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Malayan Law Journal Articles/1993/Volume 3/RESTRICTIVE INTERPRETATION OF EXCLUSION


CLAUSES IN PERSONAL ACCIDENT POLICIES
[1993] 3 MLJ cvi
Malayan Law Journal Articles
1993

RESTRICTIVE INTERPRETATION OF EXCLUSION CLAUSES IN


PERSONAL ACCIDENT POLICIES
Joanna Rasamalar Jeremiah
LLB(Hons)(Lond), LLM(Lond); of Gray's Inn, Barrister-at-Law; Advocate & Solicitor, High Court of Malaya;
Advocate & Solicitor, Supreme Court of Singapore; Teaching Fellow, Faculty of Business Administration,
National University of Singapore
Non-applicability of UCTA to insurance contracts
In Singapore and England, by virtue of Sch 1, ss 2-4 of the Unfair Contracts Terms Act 1977 ('UCTA 1977')
do not apply to any contract of insurance. Sections 2-4 broadly deal with exclusion or exemption clauses that
attempt to exclude or restrict liability for death, personal injury or other form of damage (besides death or
personal injury) arising out of negligence and liability for breach of contract.
In Malaysia, the Contracts Act 1950 is exhaustive. Therefore, the UCTA 1977 does not apply to any contracts
and furthermore, there are no equivalent provisions to UCTA in Malaysia.
In the light of this, the courts, both locally and in England, have demonstrated an inclination to interpret
exclusion clauses in personal accident policies very restrictively. Two examples will suffice and are discussed
hereinafter.
(i) Pacific and Orient Insurance Co Sdn Bhd v Kathirvelu 1
In the case of Pacific and Orient Insurance Co Sdn Bhd v Kathirvelu, the insured, a technical assistant, took
out a personal accident policy with the insurance company. The insured's policy was issued pursuant to a
proposal form signed by him.
In the proposal form, the insured answered in the negative to a question as to whether, to the best of his
knowledge and belief, he had ever had 'hernia, cancer, epilepsy ... or any other diseases'.
The policy also provided that the insurer would only be liable for any injury which 'shall solely and
independently of any other cause' result in disablement.
One of the conditions of the policy also stated that notice of any accident should be given to the insurer
within 14 days of the accident (condition 7).
3 MLJ cvi at cvii
The insured met with two accidents which he alleged have left him permanently disabled. The insured gave
notice to the insurance company of the two accidents 38 days after the second accident.

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There was evidence to show that the two accidents had induced a rare condition in the insured and had
aggravated his haemorrhoids, cervical spondylosis and hypertension which he had already been suffering
from before the accidents.
The insurance company repudiated liability under the policy and the insured brought an action against them.
The insurance company argued, firstly, that the insured's disability was not caused solely and independently
by the two accidents (ie that his prior illnesses, eg hypertension, etc, were contributing factors to his
disability).
The insurance company also argued that the insured's injury did not amount to permanent disablement under
the policy, in that he was capable of engaging in some profession or occupation albeit not as a technical
assistant.
The company also contended that the insured did not disclose material facts in his proposal form in that he
did not disclose that he was suffering from haemorrhoids, cervical spondylosis and hypertension.
The company finally alleged that the insured had breached 'condition 7' (the requirement to report an
accident within 14 days) of the policy.
The issues raised in this case are set out below.
(a) Cause of injury
The Supreme Court of Malaysia interpreted the phrase 'solely and independently of any other cause' to mean
that the two accidents must be the proximate (effective) cause of the injury. Therefore, it was necessary to
discover the proximate cause of the injury and once it was found, it would also be the sole cause, regardless
of prior or subsequent events that may aggravate the injury. The learned judge, Gunn Chit Tuan SCJ (as he
then was), in delivering the judgment of the court, referred to the case of Fidelity & Casualty Co of New York
v Mitchell, 2 where the policy provided that 'the bodily injury must result "directly, independently and
exclusively of all other causes" in total disablement from performing the duties of the assured's occupation'.
The insured in this case had once had a form of latent tuberculosis in his system. He accidentally sprained
his wrist and would have recovered but the injury caused the tuberculosis to revive and the insured became
disabled. It was held by the Judicial Committee of the Privy Council that the disablement resulted directly,
independently and exclusively of all other causes and the insured could recover under the policy. Similarly, in
the Pacific & Orient Insurance Co case, the injury caused by the two accidents within a short period had two
distinct effects of inducing the rare condition known as Sudeck's osteodystrophy and, at the same time,
made the haemorrhoids, cervical spondylosis and labile hypertension worse.
3 MLJ cvi at cviii
Following the reasoning in Fidelity & Casualty Co of New York, the learned judge stated at p 258:

