[The second of two connected essays on compulsory motor insurance — on how an insurer’s own words can work against the very cover they were meant to preserve. Part-1/2 is here.

In the first of these two essays, we met the cast of an accident, and learned a first lesson: before asking whether an insurer must pay, ask which class the victim occupies.

Now the ground shifts

A single policy may protect more than one person, and that simple fact has undone more insurers, and rescued more victims, than any other idea in this branch of the law.

Begin with the principle, stated plainly. Ask this question: “When it is time to pay out compensation, who does the law focus on?”

He who is the author of the accident — the wrongdoer — is the tortfeasor, and it is he who is liable.

Where that tortfeasor is himself an insured under the policy, it is his liability the insurer indemnifies.

Two questions follow, in order.

First: whose liability is being indemnified — the insured owner’s, or the insured authorised driver’s?

Second: was the victim that tortfeasor’s employee? If yes, proviso (aa) excuses that cover. If no, it does not. The proviso is tested against the tortfeasor whose cover is in question, not against the world.

Everything in this essay is an unfolding of that box.

Two contracts under one roof

A motor policy names the insured, O.

But it does more.

It extends cover to the person driving with O’s permission, the authorised driver, D.

And here English law, long ago, made a discovery that Malaysia inherited.

The discovery was this: a policy naming O but promising to indemnify D as well is, in substance, two contracts of insurance under one roof.

One covers O.

The other covers D.

They travel together, but they are not the same.

A clause that excludes cover on O’s contract, merely by existing, does not also exclude cover for D — and that is the whole of it.

If you remember that, you will never go wrong.

The idea was worked out by the House of Lords in Digby v General Accident, and applied soon after in a case whose name is more often mangled than remembered rightly.¹Digby v General Accident Fire and Life Assurance Corp Ltd [1943] AC 121 (HL); [1942] 2 All ER 319. At first instance, Atkinson J ([1940] 1 KB 643) explained that before the Road Traffic Act 1930 an extension clause conferred no enforceable benefit on a non-party: see Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70 (PC). The 1930 Act cured this by conferring a direct statutory right on specified persons, including the authorised driver — the foundation of the “two contracts” analysis. See also Austin v Zurich General Accident and Liability Insurance Co Ltd [1945] KB 250, affirming that the driver’s right to indemnity is statutory in character.

The case is Richards v Cox — a name careless writers routinely clip to “Richard v Cox,” or garble entirely into “Roberts v Cox.” Both errors are worth correcting, because the case is the cornerstone.²Richards v Cox [1942] 2 All ER 624 (CA).

In Richards v Cox the injured man was the employer’s servant, but the person held liable was the driver, who was not his master (meaning, not the victim’s employer).

The exclusion spoke of “employment of the insured.”

Tested against the driver’s separate cover, it had nothing to grip. The victim was not the driver’s employee.

The driver was covered. Because the driver was ‘covered’, and because the victim was not the driver’s employee, the insurer was ordered to pay compensation to the victim.

That is how the law works. Sometimes lawyers forget this, and need to be reminded of it: me too!

The doctrine comes to Malaysia

Malaysian courts took the idea in and made it their own, across a line of cases a practitioner should know by name.

Manap bin Mat applied the two-contracts reasoning to our statute.³Manap bin Mat v General Accident Fire and Life Assurance Corp Ltd [1972] 2 MLJ 217.

Chan Kum Fook and Lim Eng Yew worked the passenger-and-employment limb, the latter the very picture of a man carried because his job required the journey.⁴Chan Kum Fook v Welfare Insurance Co Ltd [1975] 1 LNS 6; United Oriental Assurance Sdn Bhd v Lim Eng Yew [1991] 1 CLJ (Rep) 484 (SC). The distinction between travelling in the course of employment, where the vehicle is the workplace, and travelling in pursuance of a contract of employment, where the vehicle merely gets a man to work, is drawn out in the Malaysian authorities and matters to the operation of proviso (bb).

