Introduction
The contract of insurance is grounded on the doctrine of uberrimae fidei or utmost good faith. Therefore, if an insured fails to reveal every fact within his knowledge that is material to the risk, the insurer has the option of rescinding the policy or denying liability. This was the central issue decided by the Federal Court in Veheng Global Trades Sdn Bhd v AmGeneral Insurance Bhd (formerly known as Kurnia Insurance (M) Bhd) & Anor and another appeal[1]
Brief Facts
Veheng Global Trades Sdn Bhd (“Veheng”) had insured its goods against damage by fire pursuant to the policies purchased from AmGeneral Insurance Bhd and Sun Life Malaysia Takaful Bhd (“the insurers”). Following a fire at its premises, Veheng claimed for the losses suffered by it pursuant to the policies purchased from the insurers. The insurers denied liability on the ground that the fire was deliberately caused by Veheng. The insurers contended that Veheng submitted an exaggerated and fraudulent claim in breach of warranty and in breach of Conditions 12 and 15 of the policies.
High Court proceedings
Veheng filed a claim against the insurers pursuant to the policies. The High Court found that the claims submitted by Veheng were not fraudulent and that there was no breach of warranty and Conditions 12 and 15 as alleged by the insurers. The High Court allowed Veheng’s claim.
Appeal at the Court of Appeal
Dissatisfied with the decision of the High Court, the insurers appealed to the Court of Appeal. The Court of Appeal set aside the decision of the High Court and allowed the insurers appeal. The Court of Appeal found that the claims submitted by Veheng were fraudulent applying the standard of proof on the balance of probabilities. The Court of Appeal also held that when a part of a claim is found fraudulent, the rest of the claims are forfeited without having to determine whether the rest of the claims are genuine.
Appeal at the Federal Court
Veheng appealed to the Federal Court against the decision of the Court of Appeal. The Federal Court agreed with the findings of the Court of Appeal and dismissed Veheng’s appeal.
Conclusion
This decision reiterates the duty of the insured to verify the genuineness of its claim before submitting the same to the insurer. It is important for the insured to verify and check whether all its claims are genuine and supported by documents. Should a claim contain both false and genuine claims it is very possible that the insurance company may reject the entire claim and based on this decision has valid grounds for doing so. From the perspective of the construction industry, this is a crucial reminder that the construction companies when making a claim do not inflate their claims or put forward claims that have no basis or which cannot be proven.
By,
K. Gobinath
[1] [2019] 4 MLJ 581