... the two accidents were the cause of the plaintiff's injury and resulted in his Sudeck's osteodystrophy and the cervical
spondylosis, haemorrhoids and labile hypertension were not concurrent and co-operative causes and have no causal
connection with the injury resulting from the two accidents.

The learned judge also sought to emphasize that the phrase 'independently of any other causes' was
different from the words 'sole cause'. This was indeed a very fine and difficult distinction to make.

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(b) Permanent total disability


In the Pacific and Orient Insurance Co case, the insurance policy defined 'permanent total disablement' as
absolute disablement from engaging in or giving attention to a profession or occupation of any kind.
The Supreme Court however sought to give a very narrow interpretation to the phrase 'permanent total
disablement' despite the defining clause in the policy. The learned judge said this phrase should be
understood (as applying) in the context of the insured's actual business or occupation. Since the insured
would never be able to resume his occupation as a technical assistant, he was therefore permanently and
totally disabled within the meaning of the policy.
In giving this narrow interpretation to the clause, the courts sought to follow the decision in the case of
Pocock v Century Insurance Co Ltd. 3 This case involved the interpretation of the phrase 'temporary total
disablement from attending to business of any and every kind' in a personal accident policy. It was argued by
counsel for the insurance company that if a man, after an accident, was capable of any part-time effort in the
way of doing any business, he was thereby deprived of his rights under the policy. The phrase 'business of
any and every kind' means just what it says, even if the plaintiff could only do work which was comparatively
unimportant to the running of a business as a whole, it was nevertheless a part of the business which was
covered by the said phrase. Mr Commissioner Molony QC did not accept the argument put forward by
counsel for the insurance company. In his opinion, in order to bring the clause into operation, the question is
whether a man is able to attend to a business of the nominated or some substituted type. In his view, a
person cannot be said to attend to business in that sense simply because he is capable of doing -- perhaps
rather badly -- some minor part of the work involved in that or any other sort of business.
Molony QC described the test to be applied succinctly at p 154 as follows:

The broad test that I think must be applied in order to understand the application of this clause is to ask oneself: Is a
man fit to go to business? It does not mean that he has got to be fit to spend the whole day there; it does not mean that
he
3 MLJ cvi at cix
has got to be fit to carry on all the activities which that business normally involves. The question is: Is he fit to attend
there and play a worthwhile part in the conduct of it? If the answer is 'No', then in the view that I have already
expressed, cl (f) applies, and in that sense I find that the plaintiff was disabled from attending to 'business of any and
every kind' up to the date that has been mentioned.

