Pacific Chemicals Pte Ltd v MSIG Insurance (Singapore) Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 02 October 2012
• Date: 02 October 2012
• Docket Number: Suit No 285 of 2010 (Summons No 805 of 2012)
• Court: High Court (Singapore)

Pacific Chemicals Pte Ltd

Plaintiff

and

MSIG Insurance (Singapore) Pte Ltd and another

Defendant

[2012] SGHC 198

Choo Han Teck J

Suit No 285 of 2010 (Summons No 805 of 2012)

High Court

Insurance—Property insurance—Whether loss or damage was ‘unforeseen and sudden’—Whether loss or damage was caused by or arose from ‘change in temperature’ or ‘inadequate operation of heating system’—Whether property for which indemnity was claimed was ‘property being worked on’

Words and Phrases—‘Unforeseen and sudden’

Words and Phrases—‘Caused by or arise from’

The plaintiff (‘the Plaintiff’) manufactured phthalic acid (‘PA’) at a plant (‘the Plant’). The Plaintiff sold PA in both its molten and solid forms. The Plaintiff entered into a Fire Industrial All Risks Insurance Policy (‘the Policy’) with the defendants (‘the Defendants’) as co-insurers. The Policy covered, inter alia, loss and damage to property of the Plaintiff for the period of 1 April 2006 to 31 March 2007. An endorsement to the Policy (‘the Endorsement’) was also issued and applied with effect from 1 April 2006 to 31 March 2007.

Two incidents occurred at the Plant that became the subject of these proceedings. In the first incident, crude PA was manufactured in the Plaintiff's PA Reactor D-14 (‘the Reactor’) in the Plant. After the crude PA was purified and distilled, it was transferred and stored in the PA storage tank T-501 (‘the Tank’) which was heated at 150ºC to keep the PA in a molten state. On 8 May 2006, a cooling circuit control valve in the Plant malfunctioned. The Reactor overheated and shut down automatically. The Reactor contained tubes filled with catalysts. The catalysts were exposed to excessive heat and were damaged. The Plaintiff entered into an agreement with Hudson Delphi Engineering Pte Ltd (‘Hudson’) to drain and refill the tubes. In these proceedings, the Plaintiff claimed an indemnity for the amount paid to Hudson and business interruption costs, less US$600,000 (being an interim payment made by the Defendants to the Plaintiff without admission of liability).

Although production of the crude PA ceased after the first incident, the Plaintiff continued to purify and distil the crude PA that was already produced. The Plaintiff decided to implement a cold shut down of the Plant after the purification and distillation process was complete. Before doing so, it had to transfer the molten PA in the Tank to a tank truck. It was not disputed that the molten PA could not be discharged completely from the Tank, and it was expected that some molten PA would be left in the Tank (ie, ‘the Residual PA’). The maximum amount of Residual PA was expected to be no more than 100mt. The Residual PA could only be removed by lowering the temperature in the Tank to below 131ºC to solidify the molten PA. The PA flakes would be dug out and sold. The Plaintiff relied on the reading on the equipment gauge and turned off the heating system of the Tank on 4 June 2006. However, the equipment gauge had in fact malfunctioned and the actual amount of Residual PA was 476mt instead of 100mt. The Plaintiff claimed the difference in the proceeds it could have obtained if the additional 376mt of Residual PA was extracted before the cold shut down and sold in molten form rather than solid form.

The Tank was also damaged. When the heating system of the Tank was shut down, the gases within the Tank contracted as they cooled. Under normal circumstances, the vent line (a steel pipe at the roof of the Tank) would have allowed gas to be drawn into the Tank to prevent negative pressure from being generated within the Tank during the cooling process. However, the temperature in the vent line dropped below the melting temperature of PA vapour. PA vapour in the Tank and vent line solidified and blocked the vent line. Excessive negative pressure built up inside the Tank and it buckled inwards. The Plaintiff claimed the costs of dismantling and repairing the Tank.

The Defendants argued that the Plaintiff could not claim an indemnity under the Policy for damage to the catalysts as it was excluded under item 2 (ii) of the Endorsement. The Plaintiff also could not claim for the loss and damage arising from the solidification of the Residual PA and loss and damage to the Tank as the damage in each case was not ‘unforeseen and sudden’. In addition, loss and damage arising from the solidification of the Residual PA and loss and damage to the Tank were caused by or arose from a ‘change in temperature’ or ‘inadequate operation of heating system’ and was thus excluded from coverage by General Exclusion 4 (d) of the Policy. The Defendants also argued that the Residual PA was ‘property being worked on’ and coverage was excluded under sub-cl (k) of ‘Property Excluded Under Section I’ of the Policy.

Held:

(1) Loss and/or damage to the catalysts was excluded by item 2 (ii) of the Endorsement: at [6].

(2) Section I of the Policy stated that it was the loss or damage that must be sudden and unforeseen, rather than the cause thereof. It was the nature of the physical loss or damage that was the focus of the inquiry: at [8].

