OF SHIFTING WINDS – INSURED'S PRE-CONTRACTUAL DUTY OF GOOD FAITH IN SINGAPORE

• Citation: (2018) 30 SAcLJ 345
• Published date: 01 December 2018
• Date: 01 December 2018
• Author: YEO Hwee Ying LLB (Singapore), LLM (London); Associate Professor, Faculty of Law, University of Singapore.

Just over 250 years ago, the infamous landmark case of Carter v Boehm laid the foundation for the principle of utmost good faith in insurance law in common law jurisdictions as well as established the uberrimae fidei principle in Singapore. At its core, the uberrimae fidei principle imposes a reciprocal duty on both the insurer and the insured to demonstrate good faith. Naturally, the most classic and notorious aspect of the duty pertains to the insured's pre-contractual duty of disclosure. As an ex-British colony and a legatee nation, Singapore has received much of this jurisprudence. This paper examines how the courts in Singapore have dealt with this doctrine of pre-contractual duty of disclosure and whether Singapore has similarly imported the unsatisfactory position.

I. Introduction

1 The iconic English case of Carter v Boehm1 laid the foundation for the principle of utmost good faith in insurance law in common law jurisdictions (including Singapore). As this 1766 case has just marked its 250th anniversary in 2016, the time is ripe for a re-examination of such a seminal judgment and its impact on the Singapore jurisprudence.

2 The uberrima fides principle essentially imposes a reciprocal duty on both the insurer and the insured to demonstrate good faith pre-contractually and post-contractually. Of particular concern in this article is the insured's duty of good faith because the doctrine has evolved over the centuries in favour of the insurer. In recent years, however, the content of the duty has been in a state of flux and the problems of the much-criticised pre-contractual duty have finally been addressed in England via the enactment of the Consumer Insurance (Disclosure and Representations) Act 20122 (“CIDRA”) (which applies to

consumer insurance policies) and the Insurance Act 20153 (which applies to business insurance policies).

3 As a former colony and legatee nation, Singapore has received much of the English jurisprudence. This article traces how the local courts in Singapore have dealt with this doctrine and developed the law, with the discussion primarily focusing on the perspective of the insured's pre-contractual duty. It is submitted that Singapore is now at a crossroads and has to decide whether to remain static or opt to be unshackled from the worst excesses of the common law pre-contractual duties. The article will additionally consider how Singapore should forge ahead to ameliorate the problems still associated with the good-faith doctrine in the local insurance industry.

II. Legal legacy

4 It should be worthwhile at this juncture to reflect on the historical background before proceeding to the main discussion on how Singapore ought to deal with the various insurance issues stemming from Carter v Boehm.

A. Weaknesses spawned by Carter v Boehm

5 The development of the duty of good faith may be traced to the well-known articulation of Lord Mansfield in Carter v Boehm:4

Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only: the underwriter trusts to his representation, and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risk as if it did not exist …

This oft-cited passage formed the foundational basis for the insured's pre-contractual duty. In view of the poor communication facilities and delayed overseas-news coverage that existed in the 18th century, the insured was presumed by Lord Mansfield to be the party with superior knowledge regarding the matter to be insured. There was a clear-cut case of information imbalance existing then in Carter v Boehm: the insurer, who was based in London, was not apprised of what the insured knew was happening thousands of miles away in Sumatra, given the

technology that was available at the time. Nowadays, however, in the world of data analytics and real-time news, the insurer can no longer claim to be disadvantaged with regard to the availability of information. In fact, modern-day insurance companies – with their heavy reliance on statistical analysis and information-technology tools – have even more access to superior knowledge than the layman insured.