(c) Non-disclosure
It was contended that as the plaintiff was aware that he was suffering from cervical spondylosis,
haemorrhoids, labile hypertension and a peptic ulcer prior to his signing the proposal form in 1983, he had
failed to disclose them in the proposal form.
The Supreme Court held that, applying a fair and reasonable construction to the proposal form, it was not
material for the insured to disclose that he had haemorrhoids, cervical spondylosis and hypertension as they
were not serious diseases of the same category as those mentioned earlier on in that question (ie hernia,
cancer, epilepsy, paralysis, tuberculosis, diabetes ...). The insurance company was thus not entitled to
repudiate the policy on the grounds that the insured did not disclose material facts. In this regard, the learned
judge referred to and adopted the following dictum of Fletcher Moulton LJ in Joel v Law Union and Crown
Insurance Co4 on a question requiring an insured to warrant his opinion, which they considered was equally
applicable in this case, when the plaintiff was required to answer the question 'to the best of (his) knowledge
and belief':

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For instance, one of the commonest of such questions is, 'Have you any disease?'. Not even the most skilled doctor
after the most prolonged scientific examination could answer such a question with certainty, and a layman can only
give his honest opinion on it. But the policies issued by many companies are framed so as to be invalid unless this and
many other like questions are correctly -- not merely truthfully -- answered, though the insurers are well aware that it is
impossible for anyone to arrive at anything more certain than an opinion about them. I wish I could adequately warn the
public against such practices on the part of insurance offices.

Therefore, it can be seen that the courts will apply a reasonable construction to such a question and, in
seeking to give this construction, will apply a subjective test, ie whether the insured honestly believed or was
of the opinion that he was giving a correct answer. The court's reasoning for applying this test is because
even a skilled doctor would find it difficult to answer such a question with certainty.
(d) Condition requiring notice to be given of any accident within a certain period
As regards condition 7 of the policy requiring notice of accidents to be made within 14 days, the Supreme
Court held that this condition was not
3 MLJ cvi at cx
made a condition precedent to any liability of the insurance company to make any payment under the policy.
Nor was there any stipulation in the policy that if no notice was given, the policy would be void. The court
applied the contra proferentum rule (whereby a document is interpreted, where it is ambiguous, against the
interest of the person who drafted it, in this case the insurance company, and therefore in favour of the
insured). In the court's view, condition 7 was only intended to save the insurance company from extra
expenses which it would incur if it had to investigate the circumstances of accidents long after their
occurrence. (It therefore could not be used by the insurance company in this instance to repudiate the claim.)
In arriving at this decision, the court sought to follow the decision in the case of Stoneham v The Ocean,
Railway & General Accident Insurance Co. 5 In this case, the assured was accidentally drowned in Jersey. It
was impossible to give notice within seven days. In an action on the policy, it was held that the accident
happened within the United Kingdom and that notice was not a condition precedent to the right to recover
and the insurers were liable. In the Pacific & Orient Insurance case, it was perhaps not impossible to give
such a notice within the stipulated period. However, despite this fact, the Supreme Court of Malaysia sought
to apply the principle in Stoneham's case to wider circumstances.
(ii) Morley v United Friendly Insurance Plc6
More recently, in England, in the case of Morley v United Friendly Insurance Plc, the courts again
demonstrated that exclusion clauses in personal accident policies will be interpreted narrowly.
In this case, the deceased who had been out for the evening with his fiancee and two friends, stepped unto
the rear bumper of a slowly moving car driven by his fiancee. She accelerated to about 15mph and began to
steer in a zig-zag manner. The deceased fell off, sustaining injuries from which he died. The plaintiffs, as
administrators of the deceased's estate, brought a claim against the defendants for the death benefit due
under the policy. The defendants relied on a clause in the policy excluding liability where death or injury
resulted from 'wilful exposure to needless peril'. The judge at first instance held that at the moment the
deceased stepped on to the rear of the bumper he had wilfully exposed himself to an unnecessary peril
within the meaning of the exclusion clause and dismissed the plaintiff's claim. The plaintiff then appealed to
the Court of Appeal.
The judge at first instance held that stepping on to the rear bumper was a deliberate and therefore a wilful act
by the deceased which exposed him to a substantial risk of injury and that this risk was needless.
The case of the defendants was put very succinctly. By stepping on to the rounded surface of the bumper of
a moving car in the dark and when there
3 MLJ cvi at cxi
were no handholds available, the deceased exposed himself to the wholly unnecessary risk of a broken

