Insurance Law-Construction

7/29/2019 Insurance Law-Construction

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7. Construction of the policy

First, some random stuffExamples of stakeholders

- Insured- Insurer- Beneficiaries- Regulator (MAS)

Interested primarily in the insurers financial well being. More accounting than anything.Ensuring the company does not collapse

Exercises little control over contractual terms. Allows market forces to dictate. Does notprescribe standard or basic terms.

Note also UCTA does not apply to insurance contracts. Neither does ConsumerProtection (Fair Trading) act.

- See also ministry of trade and industry See ppt for concept of necessary terms

- Courts?How do we make it fair and just?

- Is it a legitimate policy objective to seek a fair and just result for the parties?-

Bear in mind that insurers are assuring risk- How about trying to create a level playing field? Note the disparity. The insurance company

is generally dominant with respect to a layman. How about commercial insurance?

Principles of constructionResolving ambiguity?

- Should be the insurer responsible for the policy. They draft it.- Contra proferentum?

Looking at the Whole policyHamlyn v. Crown Accidental Insurance Co., Ltd. [1893] 1 Q.B. 750.

- English Court of Appeal: In construing a term in an insurance policy, regard must be givento the rest of the policy including any exclusion clause.

- A shopkeeper was insured against bodily injury caused by violent, accidental, external, andvisible means. Policy excluded injury arising from natural disease or weakness, or

exhaustion consequent upon disease.

- Insured dislocated the cartilage of his knee while stooping to pick up a marble dropped by achild as it rolled away from him down a sloping floor.


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- Insurer: Injury must be caused by an external physical force, unintentional so far as theinjured person was concerned.

- Held: Claim allowed.- The word external must be taken to mean the antithesis of internal and similarly, Smith

L.J. said at 755 that it must be understood as meaning the opposite of internal.

- With respect to the requirement that the cause be violent, Lord Esher said the expressionmust be taken to mean the contrary of without violence at all. (At 753.)

- In the result, the insured (who had bent down to pick up a marble and wrenched his knee,disabling him for nine weeks) was held to have suffered an injury that was violent, external

and visible as well as accidental.

Provincial Insurance Co. Ltd. v. Yeo Chee Swee [1984] 2 M.L.J. 60.

- Malaysian Federal Court: The meaning of a word might be gathered from the context inwhich the word was used. (noscitur a sociis maxim).

- Policy excluded: Death or disablement caused by or consequentupon participation inhunting, mountaineering, winter sports, racing of any kind, polo, football, motor-cycling or

any form of diving in the sea.

- Insured died in an accident while riding a motor-cycle.- Two possible meanings: (1) Exclusion applied whenever insured useda motor-cycle.- (2) Provision confined to a situation where insured used a motor-cycle aspart of some

sporting activity.

Written words and printed wordsMust it be in writing?

- S2 of the UK Life Assurance Act 1774 requires all insurance contracts based on theoccurrence of a SPECIFIC event to be in writing

- Singapore? Under s 62(4), all contracts of indemnity are not required to be in writing- What is the varation? Does it follow that in UK, must and in Singapore, no need?

Robertson v. French (1803) 4 East 130 at p. 136 (perLord Ellenborough C.J.)

- An insurance policy taken out on a ship and her cargo stated that the risk was to commencefrom the loading of the ship at any place along the coast of Brazil.

-

Cargo was loaded at the Cape of Good Hope. The ship was taken into possession by theAdmiralty while it was off the coast of Rio Janeiro on suspicion of smuggling.

- Lord Ellenborough C.J.: There were no special rules to govern the construction of aninsurance contract.

- Ordinary words in a policy were to be given their plain and ordinary meanings.- When a contract was partly printed and partly written, greater weight would be given to the

written part of the contract.

D. & J. Koskas v. Standard Marine Insurance Co. Ltd.

- Bankes L.J.: Binding:I am rather afraid of the doctrine that you can get out of clauses bysaying they are difficult to read. There may be extreme cases. I have in mind the bill of a


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well-known shipping line printed on red paper which was calculated to produce blindness in

anyone reading it.

Soon Kok Tiang v. DBS Bank Ltd. [2011] SGCA 55

-

Chan Sek Keong C.J.: Binding: We think it apposite and timely to remind the general publicthat under the law of contract, a person who signs a contract which is set out in a language

he is not familiarwith or whose terms he may not understandis nonetheless bound by the

terms of that contract. Illiteracy, whether linguistic, financial or general, does not enable a

contracting party to avoid a contract whose terms he has expressly agreed to be bound by.