(3) The word ‘unforeseen’ was commonly understood to mean ‘unexpected’ or ‘unanticipated’. Although courts in some cases appeared to use ‘unforeseen’ and ‘unforeseeable’ interchangeably, this was misleading as ‘unforeseeable’, unlike ‘unforeseen’, was an objective term: at [9].

(4)‘Sudden’ meant ‘abrupt’ or ‘quick’. The word ‘sudden’ should not be construed as having the same meaning as ‘unforeseen’. Courts should ‘be slow to conclude that words in a single document are tautologous and superfluous’: at [9].

(5) The Plaintiff did not foresee the presence of the additional 376mt of the Residual PA in the Tank. The additional 376mt of Residual PA was left in the Tank because the Plaintiff relied on the reading on the equipment gauge, not knowing that it was erroneous. The solidification of the 476mt of Residual PA was not a foreseen consequence of the lowering of the temperature in the Tank. The solidification of the Residual PA in the Tank was, however, not sudden and took place over a period of time: at [10].

(6) As for the damage to the Tank, it was not seriously disputed that the loss and/or damage was unforeseen. The word ‘sudden’ did not necessarily require the damage to be ‘instantaneous’. Although it was not clear whether the Tank continued to buckle over a period of time, it appeared that the initial caving in of the Tank happened rapidly. The loss and/or damage to the Tank was ‘sudden’: at [11].

(7) The words ‘caused by’ and ‘arising from’ mean the ‘proximate’ cause. It is possible that there could be two concurrent and proximate causes of a loss, and if one of the proximate causes was an excepted cause, then the insurer would not be liable for the loss. This was so if there were ‘two causes equal or nearly equal in their efficiency in bringing about the damage’. The proximate cause of the loss arising from the solidification of the 476mt of molten PA was the malfunctioning of the equipment gauge and not a ‘change in temperature’ or the ‘inadequate operation’ of the heating system. The former led to the Plaintiff's decision to turn off the heating system of the Tank. In that sense, the causes were not concurrent. While it might be that the change in physical state of the Residual PA in the Tank was due to a change in temperature, the very reason why an additional 376mt of molten PA was left in the Tank was because the Plaintiff relied on an erroneous reading on the equipment gauge: at [13].

(8) The damage to the Tank was caused by a ‘change in temperature’ and would thus be excluded from coverage by General Exclusion 4 (d) of the Policy. The proximate cause of the Tank buckling inwards was the shutting down of the heating system of the Tank and vent line: at [14].

(9) The molten PA in Tank was a product in its eventual state as envisaged by the Plaintiff rather than ‘property being worked on’. It was not property undergoing a process of conversion to its eventual state. Coverage for loss and damage to the Residual PA was thus not excluded under sub-cl (k) of ‘Property Excluded Under Section I’ of the Policy: at [15].

Aegis Electrical and Gas International Services Co Ltd v Continental Casualty Co [2007] EWHC 1762 (refd)

African Products (Pty) Ltd v AIG South Africa Ltd [2009] ZASCA 27 (folld)

Anderson & Middleton Lumber Co v Lumbermen's Mutual Casualty Co 333 P 2d 938 (1959) (refd)

Bina Puri Sdn Bhd v MUI Continental Insurance Bhd [2010] 1 MLJ 347 (refd)

Commonwealth Smelting Ltd v Guardian Royal Exchange Assurance Ltd [1984] 2 Lloyd's Rep 608 (refd)

Henry A Kuckenberg, Harriet Kuckenberg and Lawrence Kuckenberg, Doing Business as Kuckenberg Construction Co v Hartford Accident & Indemnity Co 226 F 2 d 225 (9th Cir, 1955) (refd)

J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyd's Rep 32 (refd)

Kin Yuen Co Pte Ltd v Lombard Insurance Co Ltd [1994] 1 SLR (R) 964; [1994] 2 SLR 887 (refd)

L'Union des Assurances de Paris IARD v Sun Alliance Insurance Ltd [1995] NSWCA539 (refd)

Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC350 (refd)

Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corp Ltd [1974] QB 57 (refd)

Vee H Aviation Pty Ltd v Australian Aviation Underwriting Pool Pty Ltd [1996] ACTSC 123 (folld)

Insurance Act (Cap 142, 2002 Rev Ed)

Rules of Court (Cap 322, R 5, 2006 Rev Ed) O33 r 2

Philip Ling (Wong Tan & Molly Lim LLC) for the plaintiff

Elaine Tay Ling Yan and Wong Ying Shuang (Rajah & Tann LLP) for the defendants.

Judgment reserved.

Choo Han Teck J

1 The plaintiff (‘the Plaintiff’) is a company incorporated in Singapore. It manufactures and trades in petrochemical and related products including phthalic acid (‘PA’) which it manufactures at a plant at 36 Tuas Road (‘the Plant’). PA is an industrial chemical...