Federal court rules that road accident victims should be automatically compensated by insurance firms

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A landmark ruling by the Federal Court has held that victims of road accidents should be automatically compensated by insurance companies without requiring legal action to do so.

Provisions in the Road Transport Act 1987 should be construed to protect all motorists, including victims of road accidents, Federal Court judge Abdul Rahman Sebli said, Free Malaysia Today reports. The intention of Parliament in enacting the Act was also to protect innocent third-party road users, he said in a 140-page judgement allowing appeals involving eight different motorists, of whom seven were injured in accidents.

According to the report, of the eight appeals, five involved Pacific & Orient Insurance, Amgeneral Insurance, Allianz General Insurance Company, and Malaysian Motor Insurance Pool. The three-person bench, comprised of Rahman as well as Hasnah Mohammed Hashim and Rhodzariah Bujang, awarded RM150,000 in costs to each of the successful parties in the appeal.

The appeals came about as the insurance companies had obtained a declaration in the High Court to nullify the policies of motorists due to allegations of misconduct on the part of the vehicle owners, the FMT report said. This action had denied accident victims monetary compensation that had been due to them, prompting the appeals.

In one of the cases, the dispute arose from the vehicle owner having “sold” his vehicle to a third party through a sambung bayar arrangement without telling the insurance company. The insurer (or insurance company) then obtained a declaration from the High Court to nullify the policy of the motorist due to allegations of misconduct on the part of the vehicle owner. Following this, the insurer refsued to cover the victim’s loss.

In a separate case, while the Sessions Court had found the driver of the vehicle negligent after a full trial, the insurance company took a court order alleging it had been defrauded, then declined to pay the vehicle owner.

The case victim was eventually found to merely hold a paper judgement, which the Federal Court said was “not even worth the paper it was written on,” continuing that it was unfair because the victim’s constitutional rights to be treated fairly had been infringed.

Rahman said that all vehicle owners were required to have compulsory insurance coverage, because the law states that the road transport department would not issue road tax without insurance coverage. In the event of an accident, a victim injured by a vehicle could sue the vehicle owner, but with valid insurance coverage, the insurer (or insurance firm) would step in and provide the necessary compensation in damages to the victim on behalf of motorists.

The Road Transport Act had to balance two competing interests. While it has to protect innocent third parties against the risks, it must also protect an insurance company from being victimised by fraudulent claims, Rahman explained.

Ultimately, setting the balance between two competing interests still meant that the loss had to fall on one party, and the Federal Court ruled that such a loss should be borne by the insurer, in following the principle established by the 1959 Indian Supreme Court case of British India General Insurance vs. Capt Itbar Singh.

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