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Insurable InterestEdit

Applicable LawEdit

Requirement of Insurable InterestEdit

Position at Common LawEdit

Nature of Insurance ContractEdit

An insurance policy is essentially a contract between an insured and an insurer.

The fundamental characteristics found in all insurance contracts include:[1]

  1. The contract must provide that the assured will become entitled to something on the occurrence of some event.
  2. The event must be one which involves some element of uncertainty.
  3. The assured must have an insurable interest in the subject matter of the contract.

So also s 57(3) of the Insurance Act:

In this section, 'insuring the life of a person' means insuring the payment of money (or the equivalent) on that person's death or on the happening of any contingency dependent on the termination or continuance of that person's life, and includes granting an annuity to commence on that death or at a time to be determined by reference thereto or to any such contingency.

Liability InsuranceEdit

Main Contractor and Sub-ContractorEdit

When a commercial transaction involves several parties sharing a common risk, it might be more expedient and convenient for one party to take out an insurance policy to cover the risk of all those involved in the transaction rather than for each party to take out his own policy.

Thus, in a bailment, the law allows the bailee to insure beyond his own interest so that the policy taken out by the bailee can cover the interest of the bailor.

Such reasoning extends to situations like a building project.

In Petrofina (UK) Ltd v Magnaload Ltd,[2] Lloyd J held that "Contractors and/or Sub-contractors", in the context of the policy there, must include sub-sub-contractors.

Duty of DisclosureEdit

SubrogationEdit

Insurer's Right of SubrogationEdit

Basis for Insurer's Right of SubrogationEdit

The right of subrogation is based on the concept of indemnity. An insurer who indemnifies an insured for an insured loss is entitled to step into the shoes of the insured and to take over whatever rights the insured has against a third party responsible for the loss.[3]

In exercising the right of subrogation, the insurer is placed in the position of the insured. The insurer is entitled to the advantage of every right of the insured, whether such rights consists in contract, tort, equity: Castellian v Preston.[4]

Nature of Right of SubrogationEdit

An insurer's right of subrogation constitutes a legal right[5] but the right is legally enforceable only with the assistance of equity.[6]

A right of subrogation accrues to a personwho indemnifies another under a contract of indemnity.[7]

Proprietary Interest in the Damages Recovered by an InsuredEdit

Proprietary InterestEdit

The insurer's right of subrogation can give the insurer a proprietary interest in the damages recovered by an insured from a third party. In Lord Napier v Hunter,[8] the House of Lords decided that an insurer's right of subrogation gave the insurer a proprietary interest in the proceeds of a settlement concluded between the insured and a third party.

Deduction for Costs Incurred by InsuredEdit

The insurer is entitled to costs incurred in recovering the damages: England v Guardian Insurance Ltd[9]

Insured's Contractual RightsEdit

An insurer who indemnifies a policyholder for an insured loss is entitled to the benefit of every contractual right the insured has against a third party in respect of the insured loss. The insurer is entitled to recover from the insured any compensation paid by the tortfeasor. An insurer's right of subrogation is subject to the caveat that he cannot recover more than the indemnity he paid to the insured. See Darrell v Tibbitts.

Insured's Right Against TortfeasorEdit

under his right of subrogation, an insurer is entitled to every right an insured has against a third party including rights in contract and in tort. An insurer can exercise his right of subrogation by either suing a third party in the name of the insured or taking an assignment of the insured's cause of action. See Teo Kim Kien v Lai Sen[10]

Exercising the Right of SubrogationEdit

Right of Subrogation Arises After Insured is IndemnifiedEdit

Safeguarding Insurer's Right of SubrogationEdit

Third Party and Insurer's Right of SubrogationEdit

Insured's Rights Against Third PartyEdit

Limits to Insurer's Right of SubrogationEdit

Employer's Right to Sue EmployeeEdit

Inequitable to Allow Insurer to Sue EmployeeEdit

Vendor and PurchaserEdit

Landlord and TenantEdit

Mortgagor and MortgageeEdit

Main and Sub-ContractorsEdit

Insurance Taken Out by Main ContractorEdit

When a main contractor's insurance policy covers both the main contractor and his sub-contractor, an insurer has no right of subrogation against the sub-contractor as the sub-contractor is a party to the contract of insurance. In addition, if a main contractor's policy is intended to cover the interest of a sub-contractor, the sub-contractor is covered under the policy even though he is not expressly named in the policy as a co-insured:BP Exploration Operating Co v Kvaerner Oilfield Products Ltd.[11] See also Petrofina (UK) Ltd v Magnaload Ltd.

Policy Does Not Cover a Sub-sub-contractorEdit

The Singapore Court of Appeal in Awang bin Dollah v Shun Shing Construction & Engineering Co Ltd[12] arrived at a conclusion different from Petrofina. The Court expressed the view that a main contractor's insurance policy, providing for "3 General Labourers (Sub-contractors' Workers)" was not wide enough to include the workman of a sub-sub-contractor.

Poh Chu Chai opines that it is rather unfortunate that the Court did not consider the decision in Petrofina even though it was cited to the Court.[13]

Consultant Engineers Not Sub-ContractorsEdit

No Right of Subrogation Against Co-insuredEdit

An insurer has no right of subrogation against a person insured under the policy: Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd.[14]

Term Imposing Duty to InsureEdit

Insurer's Right of Subrogation Not PrecludedEdit

What are the legal implications of a contractual agreement that expressly requires one party to insure against risks arising under the contract? First, does the other party have a beneficial interest in the policy so as to preclude the insurer from exercising his right of subrogation against that other party? Secondly, is the other party exempt from his contractual liability for negligence? The Singapore Court of Appeal in Walter Wright Mammoet (Singapore) Pte Ltd v Resources Development Corporation Ltd[15] decided that when a contract required one party to effect insurance coverage for the contract, it did not mean that the other party was entitled to the benefit of the policy. To decide whether the insurance policy was intended to benefit the other party, consideration had to be given to the other terms of the contract.

