Insurance Law-Construction

7. Construction of the policy First, some random stuff Examples of stakeholders -

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Insured Insurer Beneficiaries Regulator (MAS)  Interested primarily in the insurer’s 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 not prescribe standard or basic terms.  Note also UCTA does not apply to insurance contracts. Neither does Consumer Protection (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 construction Resolving ambiguity? -

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

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

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English Court of Appeal: In construing a term in an insurance policy, regard must be given to the rest of the policy including any exclusion clause. A shopkeeper was insured against “bodily injury caused by violent, accidental, external, and visible 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 a child 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 the injured 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 expression must 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. -

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Malaysian Federal Court: The meaning of a word might be gathered from the context in which the word was used. (noscitur a sociis maxim). Policy excluded: “Death or disablement caused by or consequent upon participation in hunting, 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 used a motor-cycle. (2) Provision confined to a situation where insured used a motor-cycle as part of some sporting activity.

Written words and printed words Must it be in writing? -

S2 of the UK Life Assurance Act 1774 requires all insurance contracts based on the occurrence 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 (per Lord Ellenborough C.J.) -

An insurance policy taken out on a ship and her cargo stated that the risk was to commence from 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 the Admiralty 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 an insurance 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 by saying they are difficult to read. There may be extreme cases. I have in mind the bill of a

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 public that under the law of contract, a person who signs a contract which is set out in a language he is not familiar with or whose terms he may not understand is 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 clear Chiew Swee Chai v. British American Insurance Co. (M) Sdn. Bhd. [1987] 1 M.L.J. 53. -

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Life policy stipulated that it was: “understood that loss shall mean with regard to hands and feet, dismemberment by severance at or above the wrist or ankle joint”.  Insured injured his left arm in a road accident. Doctors recommended amputation of the arm.  Insured declined saying that the experience would be too traumatic and the operation cost 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 of the 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 words Leo Rapp. Ltd. v. McClure [1955] 1 Lloyd's Rep. 292. -

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Delvin J.: When a policy used an ordinary word, the word was to be given its plain and ordinary 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 depot in 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 warehouse

Thompson 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 occurring while ... gasoline ... is ... stored or kept in the building insured”. A chemist used a gasoline stove to heat up some syrup. Stove caught fire and insured premises were destroyed. Privy Council: A term in a fire insurance policy prohibiting gasoline from being “stored or kept” 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 intending to 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 words Which approach is fair? Technical or popular (usual)? -

Take for example rioting

Section 146, Penal Code Section -

Whenever force or violence is used by an unlawful assembly or by any member thereof, in prosecution 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 common object 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. -

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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 thus been criticised as one-sided

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

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A large number of women broke windows simultaneously in different parts of London; there was no disturbance in the street and no public sympathy shown. The insured was covered for damage caused “directly by or arising from civil commotion or rioting”. 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 “civil commotion or rioting” and they shouldn’t 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 as to 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 it may 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 plain and 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 civil commotion

Contra proferentum rule Ambiguity is resolved against the party who imposed the condition. -

Rule may be used whenever a patent ambiguity appears in a policy

Houghton 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 it was constructed”. This car could take 4. Insurance vehicle became a total loss after it was involved in an accident. At the time of the accident, 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 assured’s household who is being carried…in the car”. When an exclusion was capable of two possible constructions, the construction more favourable 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 the workman 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. -

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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, the insurance 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 to indemnify 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, died from an accident. Workmen’s Compensation Ordinance provided for payment of compensation if a workman suffered “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 clear old ones.  Manickam suddenly collapsed and died while clearing a drain with a changkol. He died from 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 in the corner in the workman’s eye. A workman assigned to sort out wool at a factory became infected with anthrax and died 5 days later. Employer: Injury was not an accident unless it was caused by some force applied to the body, 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 external to a passenger.

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Operations of an aircraft under normal conditions could not constitute an article 17 accident. Article 17, Warsaw Convention 1929, provided : “The carrier is liable for … bodily injuries suffered by a passenger, if the accident which 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 injuries and in some instances death, while on board the carriers’ aircraft. Injuries arose from the cramped sitting arrangements together with insufficient levels of oxygen and fresh air Ask: Should the L have taken into consideration the airline’s lack of awareness of the problem?  If accident was caused by an external problem, why not covered?

