Vehicles are so useful that humanity cannot live without them. The statistics speak volumes. 

There are more vehicles than people in Malaysia

By the first quarter of 2024, the Malaysian population stood at 34 million. It was a 2.3% increase over the same period in 2023. Does it surprise you that there 36 Million registered private vehicles?

Among ASEAN countries, Malaysia has the highest road fatality risk. In 2023, about 600,000 road accidents were recorded. This translates to 1,643 accidents per day. 

More than half of these accident victims are motorcyclists. 

On average, every day, 17 people lose their lives. Malaysia faces huge road safety challenges. The Minister of Transport says this is a ‘pressing public health issue’, and feels ‘more needs to be done’.

The colossal risk of an accident

There is a huge risk that members of the public could be injured in a road accident, or their property damaged in such a mishap.

Who are the parties to an insurance contract? A and B: but not C

The insurance contract is between the vehicle owner (say, ‘A’) and an authorised insurer (say, ‘B’).

B cannot be just any old fly-by-night insurer. B has to be an insurer ‘authorised by law’. Only it can issue vehicular insurance: hence ‘authorised insurer’.

Who is a third party? He or she is a daily road user (we shall call this person ‘C’).

Because C stands entirely outside A and B’s contract, C is not a party to their contract: thus, C is a ‘third party’.

The only aim of A and B’s contract is to protect C’s life, limb and property. Because A and B’s contract is to benefit C, their insurance contract is called a ‘third party insurance’ contract.

These laws were eventually implemented across the entire the British Commonwealth. 

The law requires an authorised insurer to step into the vehicle owner’s shoes

Vehicles, when mishandled, can be lethal. If a vehicle injures a person or damages property, someone has to bear the loss. Usually, these damages are so huge that an average vehicle owner cannot bear these losses. If that happens, accident victims will be left destitute.

By requiring all vehicle owners to take out insurance, the law aims to ensure that, if there’s an accident, a motor insurance company will step into the shoes of a negligent vehicle owner and pay the necessary costs. Innocent victims can, in this way, be compensated without bankrupting the vehicle owner.

What protects accident victims? 

That is where the law and the courts step in.

As far back as 1903, the United Kingdom passed the Motor Car Act 1903. By the 1930 Road Traffic Act, the UK introduced many reforms.

One was compulsory ‘third-party insurance’. 

This law made it compulsory for every vehicle owner to take out an insurance policy to protect ‘third parties’.

In an accident, a car negligently driven by A grievously injures C. What happens next?

C has a family of, say, three school-going children.

A negligently crashes his car into C, who is on his way to work.

C is paralysed. His income is lost. His family suffers.

C’s family sues A in a court of law (we will call that court, a ‘Liability Court’).

When the Liability Court determines that A is indeed negligent, it assesses how much A has to pay C.

Suppose the court orders A to pay C a sum of RM5.0 million. Who will pay this sum?

C’s family needs the money for medical expenses and C’s future care. If the RM5.0 million is not paid to C’s family, the entire family will be ruined.

Now A an average person. He cannot afford to pay C the RM5.0 million.
This is where Road Transport Act 198 (‘RTA’) of Malaysia comes in. The RTA is a near relative to the 1930 UK Act. The RTA spells out that it is B, as an authorised insurer, who now has to pay to C whatever the court has adjudged A should pay C. So the insurer will hand over the RM5.0 million to C and his family.

It is in sections 91(3) and 96(1) of the Road Transport Act 1987.

Two preconditions are necessary for an accident victim to be compensated

Two events must occur before C becomes entitled to the benefit of third-party insurance. First, a risk event (usually an accident) must occur. Second, the risk event must occur because of C’s negligence, or that of C’s authorised driver. ²See sec. 109 of the Road Transport Act 1987

If these two factors are absent, C cannot benefit from a third-party insurance policy.

Third-party compensation is ‘fault-based’

Before A could be found liable to any suit brought by C, it must be proved in a court of law that C’s injuries were caused by A’s fault: hence ‘fault-based compensation.

Imagine this scene: in a drunken stupor, C rides his bicycle suddenly into the path of A’s right of way. In the accident, C is grievously injured. If C sues A, claiming it was all A’s fault, will C succeed? It is not A’s fault that C came into his path. The law cannot compel A or B to pay over any damages C has suffered. It would be legally improper if C could succeed.

This is a good system. 

All road users pool their monies into a fund, from which injured members of society are compensated. 

It was this mechanism that the 1930 UK Law provided.

In function and form, current third-party laws all over the world retain this essential internal structure.

Over almost a century, personal injury laws have evolved. Greater protection is being added to ensure that road users are protected. The Financial Services Act 2013 has tightened the RTA.

There are almost similar ‘fault-based’ laws all over the Commonwealth.

This is however, changing. 

Some countries are now beginning to adopt a ‘no-fault basis compensation’. If you are injured in an accident, a fixed sum, depending on your injury, will be paid to you. But it requires no fault by A, the insured.

That is another subject for another day.

The RTA also protects Insurers from, e.g. fake claims

Insurers are also protected in a limited set of circumstances, especially if there is a group of charlatans who work together to create a fake accident, so that they can cheat insurance companies.Again, that is another subject for another day

I hope this has been useful.

[The author thanks Mr G Naidu, Ms KN Geetha, Mr, BM Thina, Miss TP Vaani, and JN Lheela for their assistance]