Allianz General Insurance Company (M) Bhd ...Plaintif v 1. Rajah A/L Batumalai (WA-24NCC-59-02/2017)

1.

MOHAMAD ERUDI BIN AB. MANAF ...DEFENDAN-DEFENDAN DI HADAPAN YANG ARIF TUAN MOHD NAZLAN MOHD GHAZALI HAKIM JUDGMENT Introduction [1] The Plaintiff’s application, by way of an originating summons, is principally for a declaration pursuant to Section 96(3) of the Road Transport Act 1987 (“the RTA”) that Policy No. 14VML091512 which sought to provide insurance coverage for motor vehicle no. WKQ 5082 (“the Vehicle”) for the period between 28 October 2014 and 27 Octob er 2015 (“the Policy”) is void and unenforceable with respect to a road accident on 23 June 2015 involving the Vehicle and motorcycle no. WWM 1656 claimed to be driven by the Second Defendant. [2] At the end of the hearing of the originating summons, I allowed the application. This Judgment contains the full reasons for my decision. Key Background Facts [3] The First Defendant is the registered owner of the Vehicle which is covered by the Policy issued by the Plaintiff. The First Defendant did not file any affidavit to oppose this application, which is instead resisted by the Second Defendant. [4] The Plaintiff was served with a notice pursuant to Section 96(2) of the RTA in relation to an alleged road accident on 23 June 2015 involving motorcycle no. WWM 1656 ridden by the Second Defendant Page 3 of 14 and the Vehicle alleged to be driven by the First Defendant and/or his agent and/or servant (“the Accident”). [5] The Second Defendant, who suffered injuries as a result of the Accident had instituted a civil action in Shah Alam Magistrate Court against the First Defendant claiming for special and general damages as a result of the Accident (“the Writ Action”). [6] The Second Defendant had earlier, a few days after the Accident, lodged a police report on 26 June 2015. However, there were no police report lodged by the First Defendant and/or his agent and/or servant in respect of the Accident. [7] The Plaintiff then, as is standard, appointed loss adjusters (‘the Adjusters”) to investigate the circumstances of the Accident. In their investigations the Adjusters were informed as follows:-

The First Defendant was previously the registered owner of the Vehicle which had been involved in an earlier accident on 21 October 2010, as shown in a police report dated 22 October 2010 exhibited by the Plaintiff’s affidavit.

The First Defendant had sent the Vehicle to Eng Yap Motor Works workshop in Klang to make insurance claim in order to repair the same. Pictures of the condition of the damaged Vehicle were also exhibited by the Plaintiff.

In March 2011, Tokio-Marine Insurans Berhad, the insurer of the Vehicle then classified the Vehicle as total loss.

Significantly, upon signing of the Claims Discharge Voucher and following the handing over the documents of title of the Vehicle by the First Defendant to the insurer, the insurer then vide its letter dated 23 March 2011 paid the First Defendant compensation for the sum of RM12,000.00 on the basis of the Vehicle being beyond economic repair. Thus it is contended that the First Defendant had ceased to have any insurable interest in the insurance contract with Tokio-Marine.