Barclay v. British Airways Plc. [2009] 2 All ER (Comm.) 841 -

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English Court of Appeal: The term “accident”, contemplated a distinct event, not part of the usual, normal and expected operation of the aircraft, which happened independently of anything done or omitted by the passenger. A passenger’s right foot suddenly slipped on a plastic strip embedded in the floor of the aircraft as she lowered herself into her seat. She heard and felt her knee “pop” as it gave way and struck the armrest. She sustained bodily injury. Passenger: Injury was caused by accident taking place on board an aircraft.

Total permanent disablement Pocock v. Century Insurance Co. Ltd. *1960+ 2 Lloyd’s Rep. 150 -

Commissioner Molony Q.C.: An insured was totally disabled if he could no longer pursue the business he was engaged in or some substituted business. A wholesale grocer was insured under a personal accident policy. Insured drove all over the country to secure supplies of groceries for sale at markets and stalls. Insured became totally disabled after a serious road accident. Insured was unable to undertake work of a wage-earning nature. Insurer: An insured was not totally disabled from an injury if he was still able to undertake some 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 of doing – 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 was unable to pursue his occupation or a substituted occupation. Policy: “Permanent Total Disablement” was defined as “absolute disablement from engaging in 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 a swelling on his right hand. Insured was later involved in a road accident. He again injured his right hand.

Sargent v. GRE (UK) Ltd. *2000+ Lloyd’s Rep. I.R. 77. -

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English Court of Appeal: An insured who could not continue in the particular occupation he was employed suffered a permanent total disablement. Plaintiff, an army personnel, left the Forces and trained as a dry line jointer, a semi-skilled occupation. Plaintiff’s right index finger was severely injured on the football field and had to be amputated. Following the amputation, he could not continue his occupation as a dry line jointer because being 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. -

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English Court of Appeal: A permanent physical disability referred to consequences of the most catastrophic or calamitous kind. Policy: “A permanent physical disability which prevents you from doing any paid work (if you are 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 suffered serious injuries and made some but not complete recovery. The injuries prevented her from undertaking many activities of an intimate, domestic, social and sporting nature, and they also rendered her incapable of work. Held: Claim failed

Tay Eng Chuan v. Ace Insurance Ltd. [2008] 4 S.L.R. 95. -

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Singapore Court of Appeal: The loss of the lens and the loss of sight had been separately insured 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) Total Loss 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 away from an insured without his consent.

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A jeweller was insured against “loss, damage or misfortune arising from any cause.” Policy excluded:“loss by theft 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 her a 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 entrusted to the customer. The issue was whether the underwriters were exempted from liability under an exclusion in respect 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. -

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Bailhache J.: When property was obtained by means of a worthless cheque, a layman would consider the property to have been stolen or lost by theft. Stockbrokers insured share certificates against being “lost, destroyed, or otherwise made away 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 shares paying for them by cheque. The shares were disposed of by Philps. The cheque was dishonoured and Philps was found dead in the sea. Insurer: Plaintiffs were cheated by their customer and this risk was not covered by the policy.

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

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Buttrose J.: When property was obtained by the use of a worthless cheque, the property was obtained by cheating and not by theft. Stockbrokers’ policy covered the risks of loss by robbery, theft, fire, explosion, burglary or abstraction.  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 be guilty 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 the meaning provided in the Malaysian Penal Code. A car dealer’s 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 be found.

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 was no more than an aggravated form of theft. A motor-cycle was insured against “loss ... by ... burglary, housebreaking or theft”. Insured was 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 also All Risks Policy - Does an “all risks” policy mean that the policy is not subject to any limitations or restrictions?

John A Pike (Butchers) Ltd. v. Independent Insurance Co. Ltd. *1998+ Lloyd’s Rep. I.R. 410. -

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English Court of Appeal: A forcible entry into insured premises could be effected by forcing open 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 the padlock at the gates to gain access into the yard. They then entered the 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. -

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Singapore Court of Appeal: An “all risks” policy did not mean that it covered literally all risks. Policy covered: “loss or damage arising from any cause whatsoever”.  Exclusion: “loss or damage caused by fraud, 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 a forged banker’s letter of indemnity to obtain delivery of the jewellery in the United States. Insurer: The loss was caused by the dishonesty of a customer.