4.3 Consumer and Non-Consumer Disclosure Duties

Study Focus

Consumer and non-consumer insurance have different disclosure frameworks. Reasonable care is assessed with reference to the actual questions and circumstances.

Schedule 9 Pre-Contractual Disclosure Regime and Representations

For more than two centuries, insurance contracts were governed by the strict common law doctrine of utmost good faith (uberrima fides), codified in Section 18 of the UK Marine Insurance Act 1906 and inherited by Malaysian law. Under that standard, a proposer had to volunteer every "material fact" that would influence a hypothetical prudent underwriter, even if the insurer never asked about it.

In retail insurance this produced real hardship: ordinary buyers of motor or health cover had claims rejected for failing to disclose facts they never realised were material. Parliament therefore enacted Schedule 9 of the Financial Services Act 2013 (FSA 2013), given effect by Section 129. Although the rest of the FSA 2013 came into force on 30 June 2013, Section 129 and Schedule 9 came into operation on 1 January 2015, and they do not affect contracts entered into, varied or renewed before that date (Paragraph 1(1)). Where Schedule 9 conflicts with the Contracts Act 1950, Schedule 9 prevails (Paragraph 1(2)).

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How Schedule 9 Is Organised

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The Consumer vs. Non-Consumer Insurance Dichotomy

+--------------------------------------------------------------------------+
|               SCHEDULE 9 FSA 2013 DISCLOSURE ARCHITECTURE                |
+--------------------------------------------------------------------------+
| 1. CONSUMER INSURANCE CONTRACTS (Paragraphs 5 to 7)                      |
|    - Bought by an individual wholly for non-business purposes            |
|    - Duty: reasonable care not to make a misrepresentation               |
|    - Rule: answer the insurer's questions; disclose other matters you    |
|      KNOW are relevant                                                   |
|                                                                          |
| 2. NON-CONSUMER INSURANCE CONTRACTS (Paragraph 4)                        |
|    - Any other contract (companies, business purposes)                   |
|    - Duty: disclose matters known or reasonably knowable as relevant     |
|    - Rule: volunteer material facts even if not asked                    |
+--------------------------------------------------------------------------+

Consumer Insurance Contracts

Under Paragraph 2, a consumer insurance contract is a contract of insurance entered into, varied or renewed by an individual wholly for purposes unrelated to the individual's trade, business or profession.

• Examples: Private car insurance, houseowner and householder policies, and individual life, critical illness, personal accident and medical policies.
• The duty (Paragraph 5): Before a consumer contract is entered into or varied, the insurer may ask the consumer specific questions relevant to its decision. The consumer must take reasonable care not to make a misrepresentation when answering them (Paragraph 5(1) and (2)). At renewal, the insurer may ask fresh questions or send a copy of earlier disclosures for the consumer to confirm or amend (Paragraph 5(3) and (4)).
• Waiver: If the insurer does not ask, or does not follow up an incomplete or irrelevant answer, compliance is treated as waived (Paragraph 5(5) and (6)).
• The residual duty: The consumer must still take reasonable care to disclose any other matter that they know to be relevant to the insurer's decision (Paragraph 5(8)). A consumer who knows they are awaiting heart surgery cannot stay silent simply because the form did not ask.
• Insurer's notice: The insurer must clearly inform the consumer in writing of the duty, and that it continues until the contract is entered into, varied or renewed (Paragraph 5(7)).
• After the contract: The duty of utmost good faith continues to govern both parties, including the making and paying of claims (Paragraph 5(9)).

Non-Consumer Insurance Contracts

Under Paragraph 4, the traditional duty of disclosure continues for every contract that is not a consumer insurance contract, such as policies bought by companies or by individuals for business purposes.

• Examples: Commercial fire, industrial all risks, public and product liability, marine hull and cargo, directors' and officers' liability, and trade credit insurance.
• The legal standard (Paragraph 4(1)): Before the contract is entered into, varied or renewed, the proposer must disclose any matter that:
  1. they know to be relevant to the insurer's decision whether to accept the risk and on what rates and terms; or
  2. a reasonable person in the circumstances could be expected to know to be relevant.
• Matters that need not be disclosed (Paragraph 4(2)): Matters that diminish the risk, are common knowledge, are known (or ought to be known) to the insurer in the ordinary course of its business, or whose disclosure the insurer has waived. An unanswered question that the insurer does not pursue is treated as waived (Paragraph 4(3)).

Summary Comparison Table

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The Standard of "Reasonable Care" (Paragraph 6)

Whether a consumer took reasonable care is judged on all the relevant circumstances. Paragraph 6(1) lists three:

1. The type of contract and how it was sold: for example, a quick online purchase compared with a face-to-face advisory sale. An agent who ticks boxes without asking the consumer, or explains questions poorly, is part of how the contract was sold.
2. Explanatory material or publicity produced or authorised by the insurer.
3. How clear and specific the insurer's questions were: a vague, catch-all question weighs in the consumer's favour.

Paragraph 6(2) sets the benchmark as what a reasonable consumer in the circumstances would have known, and Paragraph 6(3) requires the insurer to take into account any particular characteristics of the consumer that it knew or ought to have known about, such as limited literacy or language ability.

Key Principle: A misrepresentation gives the insurer a remedy only if the insurer shows that, had it known the true facts, it would not have entered into the contract or would have done so only on different terms (Paragraph 7(2)).

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