The principle of caveat emptor applies equally to literates and illiterates in such

circumstances.

Where words in the policy are clearChiew Swee Chai v. British American Insurance Co. (M) Sdn. Bhd. [1987] 1 M.L.J. 53.

- Life policy stipulated that it was: understood that loss shall mean with regard to hands andfeet, dismemberment by severance at or above the wrist or ankle joint.

Insured injured his left arm in a road accident. Doctors recommended amputation of thearm.

Insured declined saying that the experience would be too traumatic and the operationcost too much.

- Insurer: Amputation was a condition precedent to liability.- Shankar J.: As Milton says, they also serve, who only stand and wait. - limp arm serves a

cosmetic purpose - it is still there for the whole world to see.

- Shankar J.: When a term was clear, effect had to be given to the term. Where the words ofthe policy are crystal clear it is the view of this Court that the sanctity of the contract should

be upheld. The words have been put there to obviate the necessity for making fine

judgments whether a limb has or has not been lost;

Ordinary meaning of wordsLeo Rapp. Ltd. v. McClure [1955] 1 Lloyd's Rep. 292.

- Delvin J.: When a policy used an ordinary word, the word was to be given its plain andordinary meaning.

- Delvin J.: warehouse referred to some sort of building.- Goods in Transit Policy covered: [L]oss or damage by burglary, housebreaking, theft ... on

stock of iron, steel, non-ferrous metals, whilst in warehouse anywhere in the United

Kingdom.

Lorry making a delivery was left in a depotin London. Depot was in an enclosed compound surrounded by high brick walls and topped with

barbed wires. Lorry was stolen when thieves broke into the compound of the depot.

- Held: Not a warehouseThompson v. Equity Fire Insurance Co. [1910] A.C. 592.


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- A fire insurance policy provided: The company is not liable ... for loss or damage occurringwhile ... gasoline ... is ... stored or kept in the building insured.

- A chemist used a gasoline stove to heat up some syrup. Stove caught fire and insuredpremises were destroyed.

- Privy Council: A term in a fire insurance policy prohibiting gasoline from being stored orkept on the insured premises constituted common English words with no very precise or

exact signification.

- In the context of a domestic fire insurance policy, the term must be construed as intendingto prohibit the storage or keeping of gasoline for a commercial purpose. It was not intended

to prevent an insured from having a small quantity of the item for household purposes.

Technical and legal wordsWhich approach is fair? Technical or popular (usual)?

- Take for example riotingSection 146, Penal Code Section

- Wheneverforce or violence is used by an unlawful assemblyor by any member thereof, inprosecution of the common object of such assembly, every member of such assembly is

guilty of the offence of rioting.

Section 141, Penal Code

- An assembly of 5 or more persons is designated an unlawful assembly, if the commonobject of the persons composing that assembly is

- (c) to commit any offence;London and Lancashire Fire Ins. Co. Ltd. v. Bolands Ltd. [1924] A.C. 836.

- Interpretation of the term riot- The House of Lords held that words used in a legal document (ie an insurance policy) should

be given the meaning ascribed to them by the law in the absence of any sufficient indication

towards a contrary intention, and on that basis the word 'riot' ought to receive its criminal

law meaning.

- PCC says that the fair construction is to adopt the popular meaning. This decision has thusbeen criticised as one-sided

London and Manchester Plate Glass Co. Ltd. v. Heath [1913] 3 K.B. 411. ECA

- A large number of women broke windows simultaneously in different parts of London; therewas no disturbance in the street and no public sympathy shown.

- The insured was covered for damage caused directly by or arising from civil commotion orrioting. The suffragettes would regularly break windows with a hammer before quietly

surrendering themselves to the nearest policeman to be arrested.

- Insurers paid until eventually it dawned on them that these might not be instances of civilcommotion or rioting and they shouldnt pay. Insurers were perfectly at liberty to take the

point and were not estopped by their previous decisions to pay other claims. The past is no

guide to the future.


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- However, the Judge held that after insurers were notified, there was scope for an election asto whether insurers would take the notification defence or not. By their conduct, insurers

had elected to accept liability for the claim, rather than deny it. So, they had to pay.

