia, Butterworths, 1992 18 Teo Kim Kien & Ors v Lai Sen & Anor [1980] 2 MLJ 125 19 Nik Ramlah Mahmood, Insurance Law in Malaysia, Butterworths, 1992
    • who is called upon by the Insurer to lend his name to an action against a TP must do so provided the Insurer has agreed to indemnify him against costs20 . The Insured is under a duty to assist the insurers in enforcing claims and to do nothing which would prejudice the insurer’s chances of recovery against a TP. Let’s take a look at a case which is very similar to the case at hand that is case of Teo Kim Kien & Ors v Lai Sen & Anor [1980]21 . In this case, the first respondent (Insured) sent his car to a service station to be washed, requesting that it be sent to a particular address thereafter. Accordingly, after washing the car, the second respondent (employee at service station), drove the car to the said address but as there was no one there, he decided to return it to the service station. On his way back, he negligently knocked a motor cyclist. Damages awarded to the motorcyclist were paid by the first respondent’s Insurer who also paid for the repair of the car and for other expenses. At the Insurer’s request the first respondent brought an action against the appellants as owners of the service station. This action succeeded and the appellants appealed, inter alia, on the ground that the first respondent had in fact suffered no loss because all his claims had been settled by the Insurer. The issue in this case is whether operators of service station liable for negligence of employee. There are several Defences made by Appellant, (owner of the service station). Firstly he argued that the Second Respondent (driver) was at the relevant time the agent of First Respondent (insured), and secondly, that First Respondent (Insured) had suffered no loss as the claims had been met by the insurers and therefore the claim was "totally misconceived, frivolous and an abuse of the process of law". However Chang Min Tat FJ held that Second Respondent (Driver) was the servant or agent of the Appellant (owner) at the time of accident and under the doctrine of subrogation the claim of the first Respondent (insured) against the Appellant (owner) though brought by the insurers was maintainable. Besides that, Appellant was entitled to obtain judgment in the third party action against Second Respondent in view of his admitted negligence. He also cited Lord Diplock in Hobbs v Marlowe [1978] AC 16, at page 37. If the damages suffered by the insured himself either to his person or to his car had been settled and paid to him by the insurer under the policy… the doctrine of subrogation still applies… the insurer may require the insured to take an action against the wrong-doer for the recovery of all the damages flowing from the latter's negligence. 20 Ibid 21 Teo Kim Kien & Ors v Lai Sen & Anor [1980] 2 MLJ 125
    • In applying, it can be seen that in this case, it involves a motor insurance policy which is a contract of indemnity. The terms of the policy was not stated in the facts of the case. But generally it must have covered Zantax’ car, Zantax and Third Party against loss, injury or death caused by him or permitted driver. To apply the principle of Subrogation, there are two elements that must be fulfilled. First, it must be of a contract of indemnity and second, the Insurer must have indemnified the Insured. In Castellain v Preston (1883)22 , the court explains that ‘Subrogation’ is concerned with the mutual rights and liabilities of parties to a contract of insurance. ..where an insurer indemnifies an assured for a loss, he is entitled to ‘stand in the shoes’ of the assured and to receive the benefit of all of the rights and remedies which the assured may have against third parties in respect of such loss. According to the principle of Indemnity, Zantax may only recover his loss from his Insurer, Simply Good Insurer up to the amount of the loss. He cannot make profit out of his loss by acquiring benefits both from the Insurer and the defendants, Bungee and Silpa. In this case, the accident was caused by the negligent act of an employee of a Car Service Station, Bungee. He as a driver of the Car Service Station has a duty of care to drive carefully and deliver the clients’ cars in a good condition but he breached his duty by driving recklessly and caused an accident. The car was badly damaged at the front as it had knocked and injured another, the cyclist. Zantax suffer loss for the damage of his car and need to compensate the cyclist for the injury caused. Therefore, Zantax has a strong cause of action against Bungee. Bungee is an employee of Silpa (owner of the Car Service Station). Under Contract, according to Agency principle, Bungee is an agent of Silpa and an agent acts for and on behalf of his Principal. Silpa as the Principal therefore held the same liability and may be sued by Zantax. While under Torts, Silpa may be liable by virtue of vicarious liability where it imposes a responsibility upon one person for the failure of another, with whom the person has special relationship, in this case as employer-employee, to exercise such care as a reasonably prudent person would use under similar circumstances. It must be noted here that Bungee is permitted to drive the car back to the particular address given by Zantax and if he was not at that address, the car was to be returned to the service station. This means that at the time that the accident occurred, Zantax’ motor insurance policy does cover the loss. 22 Castellain v Preston (1883) 11 QBD 380
