Hanwha Non-Life Insurance Company Ltd v Alba Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 30 December 2011
• Date: 30 December 2011
• Docket Number: Suit No 927 of 2008
• Court: High Court (Singapore)

Hanwha Non-Life Insurance Co Ltd

Plaintiff

and

Alba Pte Ltd

Defendant

[2011] SGHC 271

Tan Lee Meng J

Suit No 927 of 2008

High Court

Insurance—Reinsurance—Insurer agreeing to insure liability in relation to construction of model houses and apartments—Insurer reinsured part of risk with reinsurer—Fire substantially destroyed model house covered by insurance—Insurer seeking indemnity from reinsurer—Reinsurer avoiding liability—Reinsurance period for any model house was not to exceed nine months—Reinsurer contending that as design and construction of model house exceeded nine months, project was not covered by reinsurance contract—Whether period of reinsurance included design period

Insurance—Reinsurance—Insurer agreeing to insure liability in relation to construction of model houses and apartments—Insurer reinsured part of risk with reinsurer—Fire substantially destroyed model house covered by insurance—Insurer seeking indemnity from reinsurer—Reinsurer avoiding liability—Reinsurer alleging material non-disclosure of various matters—Whether material non-disclosures were made to reinsurer

Insurance—Reinsurance—Insurer agreeing to insure liability in relation to construction of model houses and apartments—Insurer reinsured part of risk with reinsurer—Fire substantially destroyed model house covered by insurance—Insurer seeking indemnity from reinsurer—Reinsurer avoiding liability—Reinsurer arguing that not at risk when model house was damaged because model house had already been completed before fire—Whether reinsurer at risk at time of fire

Insurance—Reinsurance—Insurer agreeing to insure liability in relation to construction of model houses and apartments—Insurer reinsured part of risk with reinsurer—Fire substantially destroyed model house covered by insurance—Insurer seeking indemnity from reinsurer—Reinsurer avoiding liability—Reinsurer arguing that reinsurance contract was facultative in nature—Insurer arguing that reinsurance contract was open obligatory in nature—Whether reinsurance contract was facultative in nature

Insurance—Reinsurance—Insurer agreeing to insure liability in relation to construction of model houses and apartments—Insurer reinsured part of risk with reinsurer—Fire substantially destroyed model house covered by insurance—Insurer seeking indemnity from reinsurer—Reinsurer avoiding liability—Reinsurer arguing that written approval was not sought for extension of reinsurance cover for model house—Reinsurer's case on written approval resting on ‘Period of Cover’ clause in Munich Re form—Clause in reinsurance contract referring to ‘Munich Re's Standard CAR Policy Form’—Whether reinsurer's written approval required for extension of cover

Insurance—Reinsurance—Insurer agreeing to insure liability in relation to construction of model houses and apartments—Insurer reinsured part of risk with reinsurer—Fire substantially destroyed model house covered by insurance—Insurer seeking indemnity from reinsurer—Reinsurer avoiding liability—Reinsurer contending that not liable because endorsement for extension of insurance cover was issued after fire—Whether endorsement for extension of insurance cover was issued after fire

The original plaintiff in the action (who merged with the plaintiff) was a Korean insurance company (‘the insurer’). The insurer's client (‘the client’) approached the insurer to insure its liability in relation to the construction of model houses and apartments in Korea. In turn, the insurer requested its insurance broker (‘the broker’) to reinsure part of the risks.

The broker's director, Mr Bonjoo Moon (‘Mr Moon’), approached the defendant, a Singapore company which was an underwriter and reinsurer (‘the reinsurer’), for the requisite reinsurance cover. Mr Moon conducted negotiations with the reinsurer's then regional manager, Ms Margaret Sze To (‘Ms Sze To’). The reinsurer agreed to provide reinsurance cover to the insurer. After Mr Moon informed the insurer of the reinsurance coverage, the insurer issued a master contractors all risks policy (‘the Master CAR policy’).

The system adopted by the parties to the reinsurance contract was that declarations of the client's model house projects covered under the Master CAR policy in a particular month would be made in the following month by the broker to the reinsurer.

On 22 August 2007, the insurer insured the Daewoo Kangnam Model House at #832-21, Yeoksam I-Dong, Kangnam-gu, Seoul (‘DMH’) under the Master CAR policy from 22 August to 31 October 2007 (‘the original cover’). It was common ground that the original cover was reinsured by the reinsurer.

