Wednesday, October 12, 2011

Insuring Your Motor Insurance with Passenger Liability Extension Cover?

This posting is about Legal Liability to Passengers (LLP) or in simple term, “Passenger Liability” – talks about what’s being covered and what’s not, including the insurers’ obligation under the Road Transport Act (RTA) to cover passenger liability in identified situation and circumstances.


When I first wrote a posting on Passenger liability: Your kids are not covered……. a year ago little did I know there would be more than 1,600 over hits on this. There were lots more comments than the 21 comments found on that posting. Many people including agents emailed directly to my inbox for clarification including feeling cheated…. by the no liability cover to family members while traveling as passengers. I guess people are now realising that their family members, especially their kids are not covered while they are traveling as passengers in their car despite having purchased a passengers’ liability (or legal liability to passengers) extension cover.

Many were amazed that despite purchasing the Legal Liability to Passenger (LLP) extension cover, the coverage is actually worse off than the basic coverage!

Even if this is not an issue the difficulty in understanding the coverage and exclusion part of legal liability to passengers within the Malaysian motor insurance context is indeed baffling. As a consumer you would likely be confused by the manner the basic exclusions of Section B (Liability to Third Parties) were drafted, simply because the exclusions were never properly structured, thus allowing those exclusions that directly relate to liability to passengers being mixed up with the other forms of exclusion, i.e. non-passengers or non-employment contract related whatever the case maybe.

What are those coverage issues that relate directly to Passenger Liability?

Firstly, take a look at the basic cover surrounding Legal Liability to Third Parties:

 SECTION B – LIABILITY TO THIRD PARTIES
1. We will indemnify You or Your authorized driver for the amount which You or Your authorized driver are legally liable to pay (including claimants’ costs and expenses) for:-(a) death or bodily injury to any person except those specifically excluded under Exceptions to Section B
(b) damage to property as a result of an accident arising out of the use of Your Vehicle.
provided Your authorised driver also complies with all the terms and conditions of the policy that You are subject to.
2. Limits of Our Liability (in respect of any one claim or series of claims arising out of one event)
  •  Our total liability under this Section B1(a) is unlimited
  • Our total liability under Section B1(b) is limited to RM3 million
3. Cover for Legal Representatives
Following the death of any person covered under this Policy We will indemnify that person’s legal representatives for liability covered under this Section, provided such legal representatives comply with all terms and conditions of the policy.
4. Legal Costs
We will pay legal costs incurred up to a maximum of RM2,000.00 for defence of any charge including the charge of causing death by driving the Motor Vehicle (other than murder) if Our prior written agreement had been secured.
5. EXCEPTIONS TO SECTION B
We will NOT pay for:
(a) death or bodily injury to any passenger being carried for hire or reward.
(b) death or bodily injury to any person where such death or injury arises out of and in the course of the employment of such person by You or by Your authorised driver.
(c) damage to property belonging to or in the custody of or control of or held in trust by You an/or Your authorized driver and/or any member of Your and/or Your authorized driver’s household.
(d) liability to any person who is a member of Your and/or Your authorized driver’s household who is a passenger in Your Vehicle unless he/she is required to be carried in or on Your Vehicle by reason of or in pursuance of his/her contract of employment with You and/or Your authorized driver and/or his/her employer.
(e) any claims brought against any person in any country in courts outside Malaysia, the Republic of Singapore or Negara Brunei Darussalam.
(f) all legal costs and expenses which are not incurred in or recoverable in Malaysia, the Republic of Singapore or Negara Brunei Darussalam.

Endorsement 100 (E100) is a basic inclusion to the basic policy, i.e. where passengers liability risks are not covered.

Endorsement 100 – Exclusion of Legal Liability to Passengers (Private Car only)
The cover provided under Section B1(a) of this Policy shall not apply to death of or bodily injury to any person being carried in or upon or entering or getting on to or alighting from Your Vehicle (other than a passenger required to be carried in or on Your Vehicle by reason of his/her contract of employment with You and/or Your authorised driver and/or his/her employer).Subject otherwise to the Terms and Conditions of this Policy.

The above wordings are part of your private vehicle motor insurance policy. Endorsement 100 (E100) is a basic inclusion where Legal Liability to Passengers (LLP) is not (extended) purchased.

What do the wordings tell you about your Passenger Liability?

Without being complicated with our thought process, just focus on sections relating to, “5. EXCEPTION TO SECTION B” and Endorsement 100 (E100).
Under section titled “5. EXCEPTION TO SECTION B”, focus on the exclusion (a), (b) and (d). All these have an impact on how passenger liability risks are being covered.
Exception (a) is straightforward since a private vehicle is barred from being used to carry passengers for hire and rewards.
Exception (b) simply means your (including those of your authorized driver) employees, whether they are passengers in your vehicle or otherwise…. they are not part of this third party liability section.
Exception (d) is much more complicated, it revolves around Your (including your authorized driver) household members where they are not within the coverage UNLESS they are being carried in your vehicle in pursuant of an employment contract with your or your authorized diver. It did not stop here however…. it further extend the coverage to the household members who are passengers in your vehicle while pursuing an employment with their employer, which has nothing to do with You (or your authorized driver). It is sort of a very wide extension given to “household members” in the sense.

 ”Your kids are never intended for passenger liability cover”

I don’t think you would have difficulty understanding the above exceptions. The basic coverage accords enough protection to your household members who are in employment (whether with you or otherwise….) at the time he or she is a passenger in your vehicle. The leisure part is therefore not covered.

“Endorsement 100 (E100) complicates the interpretation….”

