Insurance Law

• Date: 01 December 2020
• Author: YEO Hwee Ying LLB (Singapore), LLM (London); Associate Professor, Faculty of Law, National University of Singapore.
• Citation: (2020) 21 SAL Ann Rev 619
• Publication year: 2020
• Published date: 01 December 2020

I. Introduction

19.1 In 2017, Singapore Academy of Law convened the Law Reform Subcommittee (Insurance) (“the Subcommittee”) — on which this author sits — to evaluate the changes introduced by the UK Insurance Act 20151 with a view to proposing recommendations for reforming the local corpus of law governing insurance. In 2019, a preliminary consultation paper was circulated by the Subcommittee among the local insurance community and various stakeholders had thereafter proffered their comments. After taking the feedback thus garnered into consideration, the Subcommittee finalised the list of recommendations proposed in the Report on Reforming Insurance Law in Singapore2 for possible reform of the following areas in Singapore's insurance law:

(a) duty of utmost good faith and related duties;

(b) insurable interest;

(c) brokers' responsibility for unpaid premiums; and

(d) late payment of claims.

19.2 Apart from the Subcommittee's publication of the report containing the insurance law reform recommendations, 2020 was not a particularly fecund year for the development of local insurance law in terms of case law jurisprudence. There were only two interesting District Court cases reported in 2020 relating to certain aspects of insurance law: each applied and iterated well-established principles with no extension or development of new legal principles.

II. “Take reasonable precautions” term in indemnity policy

19.3 The first District Court case, Linda Er Siew Cheng v Chong Qing (Origin) Steamboat,3 stemmed from the injuries suffered by a diner during an unexpected explosion at a steamboat restaurant. Although the

facts were apparently quite fiery, the issue was rather less incendiary: the question that arose in two of the defences tendered by the insurer before the court was whether the threshold standard for triggering the policy term concerning the insured's duty to “take reasonable precautions” required recklessness as opposed to mere negligence.

A. Facts

19.4 On 4 April 2015, Linda Er Siew Cheng and her friend went to Chong Qing (Origin) Steamboat (“CQ Steamboat”) for late-night supper. During the course of their meal, the gas canister used for cooking steamboat ingredients exploded. As a result, Linda had to be hospitalised because of the burns sustained on her face and upper limbs.

19.5 Initially, Linda commenced proceedings against CQ Steamboat for negligence, alleging that the accident was caused by the waitress who inserted a tissue wad into the safety switch of the steamboat stove which had been repeatedly tripping. When CQ Steamboat in its defence counter-asserted that the explosion should instead be blamed on Swee Huat Engineering (“SH Engineering”) which was regularly supplying gas canisters to the restaurant at the time, Linda decided to amend her statement to add an alternative claim against SH Engineering.

19.6 CQ Steamboat was covered under the Cafecare Insurance Policy issued by Liberty Insurance which undertook to indemnify the restaurant against, inter alia, all compensations for accidental bodily injuries occurring in connection with the steamboat business. After receiving notification of the insurer's intention to deny liability, CQ Steamboat had no other recourse but to commence third-party proceedings against Liberty Insurance — in addition to, but separately from, the third-party proceedings already lodged by CQ Steamboat against SH Engineering.

B. Holding

19.7 There were thus four parties appearing before the court for this case:

(a) proceedings initiated by Linda against CQ Steamboat and SH Engineering for negligence;

(b) proceedings initiated by CQ Steamboat against SH Engineering for negligence and/or breach of contract; and

(c) proceedings initiated by CQ Steamboat against Liberty Insurance for repudiating liability.

