Insurance Law

• Citation: (2002) 3 SAL Ann Rev 281
• Date: 01 December 2002
• Published date: 01 December 2002

Rights of insurers under the Third Party (Rights Against Insurers) Act

15.1 The first significant case which was reported in 2002 was the Court of Appeal decision in Hartford Insurance Co (Singapore) Ltd v Chiu Teng Construction Pte Ltd[2002] 1 SLR 278. The Court of Appeal comprised Yong Pung How CJ, Chao Hick Tin JA and L P Thean JA.

Facts

15.2 The respondents, Chiu Teng, were the main contractors of a housing development estate. In 1996, Brentford Construction, whilst carrying out construction work at an adjacent worksite, caused some damage to property on the respondents” estate which were subsequently rectified by Chiu Teng. Chiu Teng then sought to recover the cost of the rectification works from Brentford. In April 1998, Brentford was wound up and the Official Receiver was appointed as liquidator. Chiu Teng obtained leave of court to commence proceedings against Brentford. In May 1999, Chiu Teng obtained an interlocutory judgment with the consent of the Official Receiver.

15.3 An assessment of damages was conducted and judgment for the sum of $466,600.08 was granted to Chiu Teng in May 2000. Hartford were the insurers of Brentford under an “all risk” policy under which the agreement was for an indemnity against “such sums which Brentford shall become legally liable to pay as damages” consequent upon accidental loss or damage to property belonging to third parties occurring in direct connection with the construction works carried out by Brentford. Hartford had been informed of Chiu Teng”s action but declined to get involved in the case on the basis that it was not liable under the policy in question.

15.4 With this judgment in hand, Chiu Teng proceeded to commence an action against Hartford, in reliance on s 1(1) of the Third Parties (Rights Against Insurers) Act (Cap 395, 1994 Ed) (“the Act”), in order to procure payment of the judgment sum.

15.5 In the High Court (Suit 603/2000, unreported judgment dated 30.5.2001), two main lines of arguments were relied upon by Hartford in defence to the action. The first, which related to policy arguments, was dismissed by the court as being of no merit. The second line was interesting. The argument was made that the judgment sum obtained by Chiu Teng

against Brentford was not binding on Hartford and in order to succeed in the recovery, Chiu Teng would have to prove the quantum of the loss in the current action. Although no objection was raised in respect of Brentford”s liability, the reasonableness of Chiu Teng”s claim was challenged.

15.6 This second line of defence did not find favour with the trial judge either. It was held by the High Court that the extent of liability or the quantum of the judgment obtained by Chiu Teng was binding and conclusive against Hartford. Since Chiu Teng stepped into the shoes of Brentford, in light of the winding up of Brentford, and by virtue of s 1(1) of the Act, the former was entitled to be indemnified by Hartford to the full extent of the judgment debt, in the same manner and extent as Brentford was entitled to be indemnified under the insurance policy. Hartford appealed against the trial judge”s ruling that Hartford was estopped from challenging Chiu Teng”s earlier judgment against Brentford.

Decision of the Court of Appeal

15.7 The Court of Appeal was not amenable to Hartford”s arguments either. It held that it was not open to Hartford, who had been notified of the underlying action, to now re-open the issue of quantum of loss since judgment had already been obtained on that. The Court of Appeal was not comfortable with the possibility of re-opening the issue of the extent of liability and quantum thereof, because to permit such a challenge would incur the risk of inconsistent judgments being made and the insured being indemnified less (or none at all) than what the policy provided. In any event, by virtue of s 1(1) of the Act, Chiu Teng stepped into the shoes of Brentford and should therefore be indemnified by Hartford.

15.8 To understand the reluctance of the Court of Appeal to accept Hartford”s line of argument, one has to understand the state of affairs in the absence of such a statutory provision. At common law, a third party has no direct right of recourse against a tortfeasor”s insurer in respect of any wrong which has been inflicted on him by the tortfeasor because of the doctrine of privity of contract. Such third party has no claim of any sort either at law or in equity against the insurer and he cannot direct the insured to pay over to him any sum of money which has been received by the insured under the insurance policy (see eg, King Lee Tee v Norwich Union Fire Insurance Society Ltd(1933) MLJ 187, where the plaintiff sought to rely on the English Third Parties (Rights against Insurers) Act 1930, which was applicable by virtue of s 5(1) of the Civil Law Ordinance No 111 of 1920. In view of the settlement between the parties and the failure of the plaintiff to comply with the conditions in the policy, any rights acquired under the English Act were defeated as the Act did not cover a settlement situation. In any event, at

common law, the plaintiff had no right to sue the tortfeasor”s insurers. It was rightly pointed out by Whitley J that...