The First Defendant had following the more recent Accident, also lodged a police report dated 28 April 2016 and a statutory declaration dated 10 January 2017, stating that since cessation of his interest in the Vehicle in 2011, the insurance coverage and road tax for the said Vehicle had been renewed without his knowledge. It is argued that elements of fraud were involved in the renewal of the insurance coverage for the same. [8] It bears repetition that the key contention of the First Defendant is that he is no longer the registered owner of the Vehicle since executing the Claim Discharge Voucher in 2011 and as such did not have any insurable interest in the Vehicle at the time of the Accident. Contention of Parties [9] The Plaintiff in the main submitted that the relief sought against the First Defendant is based on the contract of insurance or the Policy purportedly entered into between the Plaintiff and the First Defendant. At all material times, the Second Defendant was never a party to the contract of insurance with the Plaintiff and is therefore not entitled in law to compel the Plaintiff to compensate for his loss and injuries under the contract of insurance. The Second Defendant has nothing to do with it. [10] The Plaintiff further reiterated that there were elements of fraud involved in the renewal process of the insurance coverage. [11] The Second Defendant’s opposition to the Plaintiff’s application is on the other hand, premised on three broad grounds:- A) First, the Plaintiff’s averments are entirely based on hearsay evidence in breach of Order 41 r 5 of the Rules of Court 2012, in that the pertinent averments were stated to be told by the First Defendant to the Adjusters, and not directly to the Plaintiff. B) Secondly, the Plaintiff had failed to discharge its burden of proof in respect of its averments; and Page 5 of 14 C) Thirdly, the proper forum to determine whether the Plaintiff ought to be allowed to repudiate liability is in the main suit of the Writ Action. Evaluation and Findings of this Court The issue of hearsay evidence not meritorious, as evidence not rebutted by First Defendant [12] It is not in dispute that affidavit evidence containing hearsay matters are inadmissible with the exception to interlocutory matters where it is admissible provided that the sources and grounds are disclosed (see Wong Hong Toy & Anor v Public Prosecutor [1988] 2 MLJ 553). The declarations being sought in the Plaintiff’s instant application is in the nature of a final and not interlocutory order as, if granted, it will finally determine the rights of the parties concerned. [13] The Second Defendant’s complaint is that if the averments of the deponent for the Plaintiff (one Sufaizah binti Abd Shukor, a claims executive of the Plaintiff) are examined, the key contentions of the Plaintiff are based on information furnished by its Adjusters, the police report by the First Defendant denying his involvement in the accident of 2 June 2015 and his statutory declaration dated 10 January 2017 to the same effect. Yet all these are not within the personal knowledge of the deponent for the Plaintiff; and neither the individual from the Adjusters who undertook the investigation nor the First Defendant himself affirmed any affidavit to support the instant application by the Plaintiff. Therefore the averments on the contents of the documents too is hearsay and devoid of any evidentiary value (see Lim Yew Sing v Hummel International Sports & Leisure A/S [1996] 3 MLJ 7). [14] I do not think the absence of what the Second Defendant refers to as direct evidence impairs the substance of the Plaintiff’s application. It cannot be disputed that the First Defendant had signed the Claim Discharge Voucher and furnished all documents of title of the Vehicle to the former insurer. He had made a police report denying any involvement of road collision with the Second Defendant, and even affirmed a statutory declaration to that effect. There is no suggestion by the Second Defendant that any of these documents is not genuine or authentic. The refusal by the First Defendant to affirm an affidavit to further confirm these documents cannot form a basis to deny the Plaintiff’s right to the declaration under Section 96(3) of the RTA. Page 6 of 14 [15] The Plaintiff had filed the requisite affidavit of service of the cause papers pertaining to the instant application to the First Defendant. At the hearing, the Counsel for the Plaintiff again confirmed that the First Defendant had also been informed of the hearing date. Clearly, the First Defendant chose not to attend to contest the application. [16] In any event, the First Defendant’s non-involvement in and non-contestation of the present application is entirely consistent with the essence and substance of the said documents. They quite categorically stated that the First Defendant no longer owned the Vehicle since 2011 and had nothing to do with the subsequent renewal of the policy coverage of the Vehicle with the plaintiff. In effect this unmistakably shows that as far as the First Defendant is concerned, he has absolutely no insured-insurer relationship with the Plaintiff. There was no contract of insurance between the two at the material time. The Second Defendant is not party to the insurance contract [17] This I think is most crucial. And for this same basis, the resistance of the Second Defendant will be shown to be plainly devoid of substance. It is as fundamental as the basic rule of the law of contract that