The complication is in E100 wordings: E100 states it does not intend to cover your (including your authorized driver) passenger liability risks unless he or she is being carried in the pursuance of a contract of employment….compare this to Exception 5(b). Despite the use of the phrase, “subject otherwise to terms and conditions of this policy” it confuses people – it puts interpretation pressure on exception 5(b)… As stated earlier exception 5(b) is very wide, it deals both with passenger and non-passenger liability risks, thus if E100 provides that legal liability to passengers being carried in pursuance of a contract of employment is being covered then there would be a head-on clash.
My take on this is, contra proferentum rules shall apply, meaning E100 is likely interpreted by the courts to override exception 5(b), which also translates into, “all passengers….in the pursuance of a contract of employment are covered!”
Sometimes we wonder why our motor insurance policy for private vehicle is so complicatedly worded…. I supposed this arose mainly a result of Section 91(1), in particularly subsection (bb) (refer below) and also the Union Insurance Malaysia Sdn Bhd vv Y.Y. Chan (Court of Appeal, 1995) case decision…..

“My take…. E100 is also Road Transport Act driven, therefore it is likely to override all contradictory wordings…. Union Insurance case: If there is any ambiguity in the language used in a policy, it is to be construed more strongly against the party who prepared it, that is in the majority of cases, against the company. A policy ought to be so framed that he who runs can read.”


Road Transport Act 1987:
Section 91. Requirements in respect of policies.
(1) In order to comply with the requirements of this Part, a policy of insurance must be a policy which-
(a) is issued by a person who is an authorized insurer within the meaning of this Part; and
(b) insures such person, or class of persons as may be specified in the policy in respect of any liability which may be incurred by him or them in respect of the death of or bodily injury to any person caused by or arising out of the use of the motor vehicle or land implement drawn thereby on a road:
Provided that such policy shall not be required to cover-
(aa) liability in respect of the death arising out of and in the course of his employment of a person in the employment of a person insured by the policy or of bodily injury sustained by such a person arising out of and in the course of his employment; or
(bb) except in the case of a motor vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of a contract of employment, liability in respect of the death of or bodily injury to persons being carried in or upon or entering or getting onto or alighting from the motor vehicle at the time of the occurrence of the event out of which the claims arise; or
(cc) any contractual liability.

Section 91 (1) (bb) can be interpreted as, insurers are not required under the Act to provide legal liability coverage in respect of passengers risks…. but they are required to provide cover if the passengers are being carried:
  • for hire or reward, or
  • in pursuance of a contract of employment….
I do not think we will have any problem with “hire or reward” since private vehicles under the same Act are not allowed to be used for such purposes. Thus, excluding this outright as per exception 5 (a) is appropriate and in line with the Act. However, the Act insists that passengers…. being carried in pursuance of a contract of employment must necessarily be covered. Which also means, household members under any such contract of employment…. must be covered under the basic policy coverage.
Of course the Union Insurance case complicated the issue by allowing household members to successfully filed a claim for negligence committed by the authorised driver who is the son of the claimant. As a result, certain exceptions were rewritten…. including perhaps the incorporation of E100, which unknowingly complicates the coverage parameters.

What if you have decided to extend Passenger Liability cover?

If you have purchased the Legal Liability to Passengers cover, E100 would be taken down, which means there will be no E100 to cause any more interpretation headache. In other words after paying additional premium you may be worse off than if you had not extended this part of the coverage!

“Simply say…. extending the passenger liability cover means your passengers who are under a contract of employment with you (or your authorised driver) are outright not covered although your household members under a contract of employment are held covered”

Is there any way to improve those wordings – Exception 5(a), (b) and (d) including the standard E100?


Suggested wordings to improve understanding of exception 5(a), (b) and (d) and yet compliant with the requirements of the Act
5. EXCEPTIONS TO SECTION BWe will NOT pay for:
(a) Death or bodily injury to any person who is a passenger in Your Vehicle while being carried in or upon or entering or getting onto or alighting from. However this exception shall not apply where the passenger is being carried by reason of or in pursuant of a contract of employment with You and/or Your authorised driver and/or his/her employer.
(b) Death or bodily injury to any person who is not a passenger in Your Vehicle where such death or injury arises out of and in the course of the employment of such person by You or by Your authorized driver.

Exception 5(a) and (d) are complied and summarised as in 5(a) here, and 5(b) is taken as applicable for non-passengers.

 What about rewording E100?


Endorsement 100: reworded to EXTENSION TO LEGAL LIABILITY TO PASSENGERS 
This policy is extended to cover legal liability for death or bodily injury to any passengers being carried in including getting on to or alighting from Your Vehicle unless they are being carried for hire or reward but excluding members of your and/or your authorised driver’s household unless they are being carried by reason of or in pursuance of a contract of employment.

Naturally not deviating from the original intention of the existing policy wordings, the above proposed enhanced version still dictate that YOUR KIDS AND WIFE ARE STILL NOT COVERED!
Then, what is wrong with the insurance industry, insurers could have proposed a higher premium and incorporate household members as part of the coverage even if they are being carried for leisure purposes…. 

“Nothing is wrong with incorporating coverage for household members being carried for leisure….. matter of adequacy in premium and if the other relevant laws (i.e. Civil Law Act and Married Women Ordinance) do not forbid. Perhaps this is the time for the industry to enhance coverage in this aspect.”

Did I made any mistake with my comments? Do let me know…. gonna be great for discussion.


Bookmark and Share

1 comment:

Related Posts Plugin for WordPress, Blogger...