Party's Duty of Care Not AffectedEdit

When a party to a contract is required to effect insurance coverage, the presence of the duty does not relieve the other party from his obligation to exercise care in performing the contract: British Telecommunications plc v James Thomson & Sons (Engineers) Ltd[16]

Failure to InsureEdit

When a contract requires one party to effect insurance coverage in their joint names and to provide for a waiver of subrogation, the obligation to insure constitutes a fundamental term of the contract: Penguin Engineering & Construction Pte Ltd v Titan Logistics (S) Pte Ltd[17]

Contractor's Insurable Interest in PropertyEdit

A contractor engaged to construct a building has an insurable interest in the building as he will lose the opportunity to work on the building if the building is destroyed. However, once the building is completed, the contractor no longer has an insurable interest: Deepak Fertilisers & Petrochemicals Corporation v ICI Chemicals & Polymers Ltd.[18]

Sub-contractor Not a co-insuredEdit

When a sub-contractor is not a co-insured, an insurer who indemnifies a main contractor is entitled to exercise his right of subrogation against the sub-contractor: Caledonia North Sea Ltd v Norton (No 2) Ltd.[19]

Payment Recovered From Third PartyEdit

Claiming InterestEdit

Double Insurance and ContributionEdit

Double InsuranceEdit

Forfeiture ProvisionEdit

Rateable Contribution ProvisionEdit

Clause Found Only in One PolicyEdit

An insurer whose policy contains a rateable contribution provision is liable to an insured for only a rateble proportion of the loss if the policyholder is also insured elsewhere: Weddell v Road Transport & General Insurance Co.[20]

An insurer whose policy does not contain a rateable contribution provision is liable to indemnify an insured for the full extend of his loss. In practice, an insurer who pays an insured in full has a right of contribution from the second insurer (who has the benefit of a rateable contribution provision).

Clause Found in Both PoliciesEdit

When two insurers covering the same risk both incorporated a rateable contribution provision, each insurer was liable for half the loss suffered by an insured: Gale v Motor Union Insurance Co.[21]

Term Negativing Insurer's LiabilityEdit

One Policy Containing Term Negativing Insurer's LiabilityEdit

Insurer Expressly Negativing LiabilityEdit

Both Policies Contain Terms Negativing LiabilityEdit

Right of ContributionEdit

Risk and Interest Insured Must Be The SameEdit

An insurer's right to claim contribution from another insurer only arises if (i) there is double insurance, (ii) where the risk insured is the same, and (iii) the person insuring is the same. See e.g. Boag v Economic Insurance Company Ltd;[22] North British & Mercantile Insurance Co v London Liverpool & Global Insurance Co.[23]

Determining Liability to ContributeEdit

Time of LossEdit

An insurer's right to claim contribution from a co-insurer arises in equity.

What happens if after a claim has arisen, the insured breaches a term in one of the policies so as to preclude the insured from claiming under the policy?

There are two different approaches. The first is based on the time of loss, i.e. an insurer's liability to contribute is determined at the time of an insured's loss:Weddell v Road Transport & General Insurance Co Ltd. A subsequent breach of the policy by the insured only affected the particular insurer's liability towards the insured but not the insurer's liability to contribute.

The second approach is based on the insurer's liability to indemnify his own insured. See "Duty to Contribute Dependent on Contractual Liability" below.

Paying Own Share of LiabilityEdit

Duty to Contribute Dependent on Contractual LiabilityEdit

Risk Insured Must be ConcurrentEdit

An insurer is only entitled to contribution from a co-insurer if both the insurers are on risk at the time of the loss. If only one insurer is on risk at the time of the loss, there is no right to contribution: National Employers Mutual General Insurance Association Ltd v Haydon.[24]

JargonEdit

Deductible clause = Excess clause CAR = Construction All Risk EAR= Erection All Risk

EndnotesEdit

  1. Medical Defence Union Ltd v Department of Trade [1980] Ch 82.
  2. [1983] 2 Lloyd's Rep 91
  3. Darrell v Tibbitts (1880) 5 QBD 560.
  4. (1883) 11 QBD 380.
  5. Yorkshire Insurance Co Ltd v Nesbit Shipping Ltd [1962] 2 QB 330.
  6. Morris v Ford Motor Co [1973] 1 QB 792.
  7. Randall v Cockran (1798) 1 Ves Sen 98; Re Miller Gibb & Co Ltd [1957] 1 Lloyd's Rep 258.
  8. [1993] AC 713.
  9. [1999] 2 All ER (Comm) 481.
  10. [1980] 2 MLJ 125.
  11. [2004] 2 All ER (Comm) 266.
  12. [1997] 3 SLR 677
  13. Poh, at p 1198.
  14. [1991] 2 Lloyd's Rep 288.
  15. [1995] 1 SLR 528
  16. [1999] 2 All ER 241.
  17. [1997] 2 SLR 126.
  18. [1991] 1 Lloyd's Rep 387.
  19. [2002] 1 All ER (Comm) 321
  20. [1932] 2 KB 563.
  21. [1928] 1 KB 359.
  22. [1954] 2 Lloyd's Rep 581.
  23. (1887) 5 ChD 569.
  24. [1980] 2 Lloyd's Rep 149.

ReferencesEdit

Poh Chu Chai, Principles of Insurance Law, (Singapore: LexisNexis, (6th ed.) 2005).

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