THE UPDATE SCOOP (#15/2024)
Liability of Insurer to claim of 3rd Party Passenger travelling in Insured’s Vehicle │ Insurance Law
By TAY & HELEN WONG – November 25, 2024
The liability of insurance company (insurer) under a motor insurance policy towards a third party was the core issue before the Federal Court in Chen Boon Kwee v Berjaya Sompo Insurance Berhad[i]. Ordinarily, by virtue of s.96(1) of the Road Transport Act 1987 (the RTA), an insurer is required to satisfy any judgment obtained against an insured person covered by an insurance policy issued to the insured by the insurer in respect of any liability incurred by the insured that results in death or bodily injury to a third party caused by or arising out of the use of a motor vehicle covered under the policy. Thus, in a motor vehicle negligence (accidental) claim, once a plaintiff/victim has obtained a judgment against the defendant (the insured), the plaintiff/victim as a ‘third party’ under s.91(1) of the RTA can proceed to enforce the judgment against the insurer directly pursuant to s.96(1) of the RTA.
In Chen Boon Kwee, however, the third party concerned (who is the 1st Defendant, D1) was a passenger in the same motor vehicle that was the subject of the third-party risk motor insurance policy (issued by the Plaintiff, P) and which was owned by his wife (the 2nd Defendant, D2). On that fateful day, D2 authorized one Masri, who was D1’s work colleague, to drive the vehicle to Desaru with D1 as passenger on work-related travel as directed by D1’s employer, Asia Aquaculture. Whilst on the road, the vehicle was involved in a collision with a motor lorry which resulted to injuries to D1. D1 filed a suit in Sessions Court against the lorry owner, lorry driver, D2 and Masri for damages for negligence (“the Liability Action”). Masri was found to be 100% liable and D2 as owner of the vehicle was vicariously liable; judgment was entered for D1 and appeals arising therefrom were dismissed. Thus, P as the insurer and the de facto defendant[ii] was statutorily liable under s.96(1) of the RTA.
P however filed another suit (“the OS”) against D1 and D2 in order to deny liability, on the ground that the policy did not cover liability for a claim arising from injury to a passenger travelling in the vehicle, that is to say it did not cover passenger risk. In other words, D1 was not a “third party” as envisaged under s.96. P relied on an exception to liability clause in the policy that the insurer would not be liable for the death or bodily injury to any person carried in the vehicle ‘other than a passenger carried by reason of or in pursuance of a contract of employment’ (as per the wordings in s.91(1)(b)(bb) of the RTA). P further contended that no additional coverage to be indemnified for any legal liability to passengers was purchased by D2. It follows that, as the argument went, D1 had to file a separate “Recovery Action” to enforce the judgment in the Liability Action against the insurer where issues on the construction or interpretation of the policy and the application of ss.91 and 96 of the RTA would be ventilated and determined.
Both the High Court and Court of Appeal ruled in favour of P in the OS. On final appeal, the Federal Court disagreed, allowed D1’s appeal and set aside the decisions. Firstly, the apex court reiterated its decision in Pacific & Orient Insurance Co Berhad v Mohamad Rafiq Muiz bin Ahmad Hanipah (Appeal No.2 in AMGeneral Insurance Bhd v Sa’amran a/l Atan & @ Ors)[iii] that a recovery action (by a third party claimant as victim of a road accident) was not necessary against the insurer to satisfy any judgment on tortious liability obtained against the insured. Secondly, even in situation where the insurer intended to contend that the insurance policy was void or unenforceable, there was still no necessity for a recovery action as the insurer could raise such issue through intervening in the liability suit[iv] before the liability judgment was entered. The RTA is to some extent a piece of beneficient social legislation. The third party insurance scheme in Part IV of the RTA is to afford protection to third party road users. It is to ensure that insurer promptly satisfies any judgment obtained by the third party against the insured. Thus, the requirement of a recovery action would defeat the legislative intent.
Thirdly, the insurer sought to deny liability against D1 as a passenger in the vehicle on the ground that such passenger liability was exempted under the policy (the Exception); and D2 had not purchased risk coverage for legal liability to passengers. The Exception excluded liability to any passenger who was a member of the insured’s household unless he was required to be carried in the vehicle by reason of his “contract of employment with the insured or her authorized driver or his employer” (the Phrase). The court found that D1 was in fact travel in the vehicle in pursuance of his contract of employment with his employer, Asia Aquaculture. Based on past case authorities, the Phrase which was a mirror reflection of s.91(1)(b)(bb) of the RTA was not confined to the employment of the insured but also applicable to any person being carried in pursuance of a contract employment with another employer. It was possible for a passenger to come within the Phrase even if employed by a third party. Therefore, D1 had established the fact of him travelling in the vehicle in pursuance of his contract of employment. P was bound by s.96(1) and 91(3) of the RTA to satisfy the judgment which D1 had obtained against the insured.
By virtue of this decision, any motor insurance company which wishes to dispute its liability to any third party’s claim is well advised to launch such challenge in the same liability action as brought by the accident victim without further delay.
[i] Federal Court Civil Appeal No.: 02(f)-32-04/2023(J), published on 18.11.2024
[ii] Compulsory insurance against third party risks has made alterations in the common law whereby insurers are made directly liable to satisfy judgments against the insured. The negligent driver is only the nominal defendant whereas the party injuriously affected by an award of damages is the insurer, as per Federal Court in Johannes Koplan v Aw Chen [1970] 1 MLJ 220.
[iii] [2022] 8 CLJ 175, FC
[iv] See Tang Loon Pau & Ors v Mohd Salihan Kotni & Anor [2023] 8 CLJ 105, CA; Jiwaneswary Raman v Etiqa General Takaful Bhd [2023] 2 MLJ 437, CA
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Tags: [Motor Insurance] [3rd party claim] [Passenger in insured car] [s.96(1) of Road Transport Act 1987] [s.91(1)(b)(bb) of Road Transport Act 1987]