Insurance Law
| Citation | (2003) 4 SAL Ann Rev 311 |
| Date | 01 December 2003 |
| Author | LEE KIAT SENG LLB (National University of Singapore), LLM (Maritime Law)(London), Advocate & Solicitor (Singapore), Adjunct Associate Professor, Faculty of Law, National University of Singapore |
| Published date | 01 December 2003 |
15.1 One of the common features of motor insurance policies is that the insurer does not cover the entire sum insured. There will almost invariably be a reservation of such sum insured whereby the insured is self-insured. This is achieved by what is known as the ‘excess’ clause. The common reason put forward for such ‘excess’ is to ensure that the insured will take more care with regard to the subject matter of the insurance as he himself also stands at risk when a loss occurs under the policy.
15.2 However, for commercial reasons, there has been a recent trend for motor insurers to extend to its policyholders the initial ‘waiver’ of such excess if they choose to use workshops approved by the motor insurer. In return, the insured is obliged to allow the insurer to retain any such excess it recovers from the tortfeasor responsible for the loss. If the action fails, however, the insurer will waive such excess. The rationale for such a scheme is simple — it operates as an incentive for policyholders to have their vehicles repaired by such approved workshops. On the part of the insurers, this arrangement allows them to avoid the scourge which has bedevilled the local motor insurance industry in recent years — inflated claims. All in all, it constitutes a win-win situation for both the insurer and the insured.
15.3 This arrangement was recently challenged in the case of Lo Lee Len v Grand Interior Renovation Works Pte Ltd[2003] SGDC 232. In this case, the defendants challenged the plaintiff”s claim for ‘excess’ on the basis that full payment, including the excess, had already been made by the plaintiff”s insurers, NTUC Income Insurance Co-operative Limited (‘NTUC Income’). The reason argued was quite simple — the claim for ‘excess’ had to be a personal, as opposed to a subrogated, claim and since the plaintiff did not have to pay such excess, there was no loss suffered by her.
15.4 This claim for excess cannot be a subrogated claim as the nature of such excess is that the insurer is not at risk and the insured is self-insured. In any event, NTUC Income and the defendants” insurer, Zurich Insurance (S) Pte Ltd (‘Zurich’) are parties to ‘knock-for-knock’ agreements under which participating insurers agree to bear the losses of their policyholders without recourse to their subrogation rights against the other party or his insurers. In
the case, both parties agreed that such a knock-for-knock agreement was not relevant to the claim.
15.5 The scheme operated by NTUC Income is quite simple — when a vehicle is insured under ‘Quality’ cover, the insured may opt to send the vehicle to one of NTUC Income”s approved workshops for repairs, in which case NTUC would pay the entire bill, including the excess. NTUC Income will then initiate proceedings, at its own cost and expense, to recover such excess on behalf of the policyholder. If recovery is successful, NTUC Income will be reimbursed for the excess. In the event such action is unsuccessful, NTUC Income will waive the excess for the first two claims during each insurance period.
15.6 Zurich”s claim was that the action was misconceived as the plaintiff had not suffered any ‘loss’ at that point in time as she was not out of pocket as NTUC Income had paid for the entire repairs without seeking to recover the excess from her. Hence, Zurich argued that there was an outright waiver by NTUC Income.
15.7 The court”s analysis of the factual matrix was different. It took the view that what had happened under the arrangement was that by agreement the risk and cost of recovering the excess had been passed to NTUC Income by the insured. This was quite different from suggesting that the insured had suffered no ‘loss’. It was just that the insured had passed the risk onto the insurer for the first two claims. In any event, this was hardly a gratuitous waiver since any cost and expense of litigation to recover the excess would have been factored into the premium charged for the policy. Further, the passing of the risk to NTUC Income could only be invoked in certain agreed circumstances and did not invariably apply.
15.8 The court made an interesting observation that Zurich may feel aggrieved by such a scheme because it would run counter to the spirit and intent of the knock-for-knock agreement between the insurers. With respect, this observation would hold water only if the spirit and intent of the agreement was to completely preclude actions between insurers. If the intent of such knock-for-knock agreements was simply to obviate the necessity of subrogation claims between insurers, then the NTUC Income scheme was not within the scope of such agreements since, as observed by the court, this was simply a situation where in return for using the approved workshops, NTUC Income undertook to make claims for and on behalf of the policyholder, thus relieving the latter of the need to do the same himself.
15.9 In the case of Lo Lee Len v Grand Interior Renovation Works Pte Ltd (para 15.3 supra), the issue of ‘loss of use’ was also given an airing.
15.10 The defendants” insurer, Zurich, raised various defences, one of which was the issue of double recovery. This was easily disposed of by the court on the basis that under the arrangement between the insured and NTUC Income, the former was bound to reimburse NTUC Income in the event that her claim for ‘loss of use’ succeeded. Hence, any allegation of double recovery would be misconceived.
15.11 The court looked to the House of Lords” decision of Giles v Thompson[1994] 1 AC 142 and in particular the speech of Lord Mustill for guidance on this arrangement. Lord Mustill explained that in the normal run of things, such claims were usually not made because such loss of use was normally not recoverable under a comprehensive policy and hence there was no insurer to stand behind the claim and many motorists did not have the means or inclination to hire a substitute vehicle on the chance that they might be able to recover reimbursement. Because of the gap in remedies, the wrongful driver and his insurer were the ultimate beneficiaries of such inaction.
15.12 However, the trend has been that insurers and other companies have identified this gap and have sought to fill it in a mutually beneficial manner for motorists who have fairly solid claims. The general features of these schemes were identified by Lord Mustill at 155:
The terms on which this opportunity is given are said to be, in broad outline, as follows. (1) The company makes a car available to the motorist whilst the damaged car is under repair. (2) The company pursues a claim against the defendant, at its own expense and employing solicitors of its choice, in the name of the motorist for loss of use of the motorist”s car. (3) The company makes a charge for the loan of the replacement car, which is reimbursed from that part of the damages recovered by the motorist from the defendant or his insurers which reflects the loss of use of the motorist”s car. (4) Until...
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