Pacific & Orient Insurance Co Bhd v Hameed Jagubar bin Syed Ahmad [2018] 12 MLJ 1

[2018] 12 MLJ 1

Federal Court, Putrajaya

Insurance – Motor Insurance – Policy of insurance (‘policy’)  

1.    The insurer (Plaintiff/Appellant) filed a case in the High Court against the insured (Defendant), who owned motorcycle No. PHS 5512. The insurer had issued an insurance policy for this motorcycle.

2.    On 27 October 2011 at around 1:30 a.m., the Defendant’s motorcycle was involved in an accident with another motorcycle (PDR 5534), ridden by Hameed. Hameed was injured in the accident and later became involved in the case as the Respondent/Intervener.

3.    On the same day, at 2.16 pm, the Defendant bought an insurance policy from Pacific & Orient. The policy stated it was effective from 27 Oct 2011 to 26 Oct 2012, but it did not mention a specific time for the coverage to begin.

4.    Hameed sued the Defendant for damages in Sessions Court. During the trial, it was revealed that the policy was only purchased after the accident.

5.    Pacific & Orient filed an Originating Summons (OS) in the High Court under subsection 96(3) of the Road Transport Act 1987, seeking a declaration that the policy was void and unenforceable, on the basis that the accident occurred before the policy was issued and that the defendant had acted fraudulently by submitting a false police report on the time of the accident.

6.    Hameed applied to intervene and was allowed in the OS proceedings.

7.    The High Court agreed with the Appellant and found that the Appellant cannot be held liable for an accident which had occurred before the issuance of the insurance policy.

8.    The Respondent/intervener then appealed to the Court of Appeal (“COA”).

9.    The COA allowed the Respondent’s appeal and reversed the High Court’s decision. It ruled that since the policy stated it began on 27 October 2011 (without a time), it was effective from 12:00 a.m. that day. Therefore, the accident at 1:30 a.m. was covered, and the insurer was held responsible.

1.    Whether the insurance policy takes effect from the stated date of cover or only from the time the cover is issued?

2.    Whether the COA was correct in law to give a retrospective cover to the policy in breach of s 141 of the Insurance Act 1996 (Act 553), which states that there shall be payment before cover?

1.      Whether the insurance policy takes effect from the stated date of cover or only from the time the cover is issued?

(a)   The Federal Court (FC) distinguished between two types of insurance policies.

(b)   Firstly, general contracts where no time stated, cover takes effect from midnight (12:01am) on the stated date and secondly, special contracts where both date and time are stated cover takes effect from the specific time stated.

(c)   In this present case, the policy did not expressly state the time of commencement, only the date.

(d)   Therefore, under the general rule relied on the cases of Ram Dayal and Cartwright, New India Insurance Co v Bhagwati Devi and Ors, the insurance policy took effect from midnight of 27 October 2011, which meant the accident at 1.30 am was within coverage.

(e)   FC was of the view that the policy takes effect from the date of cover (midnight) unless the policy specifically states the time, in which case coverage starts from that time.

2.      Whether the COA was correct in law to give a retrospective cover to the policy in breach of section 141 of the Insurance Act 1996 (Act 553), which states that there shall be payment before cover?

(a)         The FC held that under section 141 of the Insurance Act 1996, an insurer does not assume any risk until the premium is paid. This means that the insurance coverage only starts after payment is made.

(b)         The FC also ruled that a cover note, as defined under section 2 of the Act, is considered a valid contract of insurance. However, even with a cover note, the risk does not begin until the premium is paid. Therefore, section 141 must be read together with Regulations 63 and 64 of the Insurance Regulations 1996, which support this interpretation.

(c)         The COA based its decision on the general principle that if an insurance policy does not state a specific time, it is assumed to take effect from midnight on the date stated in the policy.

(d)         However, FC disagreed with this approach. It found that the COA should have taken into account section 141 of the Insurance Act 1996, as well as the provisions related to cover notes, which make it clear that payment of the premium is a condition precedent, which means, no coverage begins until the premium is paid.

(e)         In this case, since the premium was only paid after the accident, the insurance risk could not have started before payment was made.

(f)           Therefore, FC ruled that the COA was wrong in law to retrospectively apply coverage from midnight. Doing so went against section 141, which prohibits an insurer from assuming risk before receiving the premium.

(g)         As a result, FC allowed the appeal and awarded costs of RM20,000 to the Appellant (insurer) in the Federal Court and in the courts below.

FC unanimously allowed the appeal, setting aside the decision of the COA and restoring the decision of the High Court.

1.    When an insurance cover notes states both the date and time, it is considered as a special contract and coverage begins at the stated time of issuance, not from midnight.

2.    Insurance only starts from the time of issuance (if stated) and never before premium is paid and no retrospective coverage is allowed.

3.    Section 141 of the Insurance Act 1996 prohibits an insurer from assuming any risk until the premium is paid. When read together with Regulations 63 and 64 of the Insurance Regulations 1996, it makes clear that insurance cover only commences upon payment of premium, not before.

4.    Thus, courts cannot give retrospective effect to a policy to cover accidents that happened prior to issuance or payment.