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CONSTRUCTION, LOSSES, RISKS & CAUSATION

Birds: Until recently, freedom of contract in insurance contracts reigned and


thus the only way to know whether or not a particular loss was within the ambit
of a particular policy was to apply to the insurance contract the general
principles of construction applicable to all written contracts.
o To refer to the rules of construction as affecting only risks covered and
risks excepted is misleading, because these principles may well apply to
the other contents of the insurance contract, for e.g., the meaning of
questions and answers on a proposal form, or the warranties and
conditions in a policy.
o In certain respects, it is not strictly accurate to refer to the construction of
words, rather the problem is one of describing their scope. For e.g. what
loss means in the context of an insurance policy is not so much a question
of construction, but of description or definition. The same can be said of
the word accident commonly found in insurance policies. The rules of
construction do not help in finding out what these words mean, but some
principles may be found to assist in explaining or defining them.
Birds: Although as a matter of construction, a loss may fall within the risks
covered by a particular policy, it may still be necessary for the insured to show
that the loss was caused by such a risk and not predominantly by an uninsured
risk. Thus the issue of causation needs to also be considered.
Birds: (Now inapplicable to insurance contracts effected by an individual
consumer insured) There is no requirement that an insurance policy is
reasonably intelligible in terms of content and there is no requirement that it be
especially legible. In Koskas v. Standard Marine Insurance Co Ltd [1927], the
judge at first instance refused to allow the insurer to rely upon a particular
condition on the grounds that the print was so small that it was barely legible.
The CA overruled this because the print was legible, albeit with difficulty.
o Per Bankes LJ: I can read this with comparative ease. I am rather afraid of
the doctrine that you can get out of clauses by saying they are difficult to
read. There may be extreme cases. I have in mind the bill of a well known
shipping line printed on red paper which was calculated to cause
blindness in anyone reading it.
o **Poh: It is thus clear that the terms and conditions appearing in an
insurance policy are intended not only to be read but strictly complied
with by an insured. Failure by an insured to comply with the terms of the
policy often means that the insureds claim is liable to be defeated even
though he might suffer a genuine loss.
Poh: Although it is possible in certain classes of insurance contracts to enter into
an oral contract of insurance (Murfitt v. Royal Insurance Co Ltd [1922]: there
was nothing in English law to prevent the formation of a verbal contract of
insurance), most insurance contracts are in practice embodied in a written
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document. The tasks faced by the courts in construing an insurance contract is


in the main, no different from construing any other written document.
o The only likely difference in respect of an insurance contract is that the
insurer is invariably the party responsible for putting the contract
together.
o In such a situation, there is greater room for the contra proferentem rule
to apply, namely, if an ambiguity is found in the agreement, the ambiguity
is to be construed more strongly against the party who formulated the
contract.
1.
Risk Intentional & Negligent Conduct / Reasonable Care Conditions
Birds: The essence of insurance is that it provides protection against the risks of
uncertain events befalling the insured, normally events that would be adverse
to him.
Poh: An insurance policy is intended to insure against the occurrence of an
uncertain event, an event which is unexpected and fortuitous. The indemnity is
payable upon the occurrence of an event which may or may not happen. It
follows from the underlying basis of the contract that if an insured were to
intentionally or deliberately bring about an insured event, he is not entitled to
recover under the policy as this is not the basis on which the insurer has
contracted with the insured. Such an event is outside the scope of the policy
because it does not constitute an uncertain event (see Beresford v. Royal
Insurance Co [1938] UKHL).
o However if a loss is caused by the negligence of an insured, the event
causing the loss is uncertain as it is unexpected and fortuitous. The loss is
within the scope of the policy as it is caused by an uncertain event (Tinline
v. White Cross Insurance Association Ltd [1921]).
Birds: As a general rule, the fact that a loss occasioned by the negligence of the
insured is irrelevant, but insurance does not cover losses deliberately caused by
him (Britton v. Royal Insurance Co [1866]: no cover for deliberate arson by the
insured of property covered by fire property; Beresford v. Royal Insurance Co
[1938] UKHL: no cover for sane suicide of a life insured under a life policy).
o However, express policy terms can, if appropriately worded, cover
deliberate losses, so that the general rule is not an absolute one (in
practice, only likely to apply in respect of suicide under a life policy).
o In addition, the general rule excludes only losses caused deliberately by
the insured himself. The fact that his spouse intentionally destroys
property he has insured does not prevent the insured who is not a party to
the act from recovering (Midland Insurance Co v. Smith [1881]; Shaw v.
Robberds [1837]: or employee). The policy can of course provide
otherwise and exclude deliberate acts of for example certain employees
(KR v. Royal & Sun Alliance Plc [2006] UKCA).
A policy may expressly exclude losses deliberately caused by the insured or a
member of his or her family (Patrick v. Royal London Mutual Insurance Society
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Ltd [2006] UKCA: a house and home policy excluding liability for an insureds
wilful acts would cover an insureds reckless conduct).
o FACTS:
o The policy excluded any wilful, malicious or criminal acts. The damage
was caused by the insureds co-insured 11 year old son who had set fire to
a den made of pallets which then damaged a neighbouring property and
destroyed goods in it.
o HOLDING:
o Wilful covered an act that was deliberate and intended to cause damage
of the kind in question; it would be enough to show that the insured was
reckless as to the consequence of his act. As the boy was unaware of the
risk and there was nothing to show that he did not care whether or not the
property burnt down, the exclusion did not apply.
o EXCERPTS:
o What is the proper construction of the liability extension in this policy? It
provides indemnity to the insured against legal liability arising from
incidents resulting in accidental damage to property. This wide cover is
excluded if the incident giving rise to the liability involves any wilful,
malicious or criminal act. The adjectives qualify or characterise the
excluded acts and look to the quality of the act and the state of mind of
the actor.
o It is tolerably clear what malicious or criminal acts are and I think these
words lend colour to what is meant by a wilful act. In this context it must
be some act which is blameworthy. If so, something more than a
deliberate or intentional act is contemplated. If that is all the word meant,
the wide cover apparently provided by the extension would largely be
taken away by the exclusion. Most acts, including negligent acts, are
deliberate and intentional.
o Obviously if the act is deliberate and intended to cause damage of the
kind in question it will be within the exclusion. It will be wilful and might
also be malicious or criminal. But for an act to be wilful it is not necessary
to go as far as this. It will be enough to show that the insured was reckless
as to the consequences of his act. Recklessness has been variously
defined but if someone does something knowing that it is risky or not
caring whether it is risky or not he is acting recklessly. Put more precisely
for present purposes if the insured is aware that what he is about to do
risks damage of the kind which gives rise to the claim or does not care
whether there is such a risk or not, he will act recklessly if he goes ahead
and does it. I think such conduct was intended to be included in the
exclusion and I would equate a reckless act with a wilful act for this
purpose. This approach focuses upon the state of the insured's mind when
he does the act rather than its intended consequences. Defined in this
way the exclusion does not require the insured to intend to cause damage
of the kind in question.
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o It falls somewhere between that contended for by the insurers and that
found by the judge. It deals satisfactorily with the example which troubled
me most. If I light a bonfire in my garden which gets out of control and
burns down my neighbour's house would I be covered by this policy? On
the insurer's construction I would not because I had started the fire
deliberately; on the judge's construction I would be covered because I had
not intended to burn down my neighbour's house. But if I was reckless in
the sense that I have explained, cover would be excluded and rightly so.
My act could properly be characterised as wilful.
o My conclusion about the proper construction of the policy does not
however affect the result of this case. Having regard to his age and his
statement, I do not think Christopher's conduct could be described as
reckless. It could be described as stupid but that is not enough. There
could have been another result if his statement had been different, but
taking it as it stands (as I must) he was unaware of the risk that his fire
might burn down the mill and there is nothing to show that he did not care
whether it might have done so or not.
An insured who deliberately sets fire to the insured premises would be
precluded from recovering under the policy on contractual and public policy
grounds (Porter v. Zurich Insurance Co [2009] UKHC).
o FACTS:
o The policy excluded any wilful or malicious act. The insured who had
been drinking heavily and was suffering from a persistent delusional
disorder decided to kill himself by setting fire to the insured property. He
changed his mind and escaped from the property after a large part of the
insured property was ablaze.
o The insurers denied liability to indemnify on two grounds: 1) that because
he started the fire intentionally, recovery by him would be contrary to
public policy and 2) that the policy excluded wilful acts. The insured
contended that his mental illness was so grave at the time of the fire that
his thoughts and judgment were grossly impaired and he had not acted as
a free agent, therefore his conduct was not deliberate, wilful or malicious.
o HOLDING:
o It was held that the insured who recklessly caused the loss would only be
able to recover if he could show that he was insane by reference to the
MNaghten rules.
o It was trite law that an assured could not recover under a policy of
insurance in respect of a loss intentionally caused by his own criminal act.
The rule was founded on the principle of public policy applicable to all
contracts: that a court would not assist a criminal who sought to recover
any kind of benefit or indemnity for his crime, for to do so would remove a
restraint upon the commission of crimes (Beresford v. Royal Insurance Co;
Gray v. Barr applied).
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o It was a general rule of insurance law that an assured cannot normally