(1) Linda's and CQ Steamboat's claims against SH Engineering

19.8 With regard to Linda's claims against CQ Steamboat and SH Engineering, as well as CQ Steamboat's claim against SH Engineering, the court was presented with three versions of events for consideration when determining the likely cause of the explosion. After a comprehensive evaluation of the parties' testimonies and the supporting evidence, the court found the version put forward by Linda to be the most convincing: since the steamboat stove's safety switch had been deactivated by the waitress's insertion of a tissue wad, the pressure building up in the gas canister could not be released by the tripping mechanism (which, as explained in the instruction manual, should automatically be triggered under such a situation) and would thence have caused the resulting explosion.

19.9 Based on this finding of fact as to what constituted the cause of the accident, the court decided in favour of Linda's claim against CQ Steamboat and consequently dismissed the claims lodged respectively by Linda and CQ Steamboat against SH Engineering.

(2) CQ Steamboat's claim against Liberty Insurance

19.10 Hence, the key issue before the court was whether CQ Steamboat had breached certain conditions incorporated into the policy by Liberty Insurance, which submitted the following arguments for repudiating liability:

(a) CQ Steamboat did not, as required by the policy, “take all reasonable precautions to prevent loss, damage or accidents including … supervision of employees”.

(b) CQ Steamboat did not, as required by the policy, “take all reasonable precautions to prevent loss, damage or accidents including … compliance with all statutory obligations”.

(c) Liberty Insurance also relied on the provision that all benefits under the policy would be forfeited if CQ Steamboat “shall not comply with our [that is, Liberty Insurance's] requirements or shall hinder or obstruct us [that is, Liberty Insurance]” during the post-accident investigations.

(a) Defence 1 — Inadequate supervision of employees

19.11 For its first defence, Liberty Insurance asserted that CQ Steamboat's safety precautions were “lacklustre to the point of recklessness” in that the restaurant had been reckless when performing the following duties:

(a) failing to ensure that its employees were properly trained;

(b) failing to verify that its employees were well versed in the instruction manual and, more specifically, had understood how to deal with the warning signs associated with the steamboat stoves; and

(c) failing to identify potential fire-safety hazards.

19.12 Before a decision could be reached on this first defence, the court had to revisit the interpretation of the standard term “take all reasonable precautions” by applying the well-settled test of recklessness first propounded in Fraser v BN Furman (Productions) Ltd4 (“Fraser”) and subsequently endorsed in Lim Chin Yok Co Ltd v Malayan Insurance Co Inc.5 The threshold was recklessness instead of mere negligence: to be in breach of the term “take all reasonable precautions” contained in the Cafecare Insurance Policy (or other similar policies), the insured must be held to have acted recklessly, the rationale being that negligence is a mainstay in a third-party liability policy and it would be “repugnant to the commercial object of the contract” to interpret such a term so widely as to include mere negligence.6 The high bar set for recklessness required “actual recognition by the insured himself that a danger exists, and not caring whether or not it is averted”.7 In addition, the recklessness must be personal to the insured (that is, CQ Steamboat) rather than any of its employees (that is, the waitress who served Linda's table).

19.13 The facts led the court to conclude that Liberty Insurance had failed to show CQ Steamboat as having been reckless in supervising its waitresses. The evidence presented to the court did not offer any indication that inserting a tissue wad into the safety switch of the steamboat stove was a systemic practice authorised or condoned by (or even known to) CQ Steamboat. The inference, then, was that there was no actual recognition by CQ Steamboat itself that a danger existed. At most, the court found the waitress to be negligent when she responded to Linda's complaint of the steamboat stove's repeated tripping by resorting to the

insertion of a tissue wad instead of seeking advice from senior staff with more experience handling such stoves.

(b) Defence 2 — Non-compliance with statutory obligations

19.14 The second defence raised by Liberty Insurance was that CQ Steamboat had failed to take reasonable precautions in complying with statutory obligations as investigations revealed that the restaurant did not have, at the time of the accident, a valid licence for storing liquified petroleum gas and butane on the premises. However, the court pointed out that, on a proper construction of the condition contained in the Cafecare Insurance Policy to “take all reasonable precautions to prevent loss, damage or accidents including … compliance with all statutory...