the rights and obligations concerning the agreement do not concern a third party. A third party like the Second Defendant cannot benefit from nor sue on the contract of insurance which purportedly existed between the Plaintiff and the First Defendant. This Court cannot countenance a departure from the well-entrenched rule in the law of contract that a third party can neither benefit nor suffer from a contract executed by other parties. A contract cannot be enforced against or by a third party pure and simple (see the leading common law authority of Tweddle v Atkinson [1861] 1 B & S 393 and the Privy Council decision in Kepong Prospecting Ltd & Ors v Schmidt [1968] 1 MLJ 170). [18] Since the First Defendant confirmed that he had no longer owned the Vehicle which must therefore mean that he or his servant or agent has absolutely no insurable interest in the Vehicle, the Policy cannot continue to be effective vis-a-vis the First Defendant. In Bibendum Sdn. Bhd. v. Amanah Scott Properties (KL) Sdn. Bhd. [2011] AMCR 792, the High Court in citing Halsbury's Laws of Malaysia, Vol 4, Malaysian Law, Journal SB 2000 page 37, paragraph 60.034, stated: With regards to an insurable interest in property, the general principle for Malaysia would be that an insurable interest should exist at the time Page 7 of 14 the event causing the loss occurs. Thus, an owner of a car who has sold it, would not be able to recover from a motor policy which has not expired if the car is damaged in the hands of the new owner. [19] As such I agree that the cases cited by the Plaintiff on this point are supportive of the application by the Plaintiff. Thus in Pacific & Orient Insurance Co Bhd v Vigneswaran a/l Rajarethinam & 2 Ors [2013] 2 AMCR 736, concerning facts not so dissimilar to the present case, it was stated by the High Court that:- “A contract of insurance is between an insured and his insurer. Now the insured is telling the insurer categorically that I'm NOT involved in this accident. It is a scam! Why the insurers should not act on his statement and avoid the policy? The second and third defendants are not privy to the contract between the plaintiff and first defendant and therefore cannot dictate whether the insurers should indemnify the first defendant or not. This is a simple law of contract. b) No evidence to show that the first defendant was not involved in the accident with second and third defendants. In this originating summons (OS) filed by the plaintiff we are not concerned with proving whether the accident occurred or not. That is for the Sessions Court to decide. In this OS, the plaintiff is asking this court to grant an order that the insurers may avoid liability under the policy where the insured himself is saying categorically by way of SD (exh RS5), police report (exh RS6) and testimony in court (exh RS10) that he was never involved in an accident. Between the insurers and the first defendant (insured) there is overwhelming evidence that there has been a breach of the duty of good faith and false declaration of involvement in an accident has been made which allows the plaintiff (insurers) to avoid the policy”. [20] The same conclusion was arrived at by the High Court in Sun Life Malaysia Takaful Berhad (dahulunya dikenali sebagai CIMB Aviva Takaful Berhad) v Noorulsmiah binti Sulong @ Mohd Nasir & 7 Ors [2015] 3 AMR 703 where the declaration was granted and the arguments by third parties similarly rejected. [21] Upon signing of the Claims Discharge Voucher and handing over the documents of title of the Vehicle by the First Defendant to the Page 8 of 14 then insurer, the policy insurance had automatically lapsed. The Claims Discharge Voucher executed by the First Defendant states as follows: “In consideration of the abovementioned sum, We/I hereby surrender our/my vehicle Registration Card, Release Letter, Transfer Forms (JPJK3, JPJK8, Lampiran “A1” & JPJ TM-AB) duly signed and Original Certificate of Insurance of Policy No. W-V-BO-AG-017982 for cancellation.” Absence of insurable interest [22] The absence of any insurable interest on the part of the First Defendant cannot be any clearer. Authorities in support of the Plaintiff’s position is far from few. Thus in Roslan Bin Abdullah v New Zealand Insurance Co. Ltd [1981] 2 MLJ 324, the Federal Court held:- “In this case, once ownership of the truck changed, the insurance policy lapsed unless there was novation of the policy, which was not alleged. The driver of the truck was not covered by the insurance policy as there was no insurance policy at the time of the accident.” [23] A similar position obtains in a decision of the English High Court in Peters v General Accident & Life Assurance Corporation Ltd [1937] 4 All ER 628 where Goddard J held thus:- “(i) when the vendor sold the car, the insurance policy automatically lapsed; (ii) at the time of the accident, the purchaser could not be said to be driving the car by the order or with the permission of the vendor, as the car was then the purchaser’s own property; (iii) the insured is not entitled to assign his policy to a third party. An insurance policy is a contract of personal indemnity, and the insurers cannot be compelled to accept responsibility in respect of a third party who may be quite unknown to them.” [24] No less basic is the fact the insurance policy only covers the Policyholder or any other person who is driving on the Policyholder’s order or with his permission. The Certificate of Insurance in the instant case states as follows:

Any other person who is driving on the Policyholder’s order or with his permission. [25] As such, given that the Vehicle has been classified as total loss and the First Defendant had been compensated for the said loss, it is not possible for the First Defendant, as the alleged insured or any Page 9 of 14 other person with the permission of the First Defendant to have driven the Vehicle at the time of the accident or to have been covered by the Policy. Even if this indeed occurred, there was patently no insurable interest in the Vehicle in any event. What could likely have happened was that despite the total loss status, somehow the road tax and insurance coverage for the Vehicle had been renewed fraudulently. The Policy, between the Plaintiff and the First Defendant, given the facts, could not have validly existed in the first place. [26] As the contract of insurance governing the Policy between the Plaintiff and the First Defendant is so manifestly founded on a very questionable premise given the clear denial by the First Defendant that he had any ownership rights or in possession of any insurable interest in the Vehicle since 2011, the Policy, which must, to begin with, in any event be a contract of an utmost good faith, cannot be a valid contractual document between the Plaintiff and the First Defendant, and must as a consequence, be held to be void and unenforceable. Third party has right to oppose declaration under Section 96 of the RTA [27] This is not to say that a third party like the Second Defendant is entirely irrelevant to the proceedings before me on the application by the Plaintiff to declare the Policy to be void and enforceable under Section 96 of the RTA. This action by the Plaintiff under Section 96 concerns the contract of insurance to which the Second Defendant is not privy. But the very scheme of Section 96, whilst enabling an insurer to seek a Court declaration to avoid the relevant policy, also confers on the third party who claimed to have been involved in an accident with a vehicle insured with the insurer under the relevant coverage to apply to be made a party and to oppose the granting of such declaration. [28] It is apposite that I reproduce the relevant parts of Section 96 of the RTA, as follows:-

