24 Apr

A pre-requisite for any insurance policy (in general) is that the person acquiring the policy must have an insurable interest in the subject matter. A person is said to have an insurable interest in the subject matter when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. With specific reference motor vehicle policies, the owner of a vehicle is required to have certain degree of interest over their vehicle for the very purpose of establishing an insurable interest. Mr. S. Santhana Dass in The Law of Motor Insurance 2010 has narrowed down ‘forms of interest’ to include inter alia; -

  • ownership over the vehicle;
  • possession over the vehicle under some contractual relationship;
  • purchase of the vehicle where the risks has passed to the buyer even though the ownership has not passed to the buyer; and
  • sale of vehicle where the seller has retained possession of it as security for the payment of the price.

All the above-listed forms of interest are interrelated on the basic issue surrounding sale of a vehicle. When considering the issue of insurable interest, the ultimate question to be answered will definitely be when does the seller (owner) loses his/her insurable interest? And the general answer, appreciating the concept of insurable interest under a contract of sale, depends very much on when the risk passes.

When a sale of vehicle is completed, the risk passes from the owner to the buyer. However, the insurable interest that the owner enjoyed under the policy becomes void as it is only effective in personam against the owner. The buyer then has to purchase new policy. The legal effect of such complete sale of vehicle allows the Insurer to avoid their liability in satisfying judgment obtained by third party (in the event the ownership of vehicle in question had passed from an insured to another person at the time of accident) – as decided by the Federal Court in New India Assurance Co. Ltd v Simirah [1966] 2 MLJ 1 FC. However, in Nanyang Insurance Co. Ltd v. Salbiah & Anor [1967] 1 MLJ 94 FC, wherein insured being the owner lent his car to the buyer who was servicing payment by way of instalments, the Federal Court held the insurer of the said car liable to satisfy the injured third party as the risk is yet to pass given the fact that the sale of the said car was not completed at the material time.As matter of practice, most of the time the owner and the buyer concern are very much limited on the payment aspect, ie the vehicle possession and ownership change hand the moment payment is completed. Even Nanyang Insurance employed the same position by not acknowledging partial payment in affecting a complete sale. We still find counsels questioning how a third party would know if A is still the owner or if B has taken possession and ownership from A at the time of accident, and which policy should provide coverage in such instances. Are there any other legal procedural requirements that the owner and buyer need to adhere to in order to strike a proper and complete sale of motor vehicle enabling the insurer to satisfy any judgment.

The real question lingering over this issue is whether we have a proper system in place to cater for such sale transaction, and if we do, how does the system work? Understanding this provide us more answers than questions. One needs to look at Section 13 of the Road Transport Act 1987 (‘RTA’) for the procedural guideline pertaining to change of possession of motor vehicles. The section clearly requires the registered owner and the buyer (new owner) to submit the form of statement (together with the registration certificate and prescribed fee) to the Director of Road Transport (practically referring to the nearest Road Transport Department- ‘RTD') within 14 days notifying the change of possession. Upon such registration, the Director of Road Transport shall then make necessary alterations in the register and registration certificate relating to such motor vehicle. 

In plain language, both the registered owner and the new owner must ensure the change of possession of such vehicle (be it by way of voluntary or involuntary transfer) is registered with RTD, resulting in the name of the new owner being registered in the registration certificate before he/she is recognised as the new owner. Justice Nallini Pathmanathan in her abridged ground of judgment in the court of Appeal case of Muhamad Haqimie Bin Hasim v. Pacific & Orient Insurance Co Berhad Civil Appeal No. W-04(NCC)(W)-15-01/2017 visited the requirements imposed under Section 13 of RTA before tying up the importance of such registration for proceedings (be it civil or criminal) brought under the RTA – such as third-party claims under Section 91 (1) (b). According to the learned Judge, Section 109 (1) of the RTA deems the registered owner to be the owner of that vehicle for the purpose of any inter alia proceedings under the RTA, and as such, whomever registered as the owner at the time of the accident shall be treated so (for proceedings that falls under RTA) regardless of the fact that there has been any sale of such motor vehicle resulting in transfer of interest. Further, any argument by the insurers on the ground of omission by the Insured in notifying the insurer (on such sale/transfer) to avoid will not stand by virtue of Section 94 and 95 of the RTA. 

As it stands, reliance will be placed on the RTD search as a conclusive documentary record in reflecting ownership of a vehicle. Both the owner and the prospective owner are required to register the sale of such motor vehicle with the RTD, and the new owner will then have to take a new policy providing specific coverage starting from the date of such transfer being effectively registered. Only then we will be able to have two distinct periods separating the obligation of insurers under the previous policy and the subsequent new policy. The result of tomorrow begins with what we do today. Definitely efforts must be carried out in educating consumers on the importance of understanding and applying the requirements discussed above in perfecting a sale of motor vehicle. This will enable third parties to direct their claim against the right owner and enable insurers to have a clear comprehension as to their respective obligations.