And in 2019 the Federal Court, in Tirumeniyar, gave the doctrine its sharpest modern tool.⁵Malaysian Motor Insurance Pool v Tirumeniyar a/l Singara Veloo [2019] 10 CLJ 731 (FC), esp [95]–[96]. The apex authority of Singapore, on a statute then in pari materia, is to like effect: China Insurance Co Ltd v Teh Lain Lee & Anor [1976] 1 MLRA 672, holding that the liability of an insurer to indemnify the authorised driver is separate and distinct from its liability to indemnify the insured, and does not extend to exclude cover on account of the victim’s employment with the insured, however the exclusion is worded. See too AmGeneral Insurance Berhad v Iskandar Mohd Nuli [2016] 2 MLRA 94 (CA), Vernon Ong JCA, applying the same “notional second contract” reasoning.

Tirumeniyar teaches a method. To test whether an exclusion bites against the driver, take out the policyholder’s name and put the driver’s in its place, then ask the question again, of the driver. If the exclusion, so read, does not fit the driver’s own relationship to the victim, it does not exclude.

This is the ‘substitution method’, and it is simply the two-question box, performed.

Whose cover, and was the victim that person’s employee?

The Federal Court also said something quieter, and important.

If an insurer wishes to exclude a risk from the driver’s cover, it may write a clause that does exactly that.

But the court will not rewrite the contract to widen an exclusion the insurer did not draft.⁶Tirumeniyar (above) at [100]: the court will not rewrite the contract to extend an exclusion the insurer did not draft.

The insurer is held to its own words. No more, and no less.

And yet, if the insurer creates a new clause and gives himself a greater advantage in breach of the Act, such a clause is invalid.⁷See section 94 RTA 1987

The ‘drafting drift’

Which brings us to the comedy, and to the danger.

Insurers read Richards v Cox and saw the gap. The old clause excluded injury to a person “in the employment of the insured.” That let the driver’s cover survive whenever the victim was the owner’s man but not the driver’s.

So the wording began to drift.

The modern tariff clause now excludes injury arising out of employment “by You or by Your authorised driver,” reaching, on its face, for both covers at once.⁸On the shift from “employment of the insured” to “employment by You or by Your authorised driver,” see S Santhana Dass, The Law of Motor Insurance (Malaysia) (Marsden Law Book, 2010) at p 633, cited with approval in AmGeneral Insurance Berhad v Iskandar Mohd Nuli [2016] 2 MLRA 94 (CA). The exact clause wording, commonly appearing as Exception B, cll 6(b) and 6(c) of the standard tariff motor policy, is reproduced in several reported decisions involving Pacific & Orient Insurance Co Bhd; the precise text should be verified against those reports before print.

Set the two clauses side by side and the drift is plain:

The older clause: “…any person in the employment of the insured…”

The ‘modern’ clause: “…employment… by You or by Your authorised driver…”

The added words are doing work, or trying to.

They are an attempt to close, by private drafting, the very gap the common law opened.

And they raise a question the draftsman may not have paused to ask.

May an insurer, by its own wording, exclude what the statute requires it to cover?

Here, the essay must set the scene, and then, deliberately, stop.

A question, posed — and left open

Imagine a lorry. Its owner insures it; the policy covers the owner and the authorised driver alike.

The driver, negligent, injures an attendant riding in the lorry.

The attendant is the owner’s employee, but not the driver’s.

The clause excludes injury arising out of employment “by You or by Your authorised driver.”

Now apply the box.

Whose liability is indemnified? The driver’s — he is the tortfeasor. Was the victim the driver’s employee? No. He was the owner’s.

On the relational reading, proviso (aa) has nothing to grip, and the driver’s cover answers. But the clause, by its added words, purports to exclude even this.

And there sits the question

Does the clause reach only as far as the statute allows, so that the surplus is of no effect? Or do the added words simply mean what they say?