Duty of insurers to satisfy judgements against persons insured in respect of third party risks

If, after a certificate of insurance has been delivered under subsection 91(4) to the person by whom a policy has been effected, judgement in respect of any such liability as is required to be covered by a policy under paragraph 91(1)(b) (being a liability covered by the terms of the policy) is given against any person insured by the policy, then notwithstanding that the insurer may be entitled to avoid or cancel, or may have avoided or cancelled the policy, Page 10 of 14 the insurer shall, subject to this section, pay to the persons entitled to the benefit of the judgement any sum payable thereunder in respect of the liability, including any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any written law relating to interest on judgements.

No sum shall be payable by an insurer under subsection (1)- ………

No sum shall be payable by an insurer under subsection (1) if before the date the liability was incurred, the insurer had obtained a declaration from a court that the insurance was void or unenforceable: Provided that an insurer who has obtained such a declaration as aforesaid in an action shall not thereby become entitled to the benefit of this subsection as respects any judgement obtained in proceedings commenced before the commencement of that action unless, before or within seven days after the commencement of that action, he has given notice thereof to the person who is the plaintiff in the said proceedings specifying the grounds on which he proposes to rely, and any person to whom notice of such an action is so given shall be entitled if he thinks fit to be made a party thereto. ..…….” [emphasis added] [29] Section 96(3) of the RTA plainly confers on the third party like the Second Defendant such right to contest the declaration despite the patent absence of any contractual relationship between the Plaintiff as the insurer and the Second Defendant as the third party (see also the Court of Appeal decision in Pacific & Orient Insurance Co Berhad v Rasip bin Hamsudi & Ors [2017] 4 CLJ 572). Second Defendant cannot defeat application on Policy never validly existed [30] But it is difficult to see in what manner the Second Defendant, even if it is assumed that he is a genuine claimant, can succeed in his claim for indemnity against the Plaintiff on the Policy which was never even valid from its inception. The First Defendant ceased to be the owner in 2011 after the execution of the Claims Discharge Voucher. There is however, no evidence that the ownership registration at the Road Transport Department had been effected. It appears that the First Defendant did not bother to do so, which was not too surprising, since the Vehicle had been certified to be a total loss anyway. [31] It was likely that somehow, fraudulently, another party had orchestrated for the Vehicle to continue to be used, its road tax renewed, as was the insurance policy, albeit with the Plaintiff as the new insurance Page 11 of 14 company. The Policy however has been existing invalidly because from the start of its purported relationship with the Plaintiff as the new insurer (post execution of the Discharge Claims Voucher in 2011), the First Defendant never had any insurable interest. In the absence of an insurable interest, there was never any valid Policy brought into existence between the Plaintiff and the First Defendant. [32] Given the documents exhibited by the Plaintiff which showed the First Defendant having nothing to do with the Vehicle since 2011, it is no less plain that the Plaintiff had no knowledge about the absence of insurable interest to create the Policy and must have been misled into effecting a purported renewal of the same. [33] I reiterate that the Policy is void ab initio since the person who was alleged to be insured, the First Defendant herein, ceased to have any insurable interest in the Vehicle subsequent to the execution of the Claims Discharge Voucher in 2011 which was a point in time prior to the “change” of insurer and when the “First Defendant” applied for the issuance of the new insurance contract, by the Plaintiff which had since been renewed by the Plaintiff resulting in the present Policy in contention. [34] In Allianz General Insurance Company (Malaysia) Bhd lwn Mohd Fauzi Abdul Manaf & Yang Lain [2016] 1 CLJ 587, the High Court similarly held thus:- “[26] Mahkamah ini bersetuju dengan hujahan plaintif di dalam kes ini bahawa polisi insuran yang dikeluarkan oleh plaintif sebagai penanggung insuran dan defendan ketiga iaitu pihak yang diinsuranskan adalah satu kontrak persendirian yang nyata tidak boleh dipindah milik dan/atau diganti nama….. [27] Di sini, adalah jelas bahawa defendan ketiga di dalam surat pengakuannya mengaku telah menjual motorsikal tersebut kepada defendan pertama dan telah juga mengaku bahawa tidak memaklumkan fakta ini kepada plaintif. Malahan beliau telah mengaku telah tidak menukar nama pemilik motorsikal tersebut kepada nama pemilik baru kerana defendan pertama sebagai pembeli ingin menunggu cukai jalan dan polisi insurans tamat tempoh. [28] Memetik apa yang diputuskan di dalam kes Peters v. General Accident Fire & Life Insurance Corp. Ltd [1937] 4 All ER 628 apabila seorang tuan punya kereta menjual keretanya, polisi insurans secara otomatik telah luput kuatkuasanya dan tidak lagi boleh dikuatkuasakan. Page 12 of 14 Undang-undang berkenaan polisi insurans di dalam hal penjualan mana-mana kenderaan adalah jelas dan jitu. [29] Atas alasan ini sahaja, mahkamah ini berpandangan bahawa plaintif adalah berhak mendapat deklarasi yang dipohon”. [35] In that case, the former insured did not inform the insurer of the change in ownership of the vehicle despite having sold the same to another party. Nor did the former insured effect the change in the registration of the vehicle. The insurer thus was granted the declaration that the policy with the former insured was void and unenforceable. [36] The situation in the case before me involves a much more serious violation of the principle of the insurance being a contract of the utmost good faith. The former insured party himself was not aware of the events subsequent to the cessation of ownership such as the renewal of the Policy which must have been made possible by fraud. [37] In the instant case before me the First Defendant was never the owner of the Vehicle at the time of the accident with the Second Defendant. He was never even the owner from the time the application for a coverage under a contract of insurance for the Vehicle was first made to the Plaintiff. [38] In Kurnia Insurans (Malaysia) Bhd v. Personal Representative of Zenol Saad & Ors [2013] 1 LNS 239, the High Court in dealing with the issue of avoidance of liability by the insurer on the ground of loss of insurable interest in the vehicle on the part of the registered owner causing the policy to lapse, granted the declaration avoiding the policy. It was held that there was a transfer of interest when the car was sold even though the ownership like in the instant case before me, was never formally transferred. [39] Again, the similarity in the background facts in that case with those in the application before me cannot be ignored. The High Court there held that:- “I am of the view that the documentary evidence or exhibits adduced by the Applicant are discovered as a result of the Applicant's investigations. They are all self-explanatory. R1 and R2 were served with the OS with all the exhibits but R1 and R2 did not file any Affidavit In Reply. Since there is no rebuttal evidence by R1 and R2, the Court accepts the documents exhibited by the Applicant in its Affidavits.” Page 13 of 14 [40] Section 96(1) of the RTA clearly enables any insurer to avoid or cancel an insurance policy. The policy, which is a contract between the insurer and the insured only is voidable at the instance of the insurer. Section 96(3) entitles the insurer to avoid or cancel any policy for breach of its express terms. Since an insurance policy is a contract of personal indemnity, an insurer cannot in law be required to accept liability in relation to a third party, more so one who is unknown to the insurer, as demonstrated in many of the cases highlighted in this judgment, including in the instant application before me. [41] These third parties, like the Second Defendant herein, not vested with the requisite contractual nexus, are therefore bereft of any basis in law to oppose the insurer's action, like the Plaintiff herein, for a declaration to avoid liability and cancel the Policy following the breaches entitling repudiation of the same. This is especially true in the instant case since in the first place, the Policy could not even have validly existed. It is void from the start. [42] I further agree that the Plaintiff would be prejudiced if this application for declaration is not allowed as the Plaintiff would otherwise be bound by Section 96(1) of the RTA to be liable for any third party claim notwithstanding the violation of the purported Policy. [43] As such, the Second Defendant’s argument on hearsay evidence, whilst not entirely without merit, cannot defeat the case of the Plaintiff in respect of the Policy with the first Defendant which does not contractually concern the Second Defendant. Similarly his submission that the Plaintiff had failed to discharge its burden of proof to escape liability in that the Vehicle had been written off or that the First Defendant was not the owner, or on the alleged failure to particularize fraud, are all misconceived given the true context of the proceeding of this application is on the validity of the insurance contact between the Plaintiff and the First Defendant supported by evidence which had originated from, and crucially not in any fashion rebutted by the First Defendant, as produced by the Plaintiff. [44] An insurer’s statutory liability arises when an insurer is legally bound under Section 96(1) of the RTA to pay a person who has died or who has suffered bodily injury in a motor accident, but such liability cannot arise if the insurer has obtained from the Court before liability is incurred (in the form of the judgment against the insurer) a declaration that the insurance was void or unenforceable. This was Page 14 of 14 what the Plaintiff herein sought to and did achieve before this Court for the reasons I have stated earlier. Conclusion [45] For the reasons that I have discussed in the foregoing, it is my judgment that the Plaintiff has successfully established its case for the declaration that the Policy with the First Defendant and concerning the Accident is void and unenforceable. I therefore allow enclosure 1, with no order as to costs. Dated: 24 August 2017 (MOHD NAZLAN BIN MOHD GHAZALI) Judge High Court NCC1 Kuala Lumpur Counsel: For the Plaintiff R Ratha with Yoshini Messrs S.G. Lingam & Co Kuala Lumpur First Defendant - Absent For the Second Defendant AK Dass with Gurdeep and Rashwen Messrs A.K. Das & Associates Seremban, Negeri Sembilan