- I think a civil commotion is this; an insurrection of people for general purposes, though itmay not amount to a rebellion, where there is an usurped power.

- English Court of Appeal: The term civil commotion had no technical meaning. In its plainand ordinary meaning, it referred to a situation where there was turbulence or tumult

coupled with an object to commit violence.

Isolated incidents with no violence being committed would not constitute a civilcommotion

Contra proferentum ruleAmbiguity is resolved against the party who imposed the condition.

- Rule may be used whenever a patent ambiguity appears in a policyHoughton v. Traflagar Insurance Co. [1954] 1 Q.B. 247.

- Policy excluded liability if the vehicle was conveying any load in excess of that for which itwas constructed. This car could take 4.

- Insurance vehicle became a total loss after it was involved in an accident. At the time of theaccident, there were 6 people riding in the vehicle. Insurer ssaid the car was overloaded

- Held: term rejected. Must pay- Load: Can describe passenger?- A term is ambiguous if it is inapt or could not reasonably be understood.- The ambiguity was to be resolved against the insurers- Critique

Load: An ordinary not legal term. What is the plain meaning? Could that have been applied?

English v. Western [1940] 2 K.B. 156.

- Policy excluded liability for Death or injury to any member of the assureds household whois being carriedin the car.

- When an exclusion was capable of two possible constructions, the construction morefavourable to an insured would be adopted.

- Critique Is there actually patent ambiguity in this case?

Central Lorry Service Co. Sdn. Bhd. v. American Insurance Co. [1981] 2 M.L.J. 40.

Examples

Accidents

ASK: Is the term accident construed in the same manner for work injury insurance as personal

accident insurance?

- NO! What is the difference?


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- We know that for personal accidents, it must be unexpected. For work injury? If theworkman has preexisting injury and it is accelerated by exertion to the point of injury, does

this count? Answer must be no!

- See Golden Hope and Brintons?Mills v. Smith [1964] 1 Q.B. 30.

- Is the event of a tree taking too much water from the ground unexpected?- This case involved subsidence damage caused to the plaintiffs house by an Oak tree growing

in his neighbours (the defendants) garden. The soil was London clay and judgement was

given against the defendant who was held liable for damages caused by the actions of his

tree roots.

- Although the defendant had an insurance policy which had provision for accidents, theinsurance company (the third party) would not pay out on such a claim because in their

view, damage caused by the natural growth of a tree and its roots, could not be classified as

an accident. The defendant sought a declaration in this case that the insurance company

were in fact liable for this claim.

- Judgement was given to the defendant and the insurance company were ordered toindemnify him for any sums which he may have to pay to the plaintiff.

- It was held that the tree roots had caused an accident because, at a specific moment in time,they had caused an unexpected event which had then caused the overstepping of the

building safety limit.

Golden Hope Rubber Estate Ltd. v. Muniammah & Ors. [1965] M.L.J. 5.

- Gill J.: A workman who suffered a fatal heart attack in the course of digging a drain, diedfrom an accident.

- Workmens Compensation Ordinance provided for payment of compensation if a workmansuffered personal injury by accident arising out of and in the course of the employment.

Manickam was employed as a field worker. He was required to dig new drains and clearold ones.

Manickam suddenly collapsed and died while clearing a drain with a changkol. He diedfrom a heart attack and the exertion of the work contributed to the heart failure.

Brintons Ltd. v. Turvey[1905] A.C. 230. UKHL

- House of Lords: An accident occurred when the germs struck a delicate and tender spot inthe corner in the workmans eye.

- A workman assigned to sort out wool at a factory became infected with anthrax and died 5days later.

- Employer: Injury was not an accident unless it was caused by some force applied to thebody, for instance, a pin-prick, scratch, contact with a sharp tool, bruise, wound.

- Held:In re Deep Vein Thrombosis and Air Travel Group Litigation [2006] 1 A.C. 495.

- House of Lords: Accident in article 17 covered an unexpected or unusual event externalto a passenger.


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- Operations of an aircraft under normal conditions could not constitute an article 17accident.

- Article 17, Warsaw Convention 1929, provided : The carrier is liable for bodily injuriessuffered by a passenger, if the accidentwhich caused the damage so sustained took place on

board the aircraft or in the course of any of the operations of embarking or disembarking.

- Claimants alleged they suffered deep vein thrombosis (DVT), resulting in serious injuriesand in some instances death, while on board the carriers aircraft.