A closely analogous question is presently before the Federal Court, on leave, as this is written. Because the matter is sub judice, I express no view — none — on how it should be decided. The scenario is offered so that the reader may work the reasoning through with the tools this essay has supplied, and for no other purpose.⁹A cognate question is currently before the Federal Court on an application for leave to appeal at the time of writing. Consistent with the author’s duty not to influence a pending proceeding, no view whatever is expressed, directly or indirectly, on its disposition. This illustration is a teaching device only. On disposition, this passage is to be revisited: converted to a case note if the ratio settles the general question, or retained as a standing hypothetical if it does not.What the reader may safely be told is the statutory backdrop. Sections 94 and 95 of the Act strike down policy conditions that purport to cut below the compulsory minimum.¹⁰Act 333, ss 94 and 95, which avoid, as against third parties, policy conditions and restrictions purporting to narrow the statutory cover. The “floor, not ceiling” character of the compulsory minimum, and the principle that a clause failing proviso (aa) as regards a particular cover is void to that extent, is consistent with Tirumeniyar’s own reasoning (above).

Section 91(1)(b) sets a floor, not a ceiling. A clause that reaches below the floor is, to that extent, of no effect. That much is settled.

Whether a particular clause does so, in a particular case, is the question courts must answer one at a time.

The reform note

Step back, and a pattern shows. In the first essay, we saw the passenger who falls through a hole in the floor because no one bought the extra cover. Here we see the insurer drafting to widen the holes. Both point one way.

England closed the passenger hole, and disciplined the clauses.

Singapore closed it too, and went further, voiding by statute any attempt to reopen it by agreement.

New Zealand dissolved the whole question with a no-fault scheme.

Malaysia keeps the perforated floor, and leaves the draftsman-and often the Malaysian courts – to test its edges.

There is a case, not made here but worth the reader’s thought, that a compulsory scheme built to protect the innocent road-user should not leave that protection turning on three words in a clause the victim never read.¹¹On the “paper judgment” that is worthless without an effective statutory indemnity, see AmGeneral Insurance Bhd v Sa’ Amran Atan & Ors [2022] 5 MLJ 825; [2022] 8 CLJ 175, at 164–165, warning against leaving a victim with a judgment “not worth the paper it is printed on”; and on the leave threshold for questions of general public importance in this field, Terengganu Forest Products Sdn Bhd v Cosco Container Lines Co Ltd [2011] 1 MLJ 25 (FC).

The reform argument, that passenger cover ought to be compulsory, as in England and Singapore, is developed in the author’s earlier writing: see ‘Why should an innocent passenger pay for the driver’s fault?’ and ‘Can an insurer sue a child for surviving a car crash?’ at gkg.legal.

For now, the practitioner’s rule is the box, and its order of questions.

Fix the tortfeasor.

Fix his cover.

Ask whether the victim was his employee.

If the answer is No, the victim must be compensated by the insurer: no two ways about it.

If the answer is Yes, the insurer escapes liability.

And read every clever clause against the statutory floor, remembering that an insurer is held to its words, but the statute is held to nothing lower than its own command.

Malaysia has a population of 34 million, the number of privately registered vehicles are 36 million.

If any Member of Parliament, or any Minister can convince Parliament to protect all passengers, said MP, or minister, might even be wholly more successful than his her colleagues at the next elections.

Imagine the millions of people who would enjoy protection; and how many tragedies the nation and its hapless passengers could avoid.

And now I leave you to answer this question:

Although our Federal Constitution-as does every other constitution in the common law world-guarantee ‘equality for all’, how are insurers, having signed up under a social legislation called the Road Transport Act 1987 and the MIB Agreement, get to treat one group of passengers differently from any other similar group?

Is that even constitutional?

 

∞§∞

 

This article is written for a general readership and does not constitute technical or legal advice. Readers with legal questions are encouraged to seek independent legal advice. The author thanks KN Geetha, TP Vaani, JN Lheela, and Lydia Jaynthi at GK Legal.

Our gratitude to Random Institute of Unsplash for the image.

Claude, Anthropic’s AI, smoothed the drafting; Perplexity Pro checked the facts. The argument, the views, and the errors remain the author’s. @Copyright reserved.

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