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bone. The exposure was wilful because the deceased either knew the risk and accepted it or, if he did not
consider the risk, he was reckless. The risk of a broken or fractured bone was an obvious risk in the
circumstances. Neill LJ sought assistance from the speech of Lord Loreburn LC in Johnson v Marshall, Sons
& Co Ltd, 7 on the meaning of the word 'wilful'. Lord Loreburn stated that the words 'wilful misconduct' in the
Workmen's Compensation Act 1897 imported that 'misconduct was deliberate' and not 'merely a thoughtless
act on the spur of the moment'.
Neill LJ considered the deceased's act in Morley's case as a momentary act of stupidity, and, in the
circumstances, the deceased did not wilfully expose himself to unnecessary peril. In his opinion the exclusion
clauses should be reserved to deal with cases where either the occurrence of an insured's injury is more
likely or where the appreciation of the peril can be more clearly demonstrated.
Beldam LJ was of the opinion that the first instance judge fell into the error of concluding that because the
actions of the deceased were deliberate, ie intentional, and because there was a substantial risk of injury, the
deceased must have intentionally or wilfully exposed himself to that risk.
The learned judge sought to rely on the interpretation of the words 'wilful misconduct' by Bramwell LJ in
Lewis v Great Western Railway Co,8 who stated as follows:

'Wilful misconduct' means misconduct to which the will is a party, something opposed to accident or negligence; the
misconduct, not the conduct, must be wilful. (Emphasis added.)

In a similar case, Forder v Great Western Railway Co,9 Lord Alverstone CJ explained the meaning of the
phrase 'wilful misconduct' as follows:

'Wilful misconduct in such a special condition means misconduct to which the will is party as contradistinguished from
accident, and is far beyond any negligence, even gross or culpable negligence, and involves that a person wilfully
misconducts himself who knows and appreciates that it is wrong conduct on his part in the existing circumstances to
do, or to fail or omit to do (as the case may be), a particular thing ...' The addition which I would suggest is, 'or acts with
reckless carelessness, not caring what the results of his carelessness may be'.

Beldam LJ, in conclusion, stated that the meaning to be given to 'wilful exposure to needless peril' in the
clause excluding liability under the policy requires that the conduct relied on must go beyond negligent
exposure to needless peril. It must be shown that, at the time of his actions, the insured was mindful of a real
risk of the kind of injury for which benefit was provided by the policy, and that he either intended to run the
risk or exposed himself to it not caring whether he sustained such injury or not.
3 MLJ cvi at cxii
Conclusion
From an examination of the two cases above, it can clearly be seen that the courts will, in most personal
accident policies, give a restrictive interpretation to exemption clauses relied on by the insurer to repudiate
liability. In Morley's case, Neill LJ10 stated that it was important to take account of the commercial purpose of
the policy which, in this case, was intended to insure the deceased against the risk of suffering from some
serious injury. Beldam LJ was also of the opinion that the purpose of the policy was important and stated 11
that unless the operation of the exclusion clause were confined in this way, it would, in his view,
unwarrantably diminish the indemnity which it was the purpose of the policy to afford.

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Therefore, one can conclude that, in the interpretation of exclusion clauses in personal accident policies, it is
important to give effect to the commercial purpose of the insurance policy and the words of the exclusion
clauses, however widely drafted, will be interpreted to give effect to this important purpose.

[1992] 1 MLJ 249.

(1917) 117 LT 494; [1917] AC 592.

[1960] 2 Lloyd's Rep 150.

[1908] 2 KB 863.

(1887) 19 QBD 237.

[1993] 1 WLR 996.

[1906] AC 409 at p 411.

(1877) 3 QBD 195 at p 206.

[1905] 2 KB 532 at pp 535-536.

10

Supra n 6 at p 1000.

11

Ibid at p 1004.