The dispute between the parties relates to the extension of cover under the Master CAR policy beyond 31 October 2007. On 31 October 2007, the original cover for the DMH expired. On 15 November 2007, the client sought a retrospective extension of the insurance period and an increase in the insured sum. The insurer acceded to the request and issued an endorsement to the client on 19 November 2007 (‘the 19 November Endorsement’). On the same day that the 19 November Endorsement was issued, the insurer informed the broker about the amendments to the original cover in respect of the DMH. The broker took a longer time to collate the project list for November 2007. As such, the retrospective monthly declaration of projects covered by the Master CAR policy in November 2007 was only forwarded to the reinsurer on 14 December 2007. The 19 November Endorsement for the DMH was included in this declaration. The DMH was extensively damaged by a fire (‘the fire’) some nine hours before the time when the broker forwarded this monthly declaration.

The insurer sought an indemnity from the reinsurer under the reinsurance contract between the insurer and the reinsurer (‘the reinsurance contract’) for the fire loss. The reinsurer argued, inter alia,that it had offered the insurer facultative reinsurance cover. Under such a policy, the reinsurer was entitled to accept or reject any risk which the reinsured wished to cede to it. In contrast, the insurer contended that the reinsurer had offered the insurer open obligatory reinsurance. Under such a reinsurance contract, the insurer was obliged to cede to the reinsurer all risks accepted from the client under the Master CAR policy and the reinsurer was obliged to provide reinsurance cover for such risks, which attached to the reinsurance contract automatically.

The reinsurer also raised various other defences to avoid liability.

Held, allowing the claim:

Whether the reinsurer offered facultative reinsurance to the insurer

(1) If the terms of the reinsurance contract alone were considered, the better view is that the reinsurance contract was open obligatory in nature:

1. (a) The reinsurance contract was described as a ‘CAR Master Policy Program’. A witness who had experience in the Korean insurance and reinsurance industry had testified that in the Korean reinsurance market, a ‘master policy’ refers to open obligatory cover. The reinsurer did not effectively challenge this assertion: at [26].

2. (b) The reinsurance contract fixed the reinsurance premium at the outset. A fixed premium was a typical term under such an open obligatory policy: at [27].

3. (c) The reinsurance contract stated that the insured sum for the period 11 June 2007 to 10 June 2008 was KRW 70 bn. If facultative reinsurance had been intended, there would have been no need to set a limit of KRW 70 bn or any other limit for the simple reason that the reinsurer would have been entitled to examine each risk and decide whether to accept it and on what terms: at [28].

4. (d) The reinsurance contract expressly provided that the reinsurance cover was for ‘one year from June 1 st 2007’ and that all projects were to be declared on a monthly basis. If the policy was facultative in nature, the insurer would not have had to declare all risks to the reinsurer as such a contract would have given the insurer the liberty to decide which risks to cede to the reinsurer, who is entitled to accept or decline any risk ceded to it: at [29].

5. (e) It was rather telling that while all projects undertaken by the client and insured by the insurer had to be declared to the reinsurer on a monthly basis, there was no provision in the contract that the monthly declarations were subject to the reinsurer's acceptance of the declared risks. It is most unlikely that Ms Sze To, who had proposed rather substantial amendments to the draft terms of the reinsurance contract on three occasions, would have overlooked having an express term making the attachment of risk conditional upon the reinsurer's acceptance if a facultative reinsurance contract had been intended: at [30].

(2) The Singapore courts had moved away from the traditional manner of interpreting contracts and had adopted the contextual approach for the interpretation of contracts outlined by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 although this has been done in tandem with the provisions of the Evidence Act (Cap 97, 1997 Rev Ed), which incorporated the parole evidence rule in s 94: at [31].

(3) In the present case, the parties clearly did not intend to embody their entire agreement in a written contract. That was why both parties relied on extrinsic evidence to shed light on the nature of the reinsurance policy. Such evidence would be useful if it was relevant, reasonably available to all the contracting parties and related to a clear or obvious context. In relation to the background to the contract, the most telling evidence on the nature of the reinsurance cover appeared in Ms Sze To's own handwritten remarks on the reinsurer's internal documents. She had used the words ‘open cover’ which indicated that the reinsurance contract was open obligatory in nature: at [33] to [35].

(4) When construing the legal nature and consequences of an agreement...