Judgment

Nik Hashim JC

1. The deceased, 44, a major in the armed forces, died on 13 December 1990 due to high fever. Prior to his death he bought a total of ten units in the group insurance scheme policy of the respondents/defendants, Arab-Malaysian Eagles Sdn Bhd, through the Koperasi Tentera. He named his wife, the appellant/plaintiff as the sole beneficiary. The insurer paid her only for the five units which the deceased bought on 1 May 1981, while the insurer denied liability for the balance five units which were bought on 10 July 1987. It is in respect of this that the appeal lies.

2. The defendants refused to pay her on the ground of non-disclosure of a material fact by the deceased in the proposal form (exh D6), dated 10 July 1987. The plaintiff sued the defendants for the sum of RM89,500 being the assured amount for the additional five units, and interest thereon.

3. The defendants alleged that the deceased had breached the condition under cl 8(d)(i) of the Second Schedule to the group policy No GP 1025 (exh D7) in that he had made a declaration in cl 5 claiming that [translation]:

   I admit that my physical fitness level is FE at the time I signed the application form. I also admit that I was in good state of health, has no prolonged or repeating illnesses, mental illness and other deformities/weaknesses at the time I signed the form. [emphasis added]

4. According to the medical report (exh D2) however, he was diagnosed as suffering from diabetes since February 1986.

5. Clause 8(d)(i) of exh D7 provides:

   (d)

   Exclusions: This group insurance scheme does not provide coverage on deaths or accidents arising from or under the following situations: (i) Prolonged illnesses which have been diagnosed prior to the date of joining the insurance scheme based on the contents in the medical report of the deceased. [emphasis added]

6. The learned sessions court judge in dismissing the plaintiff’s claim ruled at p 11 of record as follows [translation]:

   The Court on the facts suspects that on 10 July 1987 the deceased has no prolonged illness. This is because from the tests in February 1986 and in January 1987 he was found to suffer diabetes, a prolonged illness.

7. Mr. R.G. Naidu, leading counsel for the plaintiff submitted that more than two years had lapsed after the life policy was effected and hence s 15C(4) of the Insurance Act 1963 (‘the Act’) applies to the present case. Mr. Mohd Roslan Hassan, learned counsel for the defendants shared his view on this point. Counsel for the plaintiff further argued that the non-disclosed fact must not only be material but should also have been fraudulently concealed, and stressed that the burden is on the defendants to prove the non-disclosure. I agree with his submission. It is trite law that the burden of proof is on the insurer to prove non-disclosure and that they have the right to begin (see Goh Chooi Leong v Public Life Assurance Co Ltd [1964] MLJ 5). The policy has been in force for more than two years and therefore s 15C(4) of the Act rightly applies to this case.

8. Section 15C(4) provides:

   No life policy .... shall, after the expiry of two years from the date on which it was effected be called in question by an insurer on the ground that a statement made in the proposal for insurance or in a report of a doctor, referee or any person, or in a document leading to the issue of the policy, was inaccurate or false unless the insurer shows that such statement was on a material matter or suppressed a material fact and that it was fraudulently made by the policyholder with the knowledge that the statement was false or that it suppressed a material fact.

9. There seems to be, as far as I am aware of, no decided cases in the country on the application of s 15C(4). In the absence of local authorities, it may perhaps be useful to examine the Indian laws on this point.

10. The learned author Dr Nik Ramlah Mahmood at p 71 of the book entitled Insurance Law in Malaysia (1992) said that the Indian Supreme Court in applying a similar provision in the form of s 45 of the Life Insurance Act 1938 of India, enumerated three conditions before a life policy which comes within the scope of such a provision can be challenged by the insurer. The conditions are as follows:

    (1)	That the statement must relate to a material matter or must suppress facts which are material to disclose;
    (2)	That the suppression or misstatement must have been fraudulently made by the policyholder; and
    (3)	That the policyholder must have known at that time, that the statement was false or that the facts suppressed were material to disclose.

11. In New India Insurance Co v Raghava Reddi AIR 1961 AP 295, it was held that a policy cannot be avoided on the ground of misrepresentation unless the three conditions are established. With regard to the materiality of a fact, it depends on the surrounding circumstances and the nature of the information sought by an insurer (see Hand Book on Insurance Laws, 3rd Ed 1989, at p 83).

12. Below the printed declaration in cl 5 of exh D6, appears an important notice in a green box which states:

    Important: Explanation pursuant to s 16(4) of the Insurance Act 1963, you are required fully and faithfully to give the facts as you know them or ought to know them in this proposal, if not the policy that is issued following this proposal would be invalid.

    The warning is self-explanatory in that the deceased was obliged to disclose fully and faithfully all the facts which he knew or ought to have known – otherwise the policy issued would be void. In my view, this warning is consistent with the nature of the contract of insurance which is one of uberrimae fidei, i.e. of utmost good faith. It is settled law that insurers are entitled to full disclosure of all knowledge possessed by the assured that is material to the risks Joel v Law Union and Crown Insurance Co [1908] 2 KB 863. However, the duty of disclosure is not confined to the assured. The insurers are also bound by this common law. It is a reciprocal duty Carter v Boehm (1766) 3 Burr 1905, per Lord Mansfield at p 1909 and Brownlie v Campbell (1880) 5 App Cas 925, per Fletcher Moulton LJ at p 954). It is also a principle that a fair and reasonable construction be placed on any question in the proposal form (Pacific & Orient Insurance Co Sdn Bhd v Kathirvelu [1992] 1 MLJ 249, SC).

13. It is the contention of the defendants that the deceased had failed to disclose a material fact that he was suffering from diabetes, which is a prolonged illness, thereby rendering the policy voidable at the instance of the defendants. The standard of proving fraud in this country is proof beyond reasonable doubt (Saminathan v Pappa [1981] 1 MLJ 12, FC), but it is not the law of evidence that every step in the allegation of fraud has to be proved by calling live and admissible evidence, nor is it the law that fraud cannot be inferred in the appropriate case: Ng Pak Cheong v Global Insurance Co Sdn Bhd [1994] 3 AMR 2663.

14. Having considered the law and its principles in the cases aforesaid, the court has to decide whether the defendants have proved fraud on the part of the deceased. Before answering that question, the court has to look at the evidence as to whether the deceased knew that he had diabetes on 10 July 1987, and if he had it and knew about it, then whether he really understood that diabetes is a prolonged illness. Indeed there is nothing in exh D6 defining the words "prolonged or repeating illnesses", nor is there any explanation of what the term prolonged illnesses in cl 8(d)(i) of exh D7 means. As they stand, the words "prolonged or repeating illnesses" and "prolonged illnesses" are to my mind, ambiguous, lacking specifics and indeed confusing. They are not self-explanatory. In the absence of their meaning, it is rather unfair in my view, to impute knowledge and understanding on the part of the deceased even though he was an officer in the armed forces and ought to have known that diabetes may be classified under prolonged illnesses. In this case, there was no evidence to show that the term had ever been explained and understood by the deceased at the time when he signed exh D6. To my mind, it is equally a duty on the part of the defendants to make the information sought plain and clear. The information regarding prolonged illnesses is vague and doubtful. If the words are obscure or doubtful in their meaning, the court should so construe them in order to avoid injustice (per C.T. Gunn SCJ in Dirkje Peiternella Halma v Mohd Noor Baharom [1990] 3 MLJ 103 at p 107).

15. Lt Kol (Dr) Abdul Aziz Yusof (‘SP3’) testified at p 9 of the record as follows [translation]:

    No record that he has diabetes but there are directions to refer to him specialist but don't know what happened. P1's report is based on records only.

16. Therefore, it is clear from the evidence adduced in the court below that even SP3 who had access to the record was unable to confirm that the deceased was in fact suffering from diabetes and that he was under treatment. Though he prepared the medical reports (exh P1) and (exh D2) based on the previous records, the original records however, were not produced in court to support the claim that the deceased had diabetes on 28 February 1986 and 16 January 1987. SP3 further said that although diabetes is a prolonged illness, it is also a practice in the armed forces to refer a diabetic patient to the specialist and the medical board. In this case however the deceased was not referred.

17. Dr Pancho (‘SP5’), a general practitioner, examined the deceased twice – once on 3 December 1990 and again on 10 December 1990, i.e. three days before he died. He testified at p 35 of the record as follows [translation]:

    I checked his urine on 10 December 1990 and found that the sugar content to be negative.

    He went on to say at para C of same page [translation]:

    Based on my examination there is no evidence that he has diabetes ....

    He further stated at para F [translation]:

    Before injecting I asked him whether he has any allergy or illness, and when told there is none, gave him the injection.

18. Based on this evidence, it can be inferred that the deceased did not even know that he was suffering from diabetes. Though SP5 agreed that diabetes is a prolonged illness, his testimony has created some doubts whether the diabetes that the deceased was alleged to be suffering from could be classified as a prolonged illness. Surely if he was suffering from diabetes, it would have been detected when SP5 examined him on 10 December 1990. It follows therefore that the duty to disclose material facts cannot be extend to disclose facts which the deceased did not know or which he could not reasonably be expected to have known at the time when he signed the declaration in exh D6 (see Toh Kim Lian v The Asia Insurance Co Ltd [1995] 3 AMR 2304). Indeed the deceased died on 13 December 1990 not due to diabetes but due to high fever.

19. As I have mentioned earlier, s 15C(4) of the Act requires three conditions to be established before the life policy can be called in question. From the evidence, I conclude that the defendants had not discharged their burden and failed to prove non-disclosure, fraud and knowledge on the part of the deceased to avoid their liability to pay under the policy. In the circumstances, I allow the appeal, set aside the order of the learned judge and judgment is awarded to the plaintiff, with costs, as prayed in paras (a), (c) and (d) of her statement of claim.

Cases

Brownlie Campbell (1880) 5 App Cas 925

Carter v Boehm [1766] 3 Burr 1905

Dirkje Peiternella Halma v Mohd Noor Baharom [1990] 3 MLJ 103

Goh Chooi Leong v Public Life Assurance Co Ltd [1964] MLJ 5

Joel v Law Union & Crown Insurance Co [1908] 2 KB 863

New India Insurance Co v Raghava Reddi [1961] AIR AP 295

Ng Pak Cheong v Global Insurance Co Sdn Bhd [1994] 3 AMR 2663

Pacific & Orient Insurance Co Sdn Bhd v Kathirvelu [1992] 1 MLJ 249

Toh Kim Lian v The Asia Insurance Co Ltd [1995] 3 AMR 2304

Legislations

Insurance Act 1963: s.15C

Life Insurance Act 1938 [India]: s.45

Representations

R.G. Naidu (Indran Rajalingam and Zaharah Ismail with him) (Sandu & Co) for the appellant.

Mohd Roslan Hassan (Rithauddeen & Aziz) for the respondents.

Notes:-

All translations from Malay texts to English texts are not a part of the original judgment.

This decision is also reported at [1996] 5 MLJ 569.