6 Carter v Boehm was essentially the headwaters from which the streams of good faith in insurance law flowed. Since communication technologies were rather rudimentary then, the way the duty of good faith had evolved over the past centuries was pivoted on the presumption of information asymmetry. There arose a trail of English judgments that readily favoured the insurer who found it all too easy to avoid liability by faulting the insured for not disclosing material information. In 1906, the UK Marine Insurance Act5 (“MIA 1906”) codified the common law insurance principles, and the disclosure test contained in s 18 chose the perspective of the prudent insurer. The doctrine was further blighted in 1984 when Container Transport International, Inc v Oceanus Mutual Underwriting Association (Bermuda) Ltd6 (“Oceanus”) applied a very low threshold for the materiality test where “mere influence” (as opposed to “decisive influence”) was all that was needed for the information to be viewed by the insurer as material; the single-pronged test thus created for triggering the disclosure obligation was manifestly unfair to the insured and fortified the insurer's hand considerably.

7 Some glimmer of hope surfaced around 1990 with the resuscitation of the reciprocity doctrine in La Banque Financière de la Cité SA v Westgate Insurance Co Ltd7 (“Westgate Insurance”). However, serious breakthrough came only in 1995 with Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd8 (“Pan Atlantic”) introducing the second limb of inducement in the test of materiality. In the upshot, the materiality test henceforth became two-pronged – with the objective test of the prudent insurer having to be influenced by the material information and the subjective test of the particular insurer having to be induced to arrive at a different decision had there been no non-disclosure or misrepresentation.

B. Effect on Singapore

8 The jurisprudential foundation for Singapore to follow English law had been set out by her British colonial master. To provide the legal framework for governing the Straits Settlements (which included Penang, Malacca as well as Singapore),9 the British issued in 1826 the Second Charter of Justice10 as the basis for the general reception of English law existing in England at the time; it may thus be said that English insurance principles have applied to Singapore since then. The Civil Law Ordinance11 (“CLO”) was enacted later in 1878 to allow for the continuing reception of English mercantile law; according to s 5 of this Ordinance, the law for application when dealing with local commercial activities (including insurance-related businesses) “shall be the same as would be administered in England in the like case at the corresponding period, if such question or issue had arisen or had to be decided in England”.

9 After attaining independence in 1965, Singapore still found it beneficial to retain the common law legacy in order to attract businesses and investments. However, Singapore could not continue to be permanently tethered to England. Hence, Singapore Parliament enacted in 1993 the Application of English Law Act12 (“AELA 1993”) to cut off the apron strings and declare the extent to which English law remained applicable to Singapore. On 12 November 1993, the provision for the continuing reception of English law under s 5 of the CLO was repealed; that became the cut-off reception date and “the common law of England (including the principles and rules of equity), so far as it was part of Singapore law immediately before 12 November 1993, shall continue to be part of the law of Singapore”.13 The English MIA 1906 was thereafter re-enacted as a local statute in 1994;14 although a codification of the law relating to only marine insurance, this statute can be taken to be generally reflective of the common law position of and shares much commonality with general insurance law (especially with regard to the good-faith doctrine).

10 What then is the implication for Singapore? Do English decisions still apply after 12 November 1993? It is submitted that they continue to have very strong persuasive force in Singapore. However,

Singapore courts retain much judicial discretion in determining whether to follow English common law after 12 November 1993, as asserted extrajudicially by Andrew Phang Boon Leong JA.15 When fleshing out transplanted doctrine, Singapore courts may adapt the jurisprudence to meet the local social, legal and political context.

11 Rather than eschewing the baggage of Carter v Boehm and re-fashioning the doctrine of the utmost good faith, Singapore had unfortunately inherited all the weaknesses – warts and all. The first Singapore case where Carter v Boehm was explicitly mentioned is Tat Hong Plant Leasing Pte Ltd v Asia Insurance Co Ltd16 (“Tat Hong”), where the insured (which was in the business of leasing cranes) was not required to complete any proposal form by virtue of its long-standing business relationship with the insurer. Hence, the insured argued that the insurer had waived the obligation to disclose material information because the latter chose not to enquire about the subject matter of the insurance. However, both first-instance and appellate courts decided in favour of the insurer as the insured's variation of its standard lease agreement with the lessee was found to be “a material fact … which a prudent insurer would take into account when reaching his decision whether or not to accept that risk or what premium to charge”17 and “the fact that in this case the insurer did not specifically ask for the...