- Injuries arose from the cramped sitting arrangements together with insufficient levels ofoxygen and fresh air

- Ask: Should the L have taken into consideration the airlines lack of awareness of theproblem?

If accident was caused by an external problem, why not covered?Barclayv. British Airways Plc. [2009] 2 All ER (Comm.) 841

- English Court of Appeal: The term accident, contemplated a distinct event, not part of theusual, normal and expected operation of the aircraft, which happened independently of

anything done or omittedby the passenger.

- A passengers right foot suddenly slipped on a plastic strip embedded in the floor of theaircraft as she lowered herself into her seat.

- She heard and felt her knee pop as it gave way and struck the armrest. She sustainedbodily injury.

- Passenger: Injury was caused by accident taking place on board an aircraft.Total permanent disablement

Pocockv. Century Insurance Co. Ltd. *1960+ 2 Lloyds Rep. 150

- Commissioner Molony Q.C.: An insured was totally disabled if he could no longer pursuethe business he was engaged in or some substituted business.

- A wholesale grocer was insured under a personal accident policy. Insured drove all over thecountry to secure supplies of groceries for sale at markets and stalls.

- Insured became totally disabledafter a serious road accident. Insured was unable toundertake work of a wage-earning nature.

- Insurer: An insured was not totally disabled from an injury if he was still able to undertakesome business even though on a part-time basis.

- Held: A person cannot be said to attend the business in that sense because he is capable ofdoing perhaps rather badly some minor part of the work involved in that or any other

sort of business

Kathirvelu v. Pacific & Orient Insurance Co. Sdn. Bhd. [1990] 3 M.L.J. 312.

- L.C. Vohrah J.: A permanent total disablement covered an injury where an insured wasunable to pursue his occupation or a substituted occupation.

- Policy: Permanent Total Disablement was defined as absolute disablement from engagingin or giving attention to profession or occupation of any kind.

- This decision was upheld by the Supreme Court.


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- Insured, a technical officer, fell down the stairs at the J.B. General Hospital. He suffered aswelling on his right hand.

- Insured was later involved in a road accident. He again injured his right hand.Sargentv. GRE (UK) Ltd. *2000+ Lloyds Rep. I.R. 77.

- English Court of Appeal: An insured who could not continue in the particular occupation hewas employed suffered a permanent total disablement.

- Plaintiff, an army personnel, left the Forces and trained as a dry line jointer, a semi-skilledoccupation.

- Plaintiffs right index finger was severely injuredon the football field and had to beamputated.

- Following the amputation, he could not continue his occupation as a dry line jointer becausebeing a right-handed person he needed his right index finger to operate the machine for

levelling off jointing material.

- Insurer refused to make payment in respect of permanent total disablement.McGeown v. Direct Travel Insurance [2004] 1 All E.R. 609.

- English Court of Appeal: A permanent physical disability referred to consequences of themost catastrophic or calamitous kind.

- Policy: Apermanent physical disabilitywhich prevents you from doing any paid work(if youare not in paid work, we will provide the same cover for any permanent disability which

prevents you from doing all your usual activities)50,000.

- Insured was injured in a road accident while travelling in an air transport bus. She sufferedserious injuries and made some but not complete recovery.

- The injuries prevented her from undertaking many activities of an intimate, domestic, socialand sporting nature, and they also rendered her incapable of work.

- Held: Claim failedTay Eng Chuan v.Ace Insurance Ltd. [2008] 4 S.L.R. 95.

- Singapore Court of Appeal: The loss of the lens and the loss of sight had been separatelyinsured and the insured was entitled to recover for both losses subject to the insured

proving the loss of sight.

- A personal accident policy covered: (1) Total Loss of ... Sight in One Eye 50% and (2) TotalLoss of Lens in One Eye 50%.

Insured injured his left eye when a wire mesh he was carrying struck his eye. He underwent an emergency operation for lacerations to his cornea and iris and

traumatic cataract in the eye. The insured later had a further operation to remove the

lens in his left eye.

Theft

Lake v. Simmons [1927] A.C. 487.

- House of Lords: Theft was to be construed in its legal sense to cover property taken awayfrom an insured without his consent.


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- A jeweller was insured against loss, damage or misfortune arising from any cause.Policyexcluded:loss bytheft or dishonesty committed ... by any customer or broker ... in respect of

goods entrusted to them...