    • The second element is that the Insurer must have indemnified the Insured. It can be seen that Simply Good had after the accident settled the claims of the cyclist for the injury caused and Zantax for the damage of his car to the extent of the cover provided by the policy. In this case, the facts were silent on whether or not there were express terms on Subrogation in the policy. It can however be assumed that the principle of Subrogation is applicable as it is an implied rights in all insurance contracts of Indemnity. Since both elements has fulfilled, the Insurer may therefore uses his vested rights to subrogation as was laid down in case of Stearns v Village Main Reref Gold Mining Co. [1905]. Simply Good Insurers may acquire the rights owned by Zantax to gain any benefits received from TP as to his loss and rights to take action against the TP for the loss, provided that Zantax is the dominus litis of the proceedings. Under Subrogation Principle, Insurer may have two rights to be subrogated to it. In this case, there is no issue regarding the rights to the benefits received from third parties. The issue is on whether Simply Good Insurer has a subrogated right to sue Silpa and Bungee. Since Zantax has a strong cause of action against those two and the elements under Subrogation is fulfilled, Simply Good Insurer therefore has the said right of Subrogation. The cause of action must however be in the name of Zantax. Simply Good Insurer has no standing if it wants to start a fresh and independent cause of action against Silpa and Bungee. As in the case of Lin Lin Shipping Sdn Bhd23 , Richard Malanjum JC held that ‘The doctrine of subrogation applies where an insured brings an action against the wrongdoer if called upon to do so by the insurer; but it is his own cause of action and not of the insurer.’ Though cause of action filed is that of the Insured, he is only a nominal plaintiff. The real plaintiff is the subrogated insurer as they are the one having the carriage and control of the suits by instructing solicitors, paying for the action, and the person to benefit from the action, and to lose by the action, if it is lost. This was held in case of Kementerian Pertahanan Malaysia & Anor v Malaysian International Shipping Corp Bhd & Ors [2007]24 . Since Zantax has been called upon by Simply Good Insurer to lend his name to an action against Silpa and Bungee, he must do so as he is under a duty to assist the insurers in enforcing claims and to do nothing which would prejudice the Simply Good Insurer’s chances of recovery against Silpa and Bungee. This is as according to the rule laid out in case of Teo Kim Kien. 23 Lin Lin Shipping Sdn Bhd v Govindasamy Mahalingam Civil Appeal No KG 21 24 Kementerian. Pertahanan Malaysia & Anor v Malaysian International. Shipping Corp Bhd & Ors [2007] 5 MLJ 393 (per Zaleha Zahari JCA)
    • In advising Silpa who is an employer of the tort feasor, Bungee. She might not escape from the suit as she has special relationship with Bungee ie, Employer-employee and Principal-Agent. By virtue of both Agency Principle and Vicarious Liability, Silpa is liable for the acts or omissions of her agent. Besides the employer usually has a deeper pocket than the employee. It is a clear cut case of Negligence caused by Bungee and as explained above, the Principle of Subrogation is correctly applied. Silpa would be unable to argue that Zantax had in fact suffered no loss because all his claims had been settled by the Insurer as had been decided in case of Teo Kim Kien & Ors V Lai Sen & Anor [1980] which is very similar to the facts of the case at hands. Silpa is advise to pay the damages if found guilty by the court but she may sue Bungee by separate cause of action. REFERENCES 1. Nik Ramlah Mahmood, Insurance Law in Malaysia, Butterworths, 1992 2. John Birds, Bird’s Modern Insurance Law, Seventh Edition, Sweet & Maxwell, 2007
    • FACULTY OF LAW UiTM SHAH ALAM ASSIGNMENT 2 INSURANCE LAW AND PRACTICE II PREPARED FOR: PROF MADYA RAMLAH MOHD NOH PREPARED BY: NURUL IFFAH IBRAHIM SHUKRI (2010573349) GROUP: LAWB06B DATE OF SUBMISSION: 12TH DECEMBER 2013