Closing The Loophole on Automobile Insurance Claim

The Federal Court has ruled that road accident victims should be automatically compensated without having to sue insurance companies. In delivering the landmark ruling, Federal Court judge Datuk Abdul Rahman Sebli said the provisions of the Road Transport Act 1987 should be construed to protect all motorists, including victims of road accidents. He also said that Parliament's intention in enacting the law was to protect innocent third-party road users.

Datuk Rahman said this in a 140-page judgement on a decision delivered by a three-member bench he led last week — the two other judges were Datuk Seri Hasnah Mohammed Hashim and Datuk Rhodzariah Bujang — that allowed the appeals of eight motorists, seven of whom were injured in motor accidents.

Insurers - Five of the appeals involved Pacific & Orient Insurance Co Ltd, Amgeneral Insurance Bhd, Allianz General Insurance Company (M) Bhd, and Malaysian Motor Insurance Pool.

The victims had filed a negligence suit in the sessions courts against the owners of vehicles and/or drivers involved in their accidents for damages.

Their appeals came about as the insurance companies managed to obtain a declaration from the High Court to nullify the policies of motorists involved in the accidents due to allegations of misconduct on the part of the vehicle owners, which caused the accident victims to be denied monetary compensations that were due to them.

Sambung Bayar & Excuses To Deny Claim - In one of the cases, the vehicle owner had “sold” the vehicle to a third party through what is known as “sambung bayar” (continuing payments), but without informing the insurance company. The owner later asked the court to declare their policy as void. Based on that order, the insurer had refused to cover the victim's losses.

In another case, even after a full trial at a lower court had found the driver of the vehicle to be negligent, the insurance company declined to pay for the damages of the accident the driver caused, after alleging it had been defrauded.

Eventually, the victim of the accident merely held a paper judgement that was “not even worth the paper it was written on”, the Federal Court was quoted as saying. The court said this was unfair because the victim’s constitutional rights to be treated fairly had been infringed.

In allowing the appeals, the apex court awarded RM150,000 in costs to each of the successful parties in the appeal.

Balancing Act For Victim & Insurer - According to Rahman, the Act has to balance two competing interests — that of innocent third parties affected by a motor vehicle accident versus insurance companies. In the case of the insurers, the law has to protect them from being victimized by fraudulent claims.

But in setting the balance between these competing interests, the loss has to fall on one party. And if that is the case, the Act has decided that such a loss should be borne by the insurer, he said. This follows the principle established in a 1959 Indian Supreme Court case (British India General Insurance vs Capt Itbar Singh).

Rahman, in explaining the Federal Court's decision, said it is because it is compulsory for all vehicle owners to have insurance coverage and that the Road Transport Department would not issue road taxes for those without an insurance coverage.

This provides that if a vehicle injured a victim, that person could sue the owner or the driver of the vehicle, as the vehicle owner has insurance coverage. Hence, the insurer should automatically step in and “indemnify” the victim, without the victim having to sue the insurer.

Many grey areas had sprung up in motor accident cases over the years and caused huge problems for innocent road victims. This judgement resolves those difficulties in one fell swoop.