- A woman, claiming to be Mrs. Van der Borgh, said that her husband was planning to give hera pearl necklace for her birthday. She also wished to get a wedding present for her sister.

The plaintiff allowed the woman to take away two necklaces.

- Insurer: Loss was caused by theft or dishonesty of a customer in respect of goods entrustedto the customer.

- The issue was whether the underwriters were exempted from liability under an exclusion inrespect of "loss by theft or dishonesty committed by any customer in respect of goods

entrusted to" the customer. The House held that they were not. Claim allowed.

Pawle v. Bussell (1816) 85 L.J.K.B. 1191.

- Bailhache J.: When property was obtained by means of a worthless cheque, a layman wouldconsider the property to have been stolen or lost by theft.

- Stockbrokers insured share certificates against being lost, destroyed, or otherwise madeaway with by robbery, theft, fire, embezzlement, burglary, accident, or abstraction, or taken

out of their possession or control by any fraudulent means...

- Philps, a client, bought sharespaying for them by cheque. The shares were disposed of byPhilps. The cheque was dishonouredand Philps was found dead in the sea.

- Insurer: Plaintiffs were cheated by their customer and this risk was not covered by thepolicy.

Lim Trading Co. v. Sinclair [1967] 2 M.L.J. 84.

- Buttrose J.: When property was obtained by the use of a worthless cheque, the propertywas obtained by cheating and not by theft.

- Stockbrokers policy covered the risks of loss by robbery, theft, fire, explosion, burglary orabstraction.

Stockbrokers bought shares for a customer worth some $69,346.52. Customer issued three cheques to pay for the shares but the cheques were dishonoured.

- Insurers: The stockbrokers were swindled and under English law and the customer would beguilty of obtaining the shares by false pretences.

Naza Motor Trading Sdn. Bhd. v. Malaysian Motor Insurance Pool [2011] 1 C.L.J. 332.

- Malaysian Court of Appeal: The term theft would be construed in accordance with themeaning provided in the Malaysian Penal Code.

- A car dealers salesman allowed a potential buyer to test drive a Mercedes Benz E230. In the course of the test drive, the customer requested the salesman to buy fried

chicken from a Kentucky outlet.

When the salesman returned after buying the fried chicken, the car was nowhere to befound.

Wong Kon Poh v. New India Assurance Co. Ltd. [1970] 2 M.L.J. 287.


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- Malaysian Federal Court: The risk of theft also included a robbery because robbery wasno more than an aggravated form of theft.

- A motor-cycle was insured against loss ... by ... burglary, housebreaking or theft. Insuredwas at Templer Park when he was robbed by four persons of $5 and his motor-cycle.

- Insurers: The loss was by robbery and not theft and robbery was not an insured risk.- Held:

Limitation of recovery

Limitations - Under a burglary and theft policy, an insurer may limit the situations where recovery is

permitted.

- See alsoAll Risks Policy -Does an all risks policy mean that the policy is not subject to anylimitations or restrictions?

John A Pike (Butchers) Ltd. v. Independent Insurance Co. Ltd. *1998+ Lloyds Rep. I.R. 410.

- English Court of Appeal: A forcible entry into insured premises could be effected by forcingopen the gates.

- Insured were wholesale butchers in London. Policy covered: theft (or any attempt thereat)involving entry to or exit from the Premises by forcible and violent means.

- Thieves forced open thepadlock at the gates to gain access into the yard. They then enteredthe building by a side door. This door was not forced open but the lock might have been

picked. The thieves made their way to an entrance lobby where they forced open an internal

door leading to the workshop before making away with the goods.

- Insurers: Forcible entry into the insured premises did not include forcible entry into the yard.- Held:

Siang Hoa Goldsmith Pte. Ltd. v. The Wing On Fire & Marine Insurance Co. Ltd. [1998] 2 S.L.R. 777.

- Singapore Court of Appeal: An all risks policy did not mean that it covered literally allrisks.

- Policy covered: loss or damage arising from any cause whatsoever. Exclusion: loss or damage caused byfraud, dishonesty or dishonest deception

committed by .. any agent ... customer.

- Appellants bought and sold gold jewellery.- Samuel Lustig, a customer, ordered US$220,000 worth of jewellery after placing a 10%

deposit. He submitted aforged bankers letter of indemnityto obtain delivery of the

jewellery in the United States.

- Insurer: The loss was caused by the dishonesty of a customer.

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