recover the policy monies when he had intentionally brought about the
event upon which the policy specifies the money to be payable.
o An act which was deliberate and intended to cause damage of the kind in
question would be within the general exclusion clause. It would be wilful,
and might also be malicious or criminal. But for an act to be wilful it would
be enough to show that the insured was reckless as to the consequence of
his act (Patrick v. Royal London Mutual Insurance).
o If the assured was so insane as not to be legally responsible for his
actions, an act of incendiarisim would not prevent him from recovering
under the policy. Insanity could be shown only if the assured was
labouring under such a defect of reason, from disease of the mind, as not
to know the nature and quality of the act he was doing; or, if he did know
it, that he did not know he was doing what was wrong. The test was
difficult to satisfy.
o The insured had failed to demonstrate that when he set fire to the
property, his mental state was so impaired that he did not know the
nature and quality of the act he was doing or if he did know, that what he
was doing was contrary to law. On the contrary, the evidence made it
plain beyond any doubt that the insured knew precisely what he was
doing and that he knew that what he was doing was wrong. The fire arose
as a result of 3 separate factors: delusional disorder, life events and
alcohol, all of which contributed to the fire setting. The insureds mental
state was only one part of the causative thread and his delusional disorder
was not on its own sufficiently causative to meet the test of insanity.
1.1 Reasonable Care/Precaution Conditions
Poh: An insurer may however expressly exclude the risk of an insureds
negligence by requiring the insured to take reasonable care to prevent losses
under the policy. If this is done, an insured can no longer rely on his own
negligence to make a claim under the policy. However such a term cannot
operate to exclude an insureds negligence when the policy covers third party
liability. An insured is only legally liable to a third party if he is negligent.
o In a policy insuring against third party liability, the commercial object of
the policy is entirely negated if the insured is barred by the policy from
claiming an indemnity when he is negligent in causing the loss or damage
to the third party.
o An insurer can expressly require an insured to take reasonable precautions
to prevent accidents or damage to the insured property. How is such a
provision to be construed? Is the duty imposed by the insurer to be
construed literally?
If the duty is given a literal construction, it may well take away the
very indemnity the policy purports to provide under a third party
liability policy. An insured generally does not become liable to a third
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party unless he is negligent. If an insureds negligence constitutes a


breach of his contractual duty under the policy, then in reality no
effective insurance cover is provided by the insurer.
o A term requiring an insured to take reasonable precautions to prevent
accidents must be construed so as not to defeat the commercial object of
the policy. The policy is intended to provide an insured with insurance
coverage against third party liability when he is negligent.
o The courts have construed the contractual duty of an insured to take
reasonable precautions in a third party liability policy to mean that the
insured must not be reckless.
Birds: That the insured who is negligent can recover is subject to the important
qualification that a term of the policy may seek to exclude the insurers liability
in this respect, by imposing on the insured an obligation to take reasonable
care, which may be phrased as a warranty or condition or as an exception to the
risk. Whichever way it is done, the effect will be to relieve the insurer from
liability.
o Birds: There are basically two common form conditions of relevance for
liability insurance. 1) Admissions of liability and the conduct of
proceedings. 2) The obligation of the insured to take reasonable care.
This second standard condition requires the insured to take
reasonable precautions or care to avoid loss. Such a clause literally
construed would negate a large part of the cover intended to be
effected, since one of the major purposes of a liability policy is to
insure the insured against liability in negligence and negligence is a
failure to take reasonable care reasonable care when a duty of care
is owed. So the courts have adopted a common sense construction
of this condition.
An employer was not in breach of a term requiring him to take reasonable
precautions to prevent accidents under an employers liability policy unless he
acted recklessly (Woolfall & Rimmer Ltd v. Moyle [1942] UKCA).
o FACTS:
o The insured employer was vicariously liable for the acts of a foreman who
had failed to ensure that certain scaffolding was safe. The employers
liability policy provided that the assured shall take reasonable
precautions to prevent accidents and to comply with all statutory
obligations.
o The insurers contended that the plaintiffs were in breach of their duty to
take reasonable precautions to prevent accidents because the scaffolding
was defective and of insufficient strength. The duty to take reasonable
precautions to prevent accidents under the policy constituted a duty coterminous with and similar in quality to the duty owed by the insured to
their own employees.
o HOLDING:
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o The court rejected the insurers argument that the insure had therefore
failed to take reasonable precautions. The insured had complied with that
condition by selecting a competent foreman and reasonably delegating to
him certain tasks. The insured was not personally negligent, which was
the circumstance when the condition might apply.
o The commercial object of the policy would be negated if the duty imposed
by the policy was given its literal construction. The duty had to be
construed as meaning that the insured must not be reckless. The
plaintiffs had discharged their duty of care towards the insurers because
they employed a competent foreman who was responsible for selecting
the materials to be used at the painting job. Per Goddard LJ:
To accept the insurers contention would be to say that we insure you
against your liability for negligence on condition that you are not
negligent. That would be granting an indemnity with one hand and
taking it away with the other.
o By appointing a competent foreman the insured discharged the
contractual obligation owed to the insurers to take reasonable precautions
to prevent accidents. Per Lord Justice du Parcq:
It is not right to say that they delegated to another the duty which
they owed to the underwriters. In its nature, that is a duty which
they cannot delegate and when they appointed another person to
see that provision was made for the safety of their workmen they
were not delegating their duty to take reasonable precautions but
were performing it.
Birds: This sort of term has been common for some years in liability insurance
policies where sensibly a requirement of reasonable care has been construed to
be applicable only to reckless acts by an insured; otherwise such policies would
not provide the very basic cover against negligence liability for which they are
effected (Fraser v. Furman [1967] UKCA: when a policy covers an insureds
liability towards a third party, a term requiring the insured to take reasonable
precautions to prevent accidents and loss is to be construed as meaning that
the insured must not be reckless so as to achieve the commercial object of the
policy which is to guard against the insureds third party liability).
o FACTS:
o An employee sustained serious injuries when her hand was caught in an
electric welding machine. She recovered damages based on common law
negligence and breach of statutory duty against her employers for failing
to fence a dangerous part of the machinery. The employers who had
engaged insurance brokers to arrange insurance coverage for them took
out third party proceedings against the brokers claiming that they were
negligent because they failed to effect the necessary insurance coverage.
o The insurance brokers contended that if a policy had been effected, it
would contain a term requiring the insured to take reasonable precautions
to prevent accidents and disease and by virtue of the employers flagrant
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breach of statutory duty and their failure to fence a dangerous part of the
machinery, the insurers would have been entitled to repudiate liability
under the policy and the employers would have suffered no damage from
the brokers failure to effect the insurance policy.
o HOLDNG:
o The court went further than Woolfall so that only recklessness or worse on
the part of the insured will now amount to a breach of this condition.
Reasonable care does not mean reasonable as between the insured and
third party, but as between insured and insurer having regard to the
commercial purpose of the contract, which includes indemnity against the
insureds own negligence. The insureds omission or act must be at least
reckless, that is to say, made with actual recognition by the insured
himself that a danger exists, and not caring whether or not it is averted.
The purpose of the condition is to ensure that the insured will not,
because he is covered against loss by the policy, refrain from taking
precautions which he knows ought to be taken.
o When an employer was required to take reasonable precautions to
prevent accidents under an employers liability policy, there was no
breach of the duty unless it could be shown that the employer was
reckless. Mere negligence would not constitute a breach of the duty under
the policy, the insured must have acted recklessly, he must have
deliberately courted a danger the existence of which he recognised by
failing to take necessary measures to avert the danger. Here the employer
did not appreciate the risk in question and since so, they were not reckles
in failing to fence the machinery. Per Diplock LJ:
What is reasonable as between the insured and the insurer without
being repugnant to the commercial purpose of the contract is that
the insured, where he does recognise a danger should not
deliberately try to court it by taking measures which he himself
knows are inadequate to avert it.
It is not enough that the employers omission to take any particular
precautions to avoid accidents should be negligent; it must be at
least reckless; made with actual recognition by the insured himself
that a danger exists, and not caring whether or not it is averted.
The purpose of the condition is to ensure that the insured will not,
because he is covered against loss by the policy refrain from taking
precautions which he knows ought to be taken.
Poh: A bailee is generally not liable unless he is negligent in taking care of the
bailors goods.
If a bailee is required by his insurance policy to take reasonable precautions to
safeguard the insured property, the duty is to be construed as meaning that the
insured must not be reckless, this construction being necessary to ensure that
the commercial object of the policy is not negated by the terms of the policy (W
J Lane v. Spratt [1970]: a road haulier who was required to take reasonable
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precautions to safeguard the insured goods is only required not to act recklessly
or grossly negligent in his care of the insured goods).
o FACTS:
o A firm of haulage contractors was insured under a Goods in Transit policy
covering the insureds legal liability as carrier for loss of or destruction of
or damage to the goods/merchandise in transit. The policy stipulated that
the insured shall take all reasonable precautions for the protection and
safeguarding of the goods/merchandise. The firm hired a diver sent to
them through the Labour Exchange without asking for any references or
verifying the drivers identity. The driver disappeared with a lorry load of
bacon on his first day at work.
o HOLDING:
o The provision relied upon by the insurers did not apply to the hiring of an
employee and even if it did, it would only apply if the insured was reckless
or grossly negligent. Per Roskill J:
They are carriers of repute. The last thing they would have wanted
would have been wittingly to have taken on a dishonest employee.
Applying the test in Fraser, the underwriters have failed to show that
they refrained from taking the normal precautions because they
knew they were covered against loss by the policy and were thus
reckless even though they neglected to take precautions.
Poh: A policy taken out by an individual to insure his own property has to be
distinguished from a policy covering the insureds third party liability. In a policy
insuring an insureds own property, a term requiring the insured to take
reasonable precautions to safeguard the insured property may be given a literal
construction without being repugnant to the commercial object of the contract.
o An insurer is entitled to rely on an insureds contractual duty to take
reasonable precautions to safeguard the insured property.
o Such a precaution can require an insured to take keep any alarm systems
and other safety devices in full operation during the currency of the policy.
An insured can prove a breach of this duty by showing that the insured
has acted negligently in failing to ensure that the safety devices are kept
in working order.
o There is no need for the insurer to show that the conduct of the insured
was reckless.
o Although an insurer is entitled to require an insured to take reasonable
precautions to safeguard the insured property, it must be recognised that
the duty is to take reasonable precautions to safeguard the insured
property and not an absolute duty to safeguard the insured property. An
insured fulfils his duty under the policy if he takes reasonable steps to
safeguard the insured property.
A policy requiring an insured to keep a burglar alarm system in efficient working
order did not impose an absolute duty on the insured to ensure that the alarm
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system was fully operational at all times. The insured discharged his contractual
duty of care if he did everything possible to ensure that the alarm system was in
working order (Victor Melik & Co Ltd v. Norwich Union Fire Insurance Society Ltd
[1980]).
o FACTS:
o A warehouse storing treated leather was insured against the risk of theft.
The policy stipulated that it is a condition precedent to liability that a) the
burglar alarm installed at the premises is kept in efficient working order.
One day the insured was informed that a fault had developed in the
telephone line connected to the alarm system and conducted a check on
their premises to find that the telephone lines were not working. The
alarms were then reset to give an audible signal. The thieves who had
earlier cut the telephone lines broke into the insured premises that night.
o The insurers contended that the plaintiffs failed to keep their burglar
alarm system in efficient working order. The insured contended that they
were not in breach of the term pertaining to the alarm system and even if
there was a breach, the insurers either waived the breach or were
estopped from relying on the breach.
o HOLDING:
o The insured had fulfilled their duty to keep the alarm system in efficient
working order because they did everything possible to rectify the fault.
There was nothing in the conduct of the insurers to show that they had
waived the beach of condition. Per Woolf J:
The burglar alarm is not required to be in efficient working order but
kept as such. The word kept implies within it a requirement that
before there can be a breach of that condition by an insured, he
must be aware of the facts which give rise to the alarm not being in
efficient working order, or if he is not aware of those facts, he should
at least be in a position where exercising common care, he should
have known those facts.
Furthermore he must be given a sufficient opportunity to have the
alarm installed once more restored to proper working order.

The burglar alarm installed at the premises was at all times in


efficient working order, what was not in working order was the
telephone line (property of the Post Office) which had been cut. That
line was cut outside the premises of the insured. The cut prevented
the alarm doing what was intended, but the alarm itself was
operating efficiently and therefore there was no breach of the
condition.
Poh: Terms in an insurance policy are to be construed consistently throughout
the policy. If a policy covers both an insureds own property as well as his third
party liabilities, a term in the policy requiring the insured to take reasonable
precautions to safeguard the insured property and to prevent accidents is to be
construed consistently throughout the policy to mean that the insured must not
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be reckless. It is necessary to adopt this construction to ensure that the term is


not repugnant to the commercial object of the policy as it also insures against
third party liability.
Birds: More recently, it seems that such a term has appeared in property and
other first party insurance requiring for e.g. the insured to take reasonable care
of insured property or to maintain it in a reasonable condition. Such a term will
be construed in the same way as in liability policies so that mere negligence by
the insured will not preclude recovery (Sofi v. Prudential Assurance Company Ltd
[1993] UKCA: when a policy insured both an insurers own property and his third
party liabilities, terms found in the policy were to be construed consistently
throughout the policy such that a term requiring the insured to take reasonable
steps to safeguard the insured property meant that the insured must not be
reckless if the term was to have a consistent meaning throughout the policy).
o FACTS:
o The domestic all risks policy and travel policy provided for conditions
requiring the insured to take reasonable care to avoid loss. The insured
who was travelling to France arrived at the Dover ferry with time to spare.
He left his car for 15 minutes in the unattended car park at Dover Castle
with $50000 worth of valuables locked in the glove compartment. During
that time, the car was broken into and the valuables stolen.
o The insurers contended that by leaving the jewellery in the car, the
insured failed to take reasonable steps to safeguard the insured property,
particularly that they were negligent in looking after the jewellery.
o HOLDING:
o The insured was entitled to recover, not having on the facts acted
recklessly.
**Birds: In light of this decision, insurers who wish to limit their
liability without having to prove recklessness have to insert more
specific terms in the policies for e.g. by excluding liability when
goods are left unattended.
o Before the insurers were entitled to rely on the insureds duty to take
reasonable care of the insured property, it had to be shown that the
insured acted recklessly in looking after the jewellery. In a policy covering
the insureds own property and this third party liability, a term requiring
the insured to take reasonable care could not be construed as referring to
the insureds failure to exercise ordinary standard of care because the
term had to be construed consistently throughout the policy to mean that
the insured must not be reckless. Per Lloyd LJ:
The condition applies to all sections of the policy and not just limited
to section 3, it applies to section 11 which presupposes that the
insured or a member of his family is legally liable to a third party. So
a wide construction of the general condition requiring the insured to
take all reasonable care would be altogether repugnant to the cover
apparently afforded by section 11 of the policy. Similarly the insurers
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would escape all liability under sections 1 and 2 in the very ordinary
case of damage to a house or its contents by fire (one of the insured
perils) if the fire were caused by the negligence of the insured. That
cannot be right.
There is no distinction between property insurance nor liability
insurance such that the recklessness test applies only to liability
insurance (as per Fraser) and not to property insurance, it being the
case only in liability insurance that there is nothing to insure at all
unless the insured is liable to a third party.
For a composite policy such as the present, the condition could not
have different meaning in relation to the different sections. The
recklessness test is thus equally applicable whether the condition is
included in a property insurance or in a liability insurance.
o The insured did not act recklessly but had taken all reasonable steps to
safeguard the jewellery. Per Lloyd LJ:
They did not leave the jewellery exposed to view. They were not
going to be absent from the car for more than half an hour at most
and were in any event absent for much less than half an hour. The
safest thing in the circumstances was to leave the jewellery in the
locked glove compartment.
o The condition was stated to be a condition precedent and the insurers
contended that the insured was obliged to show that he had complied with
the condition before he could claim under the policy. The court decided
that the burden of proof rest with the insurers to show that the insured
was in breach of the term. Per Lloyd LJ:
The burden was on the insurers to prove a breach of the condition
precedent, not on the insured to prove compliance with the
condition. There is nothing in the language of the condition to shift
the ordinary burden of proof.
o **Poh: Here the CA considered a composite insurance policy covering both
the insureds own property and his third party liability. The court did not
agree with the insurers contention that the insureds obligation to take
reasonable steps to safeguard the insured property meant that the
insured must not be negligent as opposed to being reckless. In the context
of a composite policy, it is clearly illogical for a term in the policy to take
on two different meanings. The court was right in this instance to hold that
the insureds obligation to safeguard the insured property meant that he
must not be reckless.
It is however doubted that the court was intending to apply this
lower standard of care to all cases where an insured is required to
take reasonable precautions to safeguard the insured property. It is
equally clear that in situations where giving the words in an
insurance policy their ordinary meaning would not be repugnant to
the commercial object or purpose of the policy, the courts are likely
12

to give the words their intended meaning; that ordinary negligence


would suffice to constitute a breach under the policy.
When an insurance policy covers both an insureds own property as well as his
third party liability, a term requiring the insured to take reasonable precautions
to safeguard the property insured or to prevent accidents will be construed as
requiring the insured not to be reckless (Gunns v. Par Insurance Brokers [1997]:
a term in a home contents insurance policy requiring the insured to take
reasonable precautions meant that the insured must not be reckless).
o FACTS:
o A husband and wife own several jewellery shops. They effected a home
contents policy through insurance brokers who did not disclose that the
insured were previously refused home insurance cover by other insurers.
Burglars broke into the insureds home while they were away taking a safe
containing the insureds jewellery. The insureds burglar alarm system was
not activated.
o The insurers contended that the insured failed to disclose his previous
losses and the refusal by other insurers to insure them. The insured
sought to recover the losses from the brokers on the ground that the
brokers acted negligently when they failed to disclose the information to
the insurers (this was rejected by the court). The brokers contended that
the insured was in breach of a term in the policy requiring them to take
reasonable precautions to safeguard the insured property when they failed
to activate the alarm system.
o HOLDING:
o The insured acted recklessly in not activating the alarm system. Per Sir
Michael Ogden QC:
As in Sofi, the principle extended to this type of policy which applies
to all insurance policies. The insureds conduct was reckless. For a
jeweller who knew full well the risks of robbery and burglary to
which jewellers are particularly susceptible and unusually easy prey,
the insureds conduct was extraordinary. This is especially so when
they knew they were being followed (resulting in the insured to
increase their cover). To go away for the weekend and leave
valuables in a safe which they knew the insurers regarded as not
satisfactory in view of the value of the contents without turning on
the alarm system is incredible conduct.
Birds: A number of perils are never covered by indemnity insurance. Primarily
these are wear and tear and inherent vice, in other words, what occurs or
happens naturally. Simply, these are not fortuitous and are not therefore
capable of being covered by an insurance contract, the essence of which is to
cover uncertain risks. The major exception here is in the field of contingency
insurance, namely, life and related contracts. A life contract covers the natural
process of dying; a health insurance covers what may be inevitable illness.
13

2.
Rules of Construction Context/Ordinary & Technical Meaning/Contraproferentem
Birds: The question of construction is a question of law and once a word or
phrase has been judicially considered, that decision should be followed
according to the usual rules of precedent (W J Lane v. Spratt [1970]).
o The traditional approach to construing insurance contracts (rules of
construction):
Primarily it was the intention of the parties as discovered objectively
from the whole of the policy that prevailed. Written parts, if present,
prevailed over printed parts as more likely to express the agreement
of the parties and parol evidence was not in general admissible to
vary or contradict the written document.
The policy was construed according to its literal meaning; only if
that was unclear could extraneous circumstances be examined.
Words were normally understood in their ordinary meaning, but this
was not the case where they had a technical legal meaning; here
the latter prevailed. Similarly, the context of a word might dictate a
departure from its ordinary meaning. Words appearing in the one
phrase were prima facie to be construed ejusdem generis.
In the event that there was any ambiguity, the policy was construed
contra proferentem, that is against the person who drafted it and in
favour of the other (normally against the insurer in favour of the
insured).
o The modern approach to the construction of contracts of all sorts still has
as its prime objective the ascertainment of the intention of the parties.
Although literal interpretation divorced from the background of facts in
which agreements are concluded had already been abandoned, it was still
the case that particularly in standard form contracts, the parties
expressed intention might be interpreted as being rather different from
what the parties or perhaps one of them actually intended. What many
regarded as a deficiency in the law not least because the primary rule was
founded on the often incorrect premise that the contract was the result of
bargaining between parties of equal strength, led to the rules of
construction receiving attention in the HL.
A fundamental change has overtaken this area of the law. The result
has been to assimilate the way in which such documents are
interpreted by judges to the common sense principles by which any
serious utterance would be interpreted in ordinary life. Almost all
the old intellectual baggage of legal interpretation has been
discharded (Investors Compensation Scheme v. West Bromwich
Building Society [1998] UKHL).
Per Lord Hoffman: In construing contractual documents, the
aim must be to find the meaning that the document would
14

convey to a reasonable person having all the background


knowledge that would reasonably be available to the parties in
the situation in which they were at the time of the contract.
Previous negotiations and declarations of subjective intent
must be excluded, but included is the possibility of ambiguity
and the realisation of the possible misuse of words and
syntax. The court is not obliged to ascribe to the parties an
intention that plainly they could not have had and in choosing
between competing unnatural meanings, it was entitled to
decided that the parties must have made mistakes as to
meaning. Further commercial contracts ought to be construed
in a way that makes good commercial sense.
**Birds: The modern day restatement of the principles of
construction certainly has a bearing on the interpretation of
insurance contracts (see for e.g. McGeown v. Direct Travel
Insurance [2003] UKCA) but it is arguable that in reality the
impact has been more limited than first appeared likely.
Poh: In construing the terms of an insurance contract, words used in the
contract are to be given their plain and ordinary meaning unless the words have
acquired a special or technical meaning as a result of usage in the trade. Further
if a contract is partly printed and partly written, the written words are to be
given precedence over the printed words.
There were no special rules of construction applicable to an insurance contract.
An insurance contract was to be construed just like any other contract. Ordinary
words used in the contract were to be given their plain and ordinary meaning.
When a contract was partly printed and partly written, more weight was to be
given to the written words (Robertson v. French [1803]).
o FACTS:
o An insurance policy taken out on a ship and her cargo stated that the risk
was to commence from the loading of the ship at any place along the
coast of Brazil. Cargo was loaded at the Cape of Good Hope. The ship was
taken into possession by the Admiralty while it was off the coast of Rio
Janeiro on suspicion of smuggling. The insurers contended that the policy
never attached to the goods insured because they were not loaded on
board ship at the coast of Brazil but at the Cape of Good Hope.
o HOLDING:
o The court agreed with the insurers. Per Lord Ellenborough CJ:
The same rule of construction which applies to all other instruments
applies equally to a policy insurance; that it is to be construed
according to its sense and meaning, as collected in the first place
from the terms used in it, which terms are to be understood in their
plain, ordinary and popular sense, unless they have generally in
respect to the subject matter, as by the known usage of trade or the
15

like, acquired a peculiar sense distinct from the popular sense of the
word; or unless the context evidently points out that they must in
the particular instance, in order to effectuate the immediate
intention of the parties to that contract, be understood in some
other special and peculiar sense.
The words superadded in writing are, if there should be any
reasonable doubt upon the sense and meaning of the whole, to have
greater effect attributed to them than to the printed words,
inasmuch as the written words are the immediate language and
terms selected by the parties themselves for the expression of their
meaning and the printed words are a general formula adapted
equally to their case and that of all other contracting parties upon
similar occasions and subjects.
Poh: In construing a term in a written contract, one of the basic rules of
construction is that one must construe the term in the context of the entire
contract. The term must not be construed in isolation, apart from the rest of the
document and is to be seen as forming part of a larger document.
A term in an insurance contract must be construed in the context of the entire
contract (Hamlyn v. Crown Accidental Insurance Co Ltd [1893] UKCA)
o **Birds: Note also for meaning of term accident Leaving aside the issue
of causation, it would appear that injury arising from accident can be
defined as injury which arises from some unexpected or unintended event
which is not natural. Thus as the insured had no history of knee trouble it
was held that his injury was accidental. Although obviously he intended to
bend down, he did not intend or expect to hurt his knee.
o FACTS:
o The plaintiff was insured against the risks of any bodily injury caused by
violent, accidental, external and visible means. The policy excluded injury
arising from natural disease or weakness, or exhaustion consequent upon
disease.
o In the process of trying to retrieve a marble from the floor, the insured
dislocated the cartilage of his knee. The insured had no previous history of
weakness in the knee or knee joint.
o The insurers disclaimed liability on the ground that the injury did not come
within the risk insured under the policy. For the injury to come within the
risk insured, the injury must have been caused by an external physical
force, unintentional so far as the injured person was concerned. The
plaintiff contended that the risk insured must be read against the
background of the exclusion provision. That provision dealt specifically
with the question of disease and inherent weakness and in the context of
the risk insured, the term external must be construed to mean something
not arising internally. The injury did not come within the ambit of the
exclusion provision because it was not due to an internal cause.
16

o HOLDING:
o In construing the risk insured, regard must be given to the rest of the
policy, including the exclusion provision. The term external meant
something not arising from an internal weakness or disease.
Per Lord Esher: The expression external (looking at the rest of the
policy) must be taken to mean the antithesis of internal. If the injury
had happened by reason of something internal it would not be
within the policy but that is not the case. Because the cause of the
injury was not internal, it must have been external and in that
case, it was also visible within the meaning of the policy.
o The term external referred to an event which did not arise from an
internal disease or weakness.
Per Lopes LJ: The policy must be read in the way in which a person
of ordinary intelligence would read it and in construing this
particular clause, attention must not be confined to that clause, but
must look to the whole of the policy. The exception clause deals
strictly with matters internal to the person who sustains the injury
and the words used in the descriptive clause apply to matters
different from and contradistinguished from the internal matters
dealt with in the proviso.
o **Birds: The question is whether subtle changes in wording can affect the
interpretation of words. For e.g. a personal accident policy may not simply
cover death or injury caused by accident but one caused by accidental
means or by violent, accidental, external and visible means. Here it
could be argued not just that the final event or injury must be accidental,
but also the means, in other words, the prior act of the insured or whoever
is responsible for the act, so that if a deliberate act led to the final
accident, the insured is not covered.
An argument along these lines seems to have been rejected in
Hamlyn, where the wording was of this sort and the bending over
the insured was clearly deliberate.
However in Dhak v Insurance Company of North America (UK) Ltd
[1996] UKCA, recovery was denied in circumstances where the
insured died from asphyxiation due to vomiting while under the
influence of alcohol; she had drunk in order to control severe back
pain (an insured who took a deliberate risk did not suffer an injury
by accident if the risk materialised).
The earlier English approach is to be preferred. The attempted
distinction between accidental results and accidental means
will plunge this branch of the law into confusion.
Poh: A word often takes on a meaning from the context in which it is placed.
The meaning of a word was to be gathered from the context in which the word
was used (Provincial Insurance Co Ltd v. Yeo Chee Swee [1984] MAFC).
17

o FACTS:
o The insured died in a road accident while riding a motorcycle. His
insurance policy excluded the following risks: death or disablement
caused by or consequent upon participation in hunting, mountaineering,
winter sports, racing of any kind, polo, football, motor-cycling or any form
of diving in the sea. The court was asked to construe the exclusion
provision pertaining to the risk of motor-cycling. The provision could be
constructed as applying when the insured used a motor-cycle or only
where the insured used a motor-cycle as part of some sporting activity.
o The insurers contended that when the meaning of a word was reasonably
clear, the word should be given its plain and ordinary meaning even
though it might operate harshly against an insured. The insured
contended that the maxim noscitur a sociis ought to be applied to help
find the true meaning of the word motor-cycling.

o HOLDING:
o The word motor-cycling must be construed in the context of the policy and
in this case the word obviously referred to the use of a motor-cycle in
some form of sports, exhibition or competition.
Per Hashim Yeop A Sani FJ: A policy of insurance is basically subject
to the same rules of construction as any other written contract. The
words used in it must be given their plain, ordinary meaning but in
the context of the policy looked at as a whole and subject to any
special definitions contained in the policy. Although the grammatical
sense is not the sole or primary method of constructing a policy, it
does in this case give a useful guide as to the intention of the
parties. Here the word participation is important. Applying the
maxim noscitur a sociis to the exclusion provision, motorcycling
must be motorcycling not undertaken in the ordinary sense but
motorcycling in some form of sports or exhibition or competition.
When the terms in an insurance policy are clear, effect must be given to the
terms (Chiew Swee Chai v. British American Insurance Co (M) Sdn Bhd [1987]
Malaysia).
o FACTS:
o The insureds life insurance policy provided that coverage if the insured
suffered any personal injury in an accident resulting in a loss of limbs.
The policy stipulated that it was understood that loss shall mean with
regard to hands and feet, dismemberment by severance at or above the
wrist or ankle joint.
o The insured injured his left arm in a road accident (and became useless to
him) and the doctors who treated him recommended that the arm should

18

be amputated. The insured refused to have his arm amputated because it


would be too traumatic and the operation would cost too much money.
o The insurers contended that the severance of the injured arm constituted
a condition precedent to the liability of the insurers and until amputation
of the arm had taken place, they were not bound to pay. The insured
contended that refusal of the insurers to make payment was totally
unreasonable and that it was outrageous that the insurers should insist
that the insured should have his arm amputated before they would make
the payment.
o HOLDING:
o Since the words in the policy were clear, it was bound to give effect to
them. Per Shankar J:
The interpretation should be reasonable and any ambiguities should
be resolved against the person in whose favour the document has
been framed. But where the words of the document are crystal
clear, the sanctity of the contract should be upheld. The words have
been put there to obviate the necessity of making fine judgments
whether a limb has or has not been lost. Even if the plaintiffs limp
arm serves a cosmetic purpose, he simply cannot say that he has
lost it because it is still there for the whole world to see.
Birds: The words in a policy are prima facie to be understood in their ordinary
meaning.
When a term has no precise or exact meaning, one has to look at the context in
which the term is used to find a meaning for the term (Thompson v. Equity Fire
Insurance Co [1910] PC: a term prohibiting gasoline from being stored or kept
on the insured premises constituted common English words with no precise or
exact significance. In the context of a domestic fire insurance policy, the term
must be construed as intending to prohibit the storage or keeping of gasoline for
a commercial purpose. It was not intended to prevent an insured from having a
small quantity of the item for household purposes).
o FACTS:
o A fire policy taken out by a shopkeeper exempted the insurers from
liability for loss or damage occurring while gasoline is stored or kept in
the building insured. The insured had a small quantity of gasoline for
cooking purposes, but no other.
o HOLDING:
o The insurers was liable for the fire that occurred as the words stored or
kept in their ordinary meaning implied fairly considerable quantities and
imported the notion of warehousing or keeping in stock for trading. This
was not the case and so the exception was inapplicable.
o In construing the words in the exclusion provision, account must be taken
of the commercial context in which the words were used. The exclusion

19

was not intended to cover possession of prohibited substances for


household use. Per Lord MacNagthen:
What is the meaning of the words in collocation and in the
connection in which they are found? They are common words with
no precise or exact signification. The expression as used in the
statutory condition seems to point to the presence of a quantity not
inconsiderable or at any rate not trifling in amount, and to import a
notion of warehousing or depositing for safe custody or keeping in
stock for trading purposes. A person who has a reasonable quantity
of the substance for household uses would not be storing or
keeping such substances.
When a policy uses an ordinary word, the word was to be given its plain and
ordinary meaning (Leo Rapp Ltd v. McClure [1955]).
o FACTS:
o Metal was insured against theft whilst in warehouse. Some of the
relevant metal was stolen from a lorry parked in a locked compound
(depot) surrounded by a high brick wall topped by barbed wire.
o HOLDING:
o The insurer was not liable as the ordinary meaning of the warehouse
implied some sort of covered building and not a yard, however secure.
o The term warehouse was a word with a plain and ordinary meaning. In its
plain and ordinary meaning, the term referred to some sort of building. Per
Delvin J:
Unless some evidence is given of a secondary meaning and there is
none here, the ordinary and popular meaning must control the
matter.
Birds: In two respects however, the ordinary meaning of words will not prevail.
o The first is where a word has a technical legal or other meaning.
This will generally be the case in respect of words describing cover
or exceptions to it, which are also the names of criminal offences,
such as theft or have acquired a particular meaning. The meaning in
the latter respect applies to the word in an insurance policy.
o The second way in which the ordinary meaning of a word may not be
adopted is where the context requires otherwise.
It has been suggested that the traditional approach should be
replaced by an enquiry as to what cover the parties really thought
was being provided by the policy and as to the purposes behind the
insurance in question (Merkin)
Poh: When a term is a legal term or a term which has become a technical term
of art, the term is likely to be construed in its legal or technical sense. This
approach in construction can easily work against the interests of an insured,
especially if the term has both a legal as well as an ordinary meaning and the
two meanings do not coincide. A layman may be totally unaware that a term
20

used in the policy may have a legal or technical meaning apart from its plain
and ordinary meaning.
o There is a natural tendency for the courts to give a term with which they
are very familiar its legal or technical meaning rather than to look for its
plain and ordinary meaning. This bias towards a legal or technical
construction can cause a great deal of hardship for a lay insured.
The term riot constituted a well known legal term and the term ought to be
given its legal meaning (London & Lancashire Fire Insurance Co v. Bolands Ltd
[1924] UKHL: the word riot should be construed in accordance with its definition
in the criminal law, deciding in favour of a legal meaning for the term over its
plain and ordinary meaning).
o FACTS:
o A policy on a bakers shop against loss by burglary, housebreaking and
theft exempted the insurers from loss caused by or happening through or
in consequence of inter alia, riot. Four armed men entered the shop one
day, held up the employee with guns and stole all the money they could
find. There was no actual violence used and no other disturbance nearby.
o The policy excluded loss directly or indirectly caused by or happening
through or in consequence of invasions, hostilities, acts of foreign enemy,
riots, strikes, civil commotions, rebellions, insurrections or martial law.
o The insurers disclaimed liability contending that the circumstances under
which the money was stolen constituted a riot under the exclusion
provision. The term must be construed in accordance with its well known
legal meaning in the criminal law. The insured contended that the term
ought to be given its plain and ordinary meaning and in its ordinary sense,
it referred to a tumultuous disturbance of the peace and there was here
no such disturbance. No one reading the policy would imagine that a
robbery committed by four men would have constituted a riot under the
exclusion provision even if the robbers may be indicted for riot.
o HOLDING:
o The event constituted a riot and thus the insured could not recover. The
stated reason for the decision was that riot is a technical term which in a
criminal context requires only three people executing a disturbance such
as might cause alarm to a reasonable person. Applying this meaning to
the case, there was clearly a riot on the facts of the case.
**Birds: However it may not be entirely insignificant that the shop
was in Dublin and the robbery took place at a time of great
disturbances involving the IRA and others. It is not impossible that
such a body was behind the robbery and to talk in terms of riot
becomes a little more understandable.
**Birds: It is instructive that an American court (Pan Am v. Aetna
Casualty [1974]) held that riot in an insurance policy meant what

21

ordinary people would normally regard as a riot, distinguishing


Bolands for these reasons.
In light of the traditional rules applying to technical words, the
decision in Bolands was clearly correct. What may be
questioned is whether it is a necessary or fair rule to apply to
an insurance policy the meaning from another context when
such a meaning may be totally different from the ordinary
meaning. It may be that this traditional approach to technical
words will not survive the restatement of the principles of
construction in Investors Compensation Scheme v. West
Bromwich Building Society [1998] UKHL.
o The term was a well known legal term and ought to be given its legal
meaning. Per Lord Sumner:
There is no warrant here for saying that when the proviso uses a
word which is emphatically a term of legal art, it is to be confined, in
the interpretation of the policy to circumstances which are only
within popular notions on the subject, but are not within the
technical meaning of the word. Further the legal meaning applies in
relation to martial law and acts of foreign enemies. There is no
reason why riot should not include its technical meaning here as
clearly as burglary and housebreaking do.
**Poh: When a term has both an ordinary as well as a legal or
technical meaning, there is little doubt that an uninstructed layman
is likely to construe the term in its ordinary sense and as a result
might misconstrue the scope of the policy. The hardship to an
insured in such a situation is obvious (see Pan Am).
See Penal Code ss. 141(c) and 146:

Unlawful assembly
141. An assembly of 5 or more persons is designated an unlawful assembly, if the common
object of the persons composing that assembly is
(c) to commit any offence;
[51/2007]
Force used by one member in prosecution of common object
146. Whenever force or violence is used by an unlawful assembly or by any member thereof,
in prosecution of the common object of such assembly, every member of such assembly is
guilty of the offence of rioting

Poh: When a term has no legal or technical meaning, the court is entitled to give
the term its plain and ordinary meaning.
The words civil commotion was a term with no technical meaning and the court
was entitled to give the term its plain and ordinary meaning. In its plain and
ordinary meaning, the term referred to a situation where there was turbulence
or tumult coupled with an object to commit violence. Isolated incidents with no
violence being committed would not constitute a civil commotion (London &
Manchester Plate Glass Co Ltd v. Heath [1913] UKCA).
22

o FACTS:
o The plaintiff insurers issued insurance to cover the risk of damage to plate
glass windows and reinsured the risk with Lloyds underwriters. The
reinsurance policies covered the plaintiffs against damage to plate glass
caused directly by or arising from civil commotion or rioting. A large
number of women simultaneously broke plate glass windows in different
parts of London. The women acting separately, did not resist arrest. The
plaintiffs paid out on the insurance and claimed under the reinsurance
policy.
o The reinsurers disclaimed liability on the ground that the loss was not
covered by the policy. The plaintiffs contended that the words civil
commotion was a term with no technical meaning and the term ought to
be construed in its plain and ordinary sense and therefore it referred to a
public disorder or disturbance, covering a state of affairs where the police
anticipated a breach of the peace.
o HOLDING:
o The isolated incidents did not constitute a civil commotion because there
was no turbulence or tumult. Per Buckley LJ:
Commotion connotes turbulence or tumult and violence or intention
to commit violence. The evidence here is a number of separate
criminal acts committed by violence in the sense that a hammer
was used to break a window but without violence or intention to
commit violence in the sense of assault upon any one. The acts
were in fact done without causing any tumult or disturbance. This
does not disclose a state of facts upon which it could be found that
there was civil commotion.
Poh: An insurer is invariably the party responsible formulating the terms of an
insurance contract. If there is any ambiguity in the contract, the ambiguity is to
be construed more strongly against the insurer, the party responsible for putting
the contract together. To resolve an ambiguity, the court will apply the contra
proferentem rule. The rule is applied whenever a patent ambiguity appears on
the face of the contract. The rule is intended to resolve any ambiguity in the
terms of the contract. It is however, not intended to create an ambiguity in a
contract which is otherwise clear.
Birds: The maxim that provides for ambiguities to be construed against the
party responsible for drafting them may be brought to the aid of the insured.
o The application of the contra proferentem maxim can hardly be said to be
free from doubt. It is clear that there must be a genuine ambiguity;
ambiguity must not be created simply to apply the maxim. However
whether or not a word or phrase is ambiguous is not always apparent. The
cases tend to illustrate that even the judges cannot always agree as to
whether or not sufficient ambiguity exists (see for e.g. English v. Western).

23

When an exclusion provision (a term in an insurance contract) lends itself to


more than one possible construction and an ambiguity arises in the meaning of
the term, the construction which was more favourable to an insured ought to be
adopted as the insurer is responsible for formulating the terms of the contract
(English v. Western [1940] UKCA).
o FACTS:
o A motor policy effected by a 17 year old youth covered his liability for
injury to all persons except, inter alia, in respect of death or injury to any
member of the assureds household travelling in the car with the insured.
He negligently injured his sister when she was his passenger. The insurers
argued that they were not liable to indemnify the insured against his
liability to her by virtue of the above exception.
o HOLDING:
o It was held that the expression any member of the assureds household
was equally capable of meaning any member of a household of which the
assured was the head as any member of the same household of which the
assured was a member. It was therefore ambiguous and the meaning
more favourable to the insured (the former meaning) was adopted so that
the insurers were liable.
o The term was ambiguous as it was capable of two possible constructions.
The term ought to be construed against the insurers. Per Clauson LJ
(Goddard LJ dissenting that the provision was not ambiguous): If the
phrase used in the policy is in this sense ambiguous, that meaning must
be chosen which is the less favourable to the underwriters who have put
forward the policy.
A term in an insurance policy was ambiguous if it was inapt or could not be
reasonably understood and the ambiguity was to be resolved against the
insurers (Houghton v. Trafalgar Insurance Co Ltd [1954] UKCA).
o FACTS:
o The motor policy involved an exception which excluded liability when the
car was conveying any load in excess of that for which it was
constructed. The insurer argued that the carriage of six persons in a car
designed for five was within the exception.
o HOLDING:
o This was not a load. While the carriage of persons could be so
considered, it equally, indeed more naturally, referred to the carriage of
goods.
o The exclusion provision in the policy was not only ambiguous but it was
also inapt when applied to a passenger-carrying vehicle. Per Somervell LJ:
If there is any ambiguity, the ambiguity will be resolved in favour of the
assured. The words only clearly cover cases where there is a weight load
specified in respect of the motor vehicle, be it lorry or van.
24

o The court did not know what the provision meant when applied to a
private motorcar. Per Romer LJ: Any clause or provision that purports to
have that effect ought to be clear and unambiguous so that the motorist
knows exactly where he stands. This provision is neither clear nor
unambiguous. If applied to a private motorcar, I have not the least idea
what it means.
Poh: The contra proferentem rule has also been consistently applied by the
courts in Malaysia and Singapore.
When the construction of an insurance policy was open to doubt, the doubt was
to be resolved against the insurer (Central Lorry Service Co Sdn Bhd v. American
Insurance Co [1981] Malaysia).
o FACTS:
o The plaintiffs were insured under a policy which covered loss or damage
whilst in ordinary or customary course of transit, occasioned by the
carrying vehicle or conveyance being on fire, derailed, overturned or in
collision, struck by lightning or other accident to the vehicle or
conveyance such as involuntarily leaving the road, breakdown of bridges
and consequent damage to the conveyance or vehicle and the interest
assured hereby. The near-side wooden flap of the plaintiffs lorry carrying
goods gave way and fell from the floor and were stolen.
o The insurers disclaimed liability on the ground that the loss did not come
within the ambit of the policy. The loss was covered if it was occasioned by
the insured vehicle involuntarily leaving the road or by the breakdown of
bridges.
o HOLDING:
o The two situations described in the policy were intended as illustrations of
what would constitute an accident and did not exhaustively define the
scope of what constituted an accident. Per Azmi J:
There is only doubt and ambiguity in the clause as to whether the
policy covers any accident to the vehicle or is merely confined to
accidents caused by the vehicle involuntarily leaving the road or by
breakdown of bridges.
In construing insurance policies, the contra proferentem rule should
apply if there is ambiguity or doubt as to the extent of the policy.
Since the policy is prepared by the insurance company, the doubt
and ambiguity should be construed in favour of the insured.
The policy therefore covers all accidents to the vehicle and the two
events described in the clause are mere examples and not
exhaustive. It cannot be said that the accident is reasonably
foreseeable so as to take it out from the risk covered by the policy.
The occurrence is similar to the vehicle involuntarily leaving the
road which is expressly included in the policy.

25

3.

3.1

Specific Descriptions and Specific Words


See Birds pgs 245-247.
Accidents
Birds: Loss caused by or arising out of an accident or by accidental means or
some similar phrase is a fairly common form of wording in insurance policies
and an essential one in particular types. As we have seen, insurance prima facie
covers only unintentional acts anyway, so one problem is how the presence of
the word accident qualifies this. Another is that even a deliberate act by
someone may well be accidental from the point of view of the victim. Similarly
an insured may be engaged in a deliberate course of conduct when something
happens which he did not intend. Is this an accident?
o If it suggested that the answers to these and other problems are best
considered by a separate examination of first those first party insurances
where the description accident is to be found and secondly, cases of
third party or liability insurance where the liability of the insurer to
indemnify exists only if the insured acted accidentally. The cases however
do not necessarily adopt this distinction.
Poh: An insurance policy is intended to cover the occurrence of a fortuitous
event. In many types of insurance policies, the occurrence of an accident
constitutes a common risk undertaken by the policies. The term accident
connotes an event which happens unexpectedly or fortuitously.
A policy insuring against a liability caused by accident was intended to cover
an event which took place unexpectedly (Mills v. Smith [1964]).
o **Birds: An important point in this context concerns the relevance of
natural causes to a third party policy insuring against liability caused by
accident. As has been seen, in the context of personal accident policies, if
the real cause of the loss is natural, it will not be covered, indeed it will
usually be expressly excepted, and of course it is a general principle that
insurance does not cover natural wear and tear.
o FACTS:
o The plaintiffs house was damaged by a neighbours oak tree. The
foundations of the house collapsed when too much water was withdrawn
from the clay subsoil underneath the house by the roots of the oak tree.
The plaintiff brought an action for nuisance and in negligence.
o The insured was held liable in damages to a neighbour for settlement
damage to the neighbours house caused by the root action of a tree in
the insureds garden taking water from the soil on the neighbours land.
o The neighbours comprehensive policy covered against legal liability (a
householders liability policy indemnified the insured against liability) in
respect of claims made by any person ... for... damage to property...
caused by accident. The insurers disclaimed liability contending that the
policyholders liability was not caused by an accident. Where damage to
26

o
o

property arose in the course of nature, the damage could not be


attributed to an accident.
HOLDING:
An accident could be said to have taken place when the event was
unexpected. An analogy could be drawn from the cases decided under the
Workmens Compensation Acts where an injury suffered by a workman in
the course of his employment as a result of exertion in carrying out his
work had always been held to be an injury caused by accident. Per Paul J:
1) Has there been at any moment of time (or at particular moments
of time) some unexpected event (or events) which has (or have) led
to damage? There is no accident until the overstepping (of the
safety limit of movement) takes place. 2) What was the cause of the
overstepping of the safety limit? The cause was the nuisance of the
roots of the tree penetrating into the plaintiffs soil and draining
away the moisture necessary to keep the movement of the house
from overstepping that limit.
This was caused by accident.
**Birds: The judge was clearly disposed to give a wide meaning to
these words in a householders policy and the insured obviously did
nothing that was intended or expected in any way. On the other
hand, it could be argued that the real cause of the insureds liability
was entirely natural, namely the action of the tree roots, albeit there
was an accident when the neighbours foundations dropped.
Paul J regarded it as significant that the insurers had chosen to use the
same words as used to appear in the Workmens Compensation Acts and
felt able to rely on leading decisions under those Acts with appropriate
adjustments. That led him to the conclusion that there were two questions
to be answered on the facts. The first was whether there had, at any
moment in time, been some unexpected event leading to damage. Here
the settlement was this event, being more that the natural movement of
foundations. The second question involved determining the cause of this.
His answer was that it was the action of the roots of the tree and that this
meant that the insurers were liable.
**Birds: This reasoning is difficult to follow. If the real cause of the
loss was the action of the tree, that was surely natural and not
caused by accident. If the causa proxima rule means anything in
this sort of case, the decision can hardly be supported on this
ground. If it can be supported, it must be on the ground that the
event must he looked at solely from the point of view of the insured,
ignoring underlying natural factors. If so far as he was concerned,
the event was unexpected and unintended, then the loss was
caused by accident. Perhaps underlying this is a rationale of
providing broad support to the individual insured without too much
regard to narrow principles of definition and causation.
27

**Birds: Two further points can be made. 1) Changes in wording


might make a difference to the result in this case. If for e.g., the
policy had provided an indemnity in respect of damage caused by
an accident or by accidental means, it would have been more
difficult to reach the same result. Accident by itself is much more
capable of a wide meaning than an accident and the use of
accidental means requires that the entire causal history must be
accidental (see Dhak v. Insurance Company of North America (UK)
Ltd [1996]). 2) Workmens compensation cases (being relied on in
third party policy cases) may be useful when the wording of a policy
is the same as that used in the Act, in other words injury or damage
caused by accident. But it is also true that workmens
compensation policies were construed more liberally than other
insurance contracts because they were the system of first party
insurance established for the benefit of employees before the days
of state insurance under the social security system. For e.g. death or
injury from natural phenomena has been held covered under a
workmens compensation policy, whereas it would not be so
regarded
under
a
personal
accident
policy.
Workmens
compensation cases are therefore no more than useful and are
certainly not binding in this context.
An accident covers an unexpected or unusual event external to a passenger (Re
Deep Vein Thrombosis & Air Travel Group Litigation [2006] UKHL: It is an integral
part of the test of what amounts to an accident that it must have a cause
external to the passenger. An event or happening which was no more than the
normal operation of the aircraft in normal conditions could not constitute an
accident).
o FACTS:
o An action was brought by passengers or their personal representatives
against 21 international air carriers under Article 17 of the Warsaw
Convention. The article provided that the carrier is liable for damage
sustained in the event of the death or wounding of a passenger or any
other bodily injuries suffered by a passenger, if the accident which caused
the damage so sustained took place on board the aircraft or in the course
of any of the operations of embarking or disembarking.
o The claimants alleged that they suffered DVT, resulting in serious injuries
and in some instances, death, while on board the carriers aircraft. They
contended, inter alia, that the injury arose from the cramped sitting
arrangements together with insufficient levels of oxygen and fresh air in
the cabins. The defendants also failed to warn the defendants of the risks
of DVT.
o HOLDING:

o Article 17 distinguished between the bodily injury to the passenger on the


one hand and the accident by which the bodily injury was caused on the
28

other, so that the injury could not itself be the accident; that it was the
injured passenger who must suffer the unintended and unexpected
happening which constituted the accident and it was from his perspective
that the happening must be considered; that an event or happening which
was no more than the normal operation of the aircraft in normal conditions
could not constitute an accident for the purposes of article 17 ; that in
order to be an article 17 accident, the event or happening that caused the
damage of which complaint was made must be something external to the
passenger; that the onset of DVT during the normal operation of the
aircraft was not an unexpected or unusual event which was external to the
passenger, and that the cramped seating arrangements in the aircraft and
the failure by the airline to warn passengers of the precautions that might
be taken to guard against DVT could not be regarded as causative links in
the onset of DVT, particularly when there was no established practice of
airlines generally to issue such warnings; and that, accordingly, on the
agreed facts, DVT sustained during the course of or arising out of
international carriage by air was incapable of being an accident causing
bodily injury within the meaning of article 17.
38 The Court of Appeal in the present case held that for accident to
exist there had to be an external event which had an adverse
impact on the passenger. Moreover, the court held that inaction was
a non event which could not rank as an accident. In careful
judgments the Court of Appeal held that a simple question must be
asked. Was there, on any recognised meaning of the word, an
accident in circumstances where a person suffered DVT merely
because of the effect of a flight on an aeroplane without there being
any triggering event? The court answered this question in the
negative.
39 The Australian High Court in Povey v Qantas Airways Ltd [2005]
HCA 33 (majority judgment) followed the reasoning of the English
Court of Appeal. They observed, at para 44:
In Re Deep Vein Thrombosis and Air Travel Group Litigation
[2004] the Court of Appeal of England held that the word
accident in the Warsaw Convention as modified by the Hague
Protocol was to be given a natural and sensible, but flexible
and purposive meaning in its context and that for there to be
an accident within the meaning of the relevant article, there
had to be an event external to the passenger which impacted
on the body in a manner which caused death or bodily injury
and the event had to be unusual, unexpected or untoward.
The court held that inaction was a non-event which could not
properly be described as an accident. Not warning of the risk
of DVT and not giving advice on the precautions that would
minimise that risk were not events. The conditions in which
29

passengers travelled on flights (with cramped seating and the


like) were not capable of amounting to an event that satisfied
the first limb of the definition of an accident which took place
on board the aircraft or in the course of any of the operations
of embarking or disembarking.
75 The present case involved carriage by air in an aircraft and in a
manner, which were, in terms of industry standards and practice, at
the relevant times, normal, usual and expected. Like the CA, there is
no basis on which the permanent features of the aircraft, or the
subjecting of the passengers to carriage in aircraft with these
features could amount to an accident within article 17 . That is not
of course the same as saying that an unexpected event during the
flight must always be instantaneous and immediately noticeable,
rather than continuous and unrecognised.
The term accident contemplated a distinct event, not part of the usual, normal
and expected operation of the aircraft, which happened independently of
anything done or omitted by the passenger (Barclay v. British Airways Plc [2009]
UKCA).
o FACTS:
o A passengers right foot suddenly slipped on a plastic strip embedded in
the floor of the aircraft as she lowered herself into her seat. She heard and
felt her knee pop as it gave way and struck the armrest. She sustained
bodily injury. The insured contended that the injury was caused by an
accident taking place on board an aircraft.
o The claimant was taking her seat as a passenger aboard the defendant's
aircraft when her foot slipped on a plastic strip embedded in the floor and
she sustained bodily injury. The strip was a standard fitting and the cabin
environment was in normal working order. The claimant sought damages
from the defendant carrier for bodily injury caused by an accident on
board the aircraft pursuant to article 17(1) of the Montreal Convention
1999 which was the successor provision to and materially to the same
effect as article 17 of the Warsaw Convention 1929.
o HOLDING:
o The term accident in article 17(1) contemplated a distinct event,
external to the passenger, which was no part of the usual, normal and
expected operation of the aircraft and which happened independently of
anything done or omitted by the passenger; that, therefore, where bodily
injury was caused by an event constituted by some contact or interaction
between the passenger and the aircraft in its normal state, such an event
was not capable of amounting to an accident within the meaning of
article 17(1); that the claimant's slip was not an event external to her, nor
had it happened independently of anything done or omitted by her, but
rather was an instance of her personal, particular or peculiar reaction to
the normal operation of the aircraft; and that, accordingly, the judge had
30

been correct to have found that the claimant's slip was not capable of
amounting to an accident within the meaning of article 17(1).
Poh: In the context of a workmens compensation insurance policy, the term
accident has been construed to include an injury suffered by a workman as a
result of exertion in carrying out his work. Equally if a workman is suffering from
a pre-existing disease and the disease is accelerated by the exertion of the
workman to a point where it causes injury, the resulting injury is attributable to
an accident.
A workman who suffered a fatal heart failure in the course of digging a drain
died as a result of an accident (Golden Hope Rubber Estate Ltd v. Muniammah &
Ors [1965] Malaysia).
o FACTS:
o A workman was employed as a field worker and his duties included the
digging of new drains and the clearing of old ones. He suddenly collapsed
and died while clearing a drain with a changkol. He died from heart failure
and the exertion of his work had contributed to the heart failure.
o The Workmens Compensation Ordinance 1952 provided for payment of
compensation when a workman suffered personal injury by accident
arising out of and in the course of the employment. The employers
appealed against an award made under the ordinance. The court was
asked to consider inter alia whether the injury suffered by the deceased
was due to an accident.
o HOLDING:
o The workmans heart failure was due to an accident arising out of and in
the course of his employment. Per Gill J: It has been held that the fact that
a mans condition predisposes him to a cardiac failure is immaterial where
such failure takes place in the course of and is caused by his work, unless
it can be shown that the work itself did not contribute to or accelerate the
death.
Poh: An injury suffered by a workman is due to an accident if the injury happens
unexpectedly or fortuitously. Thus a workman who is infected with a disease in
the course of his work may be said to have suffered the injury by accident.
A workman whose job involved the sorting of wool suffered an injury by accident
under the English Workmens Compensation Act 1897 when he became infected
with anthrax as the injury was unexpected (Brintons Ltd v. Turvey [1905] UKHL).
o FACTS:
o The workman was employed to sort wool at a factory and became infected
with anthrax and died five days later. Workmens compensation was
awarded by the arbitrator. The employer appealed against the award on
the ground that for an injury to come within the provisions of the Act,
there must be an occurrence which could properly be described as an
accident, where the injury must have been caused by some force applied
31

to the body, for instance, a pin-prick, scratch, contact with a sharp tool,
bruise, wound or some similar event.
o HOLDING:
o The death of the workman could be attributed to an accident as the event
causing the injury happened unexpectedly and fortuitously. Per Earl of
Halsbury LC:
It was an accident that the thing struck the man. It must have been
though some accident that the poison found entrance into the
mans system. The mans death was attributable to personal injury
by accident arising out of and in the course of his employment.
Birds: The cases illustrate that accident is a difficult concept to define
accurately. The following tentative conclusions can be drawn. The meaning of
accident is wider in the context of personal accident cover than in third party
cover.
o In the former, the event need only be either unexpected or unintended,
provided that the insured does not expose himself to a deliberate risk.
o In the latter, it should be both unexpected and unintended.
o However the degree of foresight that is relevant to determine whether or
not an event is unintended is not clearly established.
Gray v. Barr [1971] suggests that not a great deal of foresight of an
event is needed before it is so regarded as intended for these
purposes whereas Robinson v. Evans [1969] Australia held that the
insured as a reasonable man must have foreseen the event before
he is denied indemnity. It may be that Gray should be regarded as
incorrect on this point and treated solely as an authority on
causation and public policy.
3.2 Construing a Personal Accident Policy Total Permanent Disablement
Poh: The amount of indemnity recoverable under a personal accident policy is
often dictated by whether an insureds injury is of a temporary or permanent
nature and whether the injury affects the employment prospects of the insured.
For this reason, the disability suffered by an insured is often classified as a
partial disablement or a total disablement. An insurer may provide his own
definition as to what constitutes each. The task of determining the scope of
these two terms in any given case is largely one of construction.
o The term total disablement has been construed to cover a situation
where an insured is unable to pursue the business he was involved in prior
to suffering the injury or some substituted business to which he might turn
to after the injury.
An insured might be said to be totally disabled if he was unable to pursue the
business in which he was previously engaged or some substituted business to
which he might turn to after the injury. The mere fact the insured was still
capable of doing a minor part of his previous work did not disqualify him from
32

making a claim for total disablement (Pocock v. Century Insurance Co Ltd


[1960]).
o FACTS:
o A wholesale grocer was insured under a personal accident policy. The
insured drove all over the country to secure supplies of groceries for sale
at markets and stalls. The insured became disabled after a serious road
accident and for a period of time was unable to undertake any work of a
wage-earning nature. The policy provided different level of benefits
corresponding to the level of disablement.
o The insurer contended that an insured was not totally disabled by an
injury if he was still able to undertake some business even though on a
part-time basis (or where much less important business work) and as such
was only entitled to the higher rate of payment up to a shorter period of
time.

o HOLDING:
o The insured was entitled to the higher rate of payment up to the point
where he could undertake work of a wage earning nature as the insured
was suffering from a temporary total disablement since he was unable to
attend to his own business or to some other substituted business. Per
Commissioner Molony QC:
The insurers argument is not accepted. The phrase must be looked
at as a whole and in its context. In order to bring the clause into
operation, the question is whether a man is fit to go to business
doing the nominated business or some substituted business. A
person cannot be said to attend to business in that sense simply
because he is capable of doing (perhaps rather badly) some minor
part of the work involved in that or any other sort of business. The
broad test that must be applied in order to understand the
application of this clause is to ask: Is a man fit to go to business? It
does not mean that he has got to be fit to spend the whole day
there; it does not mean that he got to be fit to carry on all the
activities which that business normally involves. The question is: Is
he fit to attend there and play a worth-while part in the conduct of
it?.
Following Pocock, the term permanent total disablement covered a situation
where an insured was unable to engage in or give attention to his occupation or
to any substituted type of occupation (Kathirvelu v. Pacific & Orient Insurance
Co Sdn Bhd [1992] Malaysia SC).
o FACTS:
o The insured (technical assistant who supervised hospitals and markets) as
a result of two accidents was diagnosed to be suffering from Sudecks
osteodystrophy for which there was no known cure. The disease caused
33

pain and swelling of the joints and it prevented the insured from using his
right hand altogether. A claim was made under his insurance policy for
permanent total disablement.
o In the policy, PTD was defined as absolute disablement from engaging in
or given attention to profession or occupation of any kind. TTD was
defined as disablement from engaging or given attention to any portion
of the insureds ordinary profession or occupation. TPD was defined as
partial disablement from engaging or giving attention to the insureds
ordinary profession or occupation.
o The insurers contended inter alia that there was no total disablement
because the insured could have taken a sedentary job to suit his medical
condition.
o HOLDING:
o The term PTD covered a situation where the insured was prevented by his
physical condition from engaging or giving his attention to his occupation
or to any substituted occupation. Per LC Vohrah J:
The plaintiffs disablement is not temporary but permanent in
nature. As a matter of commonsense and applying the contra
proferentem rule having regard to the definitions given, PD as
opposed to TD must mean permanent total disablement which
prevents a person from engaging in or giving attention to
profession or occupation of any kind. The plaintiff as a result of his
condition cannot give attention to his occupation or to any
substituted type of occupation. He cannot engage or give his
attention to his present occupation (nor even do a minor part of that
kind of work). Any other occupation would be out of the question
because the continual twitching and flapping of his right upper limb
would clearly prevent him from concentrating on any job he might
be engaged in. The plaintiff has suffered bodily injury which has
resulted in PTD as defined in the policy.
Poh: Most life and personal accident insurance policies provide for payment
when an insured suffers a partial or total permanent disablement. If an insured
is unable to continue with his particular condition following an injury, is he
entitled to recover for a total permanent disablement? Recovery depends very
much on the terms of the insurance policy.
When an insured was unable to continue in the particular occupation he was
previously engaged after suffering an injury he was entitled to payment for a
permanent total disablement (Sargent v. GRE (UK) Ltd [2000] UKCA).
o FACTS:
o The plaintiff while serving in Royal Corp of Transport took out a personal
accident policy. The benefits provided under items 6 and 7 of the policy:
Item 6: PTD from following own or alternative occupation in HM
Forces necessitating medical discharge from HM Forces... $10000.
34

Item 7: (Insured person not a member of HM Forces). PTD from


attending to any occupation... $10000.
o The plaintiff left the forces and trained as a dry line jointer, a semi skilled
occupation. The plaintiffs right index finger was severely injured on the
football field and had to be amputated. Following the occupation he was
unable to continue in his occupation as a dry line jointer because being a
right handed person he needed his right index finger to operate a
machine for levelling off jointing material. The plaintiff was however able
to do other labouring work and could drive heavy goods vehicles. The
insurers paid a sum of $750 to the insured to compensate him for the loss
of his index finger but refused to make any payment in respect of PTD.
o HOLDING:
o As a matter of construction, the plaintiff was entitled to recover for a PTD
if he was no longer able to continue in the particular occupation he was
engaged in before the accident. Per Mummery LJ:
It is not normally permissible in the process of interpretation to add
words to the relevant part of the policy; for e.g. any occupation at
all; or to substitute different words to achieve the desired result,
depending on the view about the intentions of the parties; for e.g.
every occupation in place of any occupation. The insurers
drafting of the relevant provisions in this policy is unclear.
The purely linguistic approach to construction has produced two
conflicting positions each of which may be legitimately commended
by its proponent as literally sustainable and stigmatised by its
opponents as patently absurd.
A broader approach to the construction of a provision in a
commercial document such as this policy is appropriate, embracing
consideration of the policy as a whole, its context, scheme and the
surrounding circumstances. That approach should help to bring into
sharper focus the object and purpose of the provisions which lack
linguistic clarity.
The evident purpose of a personal accident insurance against PD of
a person who is not in the special position of a member of HM
Forces, is to provide for the event that he is permanently disabled
from attending to his occupation as at the time of his disabling
injury and not just to provide for the more drastic and remote event
that he would not be able to attend to any occupation of any kind at
all ever again.
The plaintiff falls within item 7 as he is permanently disabled from
attending to the occupation followed by him at the time of the
disabling injury occurring during the period of cover. It is not
relevant to inquire under item 7 of the policy whether he is also
disabled from attending to an alternative occupation. That line of

35

inquiry is only relevant if the insured is a member of HM Forces and


the claim is made under item 6.
o If there was ambiguity in the terms of the policy it would be construed
against the insurers. Per Leggatt LJ:
The words any occupation in this context bear the connotation that
the policy holder is covered if he is permanently totally disabled
from following any particular occupation or an occupation of
whatever kind that he may happen to have been following at the
date of his accident.
If that wrong, the phrase would be completely ambiguous because
at one extreme it would be contended that the policy holder could
not recover if he was physically able to sell matches though nothing
else, while at the other, he could recover if he was not physically
able to be a concert pianist. In that event, the contra proferentem
rule would apply and the insurers would still be liable.
o Birds: In a case involving a personal accident policy, but not concerned
with the meaning of accident in any sense, the CA said that a purely
linguistic interpretation of words could produce conflicting situations and
that a broad constructive approach was necessary in such cases.
Poh: Whether a particular condition constitutes a permanent physical disability
depends on how it is defined in the policy.
The court should not resort to the contra proferentem rule before attempting to
determine the meaning of a term in the policy (McGeown v. Direct Travel
Insurance [2004] UKCA).
o FACTS:
o The insureds travel insurance s. 6.3 covered a permanent physical
disability which prevents you from doing any paid work (if you are not in
paid work, we will provide the same cover for any permanent disability
which prevents you from doing all your usual activities) - $50000.
o The insured was injured in a road traffic accident while travelling in an air
transport bus. She suffered serious injuries from which she made some
but not complete recovery. The insured claimed that her injuries
prevented her from undertaking many activities of an intimate, domestic,
social and sporting nature and they also rendered her incapable of work.

o HOLDING:
o The CA ordered a retrial after finding that the trial judge adopted a wrong
approach towards the construction of the term (that the provision was
ambiguous and ought to be construed contra proferentem against the
insurers). Per Auld LJ:
A court should be wary of starting its analysis by finding an
ambiguity by reference to the words in question looked at on their
36

own (the trial judge considered that all your usual activities looked
at on their own, were ambiguous and then applied the contra
proferentem rule in favour of the claim unless ousted by a purposive
and/or contextual analysis).
It should not in any event on such a finding, move straight into the
contra proferentem rule without first looking at the context and
where appropriate, permissible aids to identifying the purpose of the
commercial document of which the words form part. Too early
recourse to the rule runs the danger of creating an ambiguity when
there is none.
It is no answer to the need for a contextual or where appropriate, a
purposive approach to dismiss them because they conflict with the
meaning of the words looked at on their own as derived from
application of the contra proferentem rule.
S. 6 which is headed Personal Accident, differs in that it provides
for all or nothing substantial lump sum payments for what on any
reading of the section are consequences of the most grave nature.
These include death and catastrophic injuries entitling the insured to
payment of $50000, namely permanent total loss of sight in one or
both eyes and permanent total loss of use of one or both hands or
feet.
The permanent physical disability for which s. 6.3 provides for in its
alternative limbs also entitled an insured who satisfied either limb to
a lump sum of $50000. It is plain, having regard to the gravity of
each of the various risks and the lump sum payable in respect of the
occurrence of any one of them, that the provision, as a whole and in
its separate provisions in paras 2 and 3 for permanent disability was
intended to provide for consequences of the most catastrophic or
calamitous kind. That is how the ordinary person seeking such
insurance would read them.
It may be that the figure would be an insufficient compensation for
the consequences of the section 6.3 permanent disability in some
cases and excessive in others, when compared with damages that
might be recoverable at common law. However, the figure, all or
none of which is payable depending on the severity of impact on an
insureds way of life is clearly intended to be a rough and ready
contractual mark of the extent and gravity of that consequence and
is payable irrespective of other rights of recovery that the insured
may have.
Both limbs of s. 6.3 need to be considered as requiring in their
different ways, a broad range of serious consequences of the
permanent disability specified in s. 6.3 to entitle recovery of the
lump sum for which it provided.
37

Poh: In a personal accident policy, an insurer may insure a policyholder against


injury to his person.
The loss of the lens and the loss of sight had been separately insured and the
insured was entitled to recover for both losses subject to the insured proving the
loss of sight (Tay Eng Chuan v. Ace Insurance Ltd [2008] SGCA: An insured was
entitled to recover for each injury suffered if these injuries have been separately
insured by the policy provided the policy limits were not exceeded).
o FACTS:
o A personal accident policy covered: 1) Total loss of sight in one eye 50%
and 2) Total loss of lens in one eye 50%. The insured injured his left eye
when a wire mesh he was carrying struck his eye. He later underwent
surgery to remove the lens in his left eye. Two of his doctors confirmed he
had suffered loss of sight, an opinion disputed by his insurer.
o After making a small payout for hospitalisation costs, Ace Insurance paid
Tay $300,000 (50% of the sum assured) under his policy for the loss of the
lens, but refused to pay for the alleged loss of sight. Tay accepted the
$300,000, but reserved his right to claim for his alleged loss of sight. Ace
Insurance argued that the lens was a part of the eye and relied on a
clause which stated that if an amount is claimed for the whole member of
the body, then amounts for parts of that member cannot also be claimed.
o HOLDING:
o Loss of lens was a physical loss, while loss of sight was a functional loss.
One was not a part of the other. Any ambiguity in the provision should be
interpreted in favour of Tay. For this reason, Tay was entitled to recover a
further sum of $300,000 for the alleged total loss of sight in that eye
provided he could prove the latter in a court of law: at [43].
o EXCERPTS:
o 34 In Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd
[1996] 2 BCLC 69, Lord Mustill described the contra proferentem principle
as follows:
[A] person who puts forward the wording of a proposed agreement
may be assumed to have looked after his own interests, so that if
the words leave room for doubt about whether he is intended to
have a particular benefit there is a reason to suppose that he is not.
o In Bradley, Cozens-Hardy MR, who delivered the leading judgment of the
court, stated that "[a] policy of this nature [ie, an insurance policy], in
case of ambiguity or doubt, ought to be construed against the office and
in favