Good Faith in Insurance and Takaful Contracts in Malaysia : A Comparative Perspective

This book examines good faith in non-marine insurance and takaful (Islamic insurance) contracts in Malaysia, and proposes holistic law reform of the same. The first two-thirds of the book comprise an extensive comparative legal analysis of the issues between Malaysia, Australia and the United Kingdom, with the final third dedicated to a socio-economic analysis of law reform and suggestions for law reform particularly suited to Malaysia. The book evaluates whether the duty of utmost good faith (the cornerstone of insurance and takaful contracts) is effectively regulated and, in turn, observed by insurers (and takaful operators) and insureds alike in Malaysia. The adequacy of the Insurance Act 1996 (Malaysia), the Takaful Act 1984 (Malaysia), the Financial Services Act 2013 (Malaysia) and the Islamic Financial Services Act 2013 (Malaysia) is evaluated, along with the supporting infrastructure and oversight measures introduced by the Malaysian government. In doing so, The book examines the duty of utmost good faith from both a doctrinal and a social science perspective, in order to propose suitable legal reform. Foreword 5 Preface 6 Contents 9 Table of Cases 12 1 Introduction 22 Abstract 22 1.1 Introduction 22 1.2 Background 24 1.3 Objective and Scope 26 1.4 Structure 28 References 30 2 Duty of Utmost Good Faith 31 Abstract 31 2.1 Introduction 31 2.2 The Meaning of and Juridical Basis for the Duty 32 2.3 Continuing Nature of the Duty of Utmost Good Faith 35 2.4 Application of the Duty of Utmost Good Faith 38 2.5 Reciprocal Duties 39 2.6 Scope of Insurer's Duty of Utmost Good Faith 45 2.6.1 Clear Warning in Proposal Forms 45 2.6.2 Unduly Strict Construction of Policies and Exclusions 49 2.6.3 Good Faith in Claims Settlement 49 2.6.4 Tort of Bad Faith 53 2.7 Scope of Insured's Duty of Utmost Good Faith 54 2.7.1 Pre-contractual Duty of Disclosure 54 2.7.2 Misrepresentation 61 2.7.3 Fraudulent Claims 64 2.8 Remedies for Breach of the Duty of Utmost Good Faith 64 2.9 Conclusion 65 References 65 3 Pre-contractual Duty of Disclosure and Misrepresentation 67 Abstract 67 3.1 Introduction 67 3.2 Development and Application of the Pre-contractual Duties in the United Kingdom 69 3.2.1 What Must the Insured Disclose 70 3.2.2 Exceptions to the Duty of Disclosure 72 3.2.3 The Prudent Insurer Test of Materiality 74 3.2.4 Criticism of the Prudent Insurer Test of Materiality 76 3.2.5 The Inducement Element and Degree of Influence 79 3.2.6 Criticism of the CTI and Pan Atlantic Decisions 84 3.2.7 Types of Information Requiring Disclosure 89 3.2.8 Law Reform in the United Kingdom 92 3.2.9 The Effect of Intermediaries on Non-disclosure and Misrepresentation 100 3.2.10 The Effect of `Basis of Contract' Clauses on Warranties 101 3.3 Development and Application of the Pre-contractual Duties in Malaysia 106 3.3.1 The Prudent Insurer Test in Malaysia 106 3.3.2 Pre-contractual Disclosure Under the Insurance Act 1996 108 3.3.3 The Effect of Intermediaries on Non-disclosure and Misrepresentation 114 3.3.4 Statutory Warnings in Proposal Forms 117 3.3.5 Misrepresentation and `Basis of Contract' Clauses 118 3.3.6 Central Bank Guidelines 121 3.3.7 Pre-contractual Disclosure and Misrepresentation Under the Financial Services Act 2013 122 3.4 Conclusion 126 References 127 4 Post-contractual Good Faith and Claims Settlement 129 Abstract 129 4.1 Introduction 129 4.2 Application of the Law in the United Kingdom 131 4.2.1 Construction of Policies 132 4.2.2 Exclusions and Proximate Cause 135 4.2.3 Claims Settlement Practice 136 4.2.4 English Proposals for Law Reform 140 4.3 Development and Application of the Law in Malaysia 148 4.3.1 Post Contractual Good Faith and Claims Settlement Under the Insurance Act 1996 148 4.3.2 Central Bank Guidelines 157 4.3.3 Post-contractual Good Faith and Claims Settlement Under the Financial Services Act 2013 160 4.4 Conclusion 161 References 161 5 Utmost Good Faith and Takaful in Malaysia 164 Abstract 164 5.1 Introduction 164 5.2 The Juridical Basis of Takaful 164 5.3 Takaful Models in Existence 167 5.4 The Development and Regulation of Takaful in Malaysia 169 5.4.1 Relevance of Utmost Good Faith to Takaful Contracts 171 5.4.2 Utmost Good Faith Under the Takaful Act 1984 173 5.4.3 Utmost Good Faith Under the Islamic Financial Services Act 2013 176 5.5 Conclusion 182 References 183 6 Law Reform from a Social Science Perspective 185 Abstract 185 6.1 Introduction 185 6.2 Legal Culture 186 6.3 Legal Structure 189 6.4 Legal Substance 191 6.5 Measuring Legal Culture 194 6.5.1 Power Distance 196 6.5.2 Individualism Versus Collectivism 200 6.5.3 Assertiveness 203 6.5.4 Uncertainty Avoidance 206 6.6 Intra-National or Ethnic Culture 209 6.7 Effect of Legal Culture on Structure and Substance 214 6.8 Conclusion 215 References 216 7 Conclusion 219 Abstract 219 7.1 Introduction 219 7.2 Proposed Reforms 220 7.2.1 General Duty of Utmost Good Faith and Its Effect 220 7.2.2 Pre-contractual Duty of Disclosure and Its Effect 223 7.2.3 Pre-contractual Misrepresentation and `Basis of Contract' Clauses 226 7.2.4 Statutory Warnings and Matters of Form 228 7.2.5 Role and Effect of Intermediaries 229 7.2.6 Claims Settlement and Post-contractual Implications 230 7.2.7 Structural and Miscellaneous Reforms 235 7.3 The Role of Economic Efficiency 236 7.4 Viability of Proposed Reforms 239 7.5 Conclusion 245 References 246 Appendix 247 Index 249 Front Matter....Pages i-xxiv Introduction....Pages 1-9 Duty of Utmost Good Faith....Pages 11-46 Pre-contractual Duty of Disclosure and Misrepresentation....Pages 47-108 Post-contractual Good Faith and Claims Settlement....Pages 109-143 Utmost Good Faith and Takaful in Malaysia....Pages 145-165 Law Reform from a Social Science Perspective....Pages 167-200 Conclusion....Pages 201-228 Back Matter....Pages 229-233