A Contract Of Upmost Good Faith

A woman lost her husband and sole bread winner last year. A year before his death, he had insured himself for RM100,000. However, the insurance company has rejected her claim saying that her husband had not disclosed that he was suffering from a heart ailment at the time of buying the policy. She has two children to bring up and really needs that money.

A contract of life insurance is based on utmost good faith and it is expected of the consumer buying a policy to disclose all material facts pertaining to his health and answer all the questions in the policy application form, truthfully and honestly. Failure to do so can lead to the insurance company denying the benefits of the policy to the claimant.

However, under the Insurance Act, the insurance company has to prove that (a) the policyholder concealed information that was within his knowledge or that he was aware of what he was concealing and (b) that such information was material or crucial for the policy and had a direct bearing on the risk undertaken by the insurer.

The Insurance Act also gives insurance companies three years to call into question any policy on the basis of suppression of material facts. After the completion of three years from the date of the policy or the commencement of the risk, the insurance company cannot reject a claim on grounds of suppression of material facts. In your friend’s case, from what you say, the policy is only two years old, so that advantage will not be available here.

If the insured was not aware of the pre-existing disease at the time of purchasing the policy or the existing disease had not been detected or diagnosed, then this widow can get the insured amount through the intervention of the court.

Unfortunately, the insured was aware of the health issue and even informed the agent who filled the form about it. However, he did not check what information was filled in and just signed on the dotted line. A policyholder is expected to fill the form himself or herself and even if someone else fills it, one has to read it carefully before signing (except in cases where the purchaser of the policy is illiterate). In the past, courts had upheld the rejection of the claim by the insurance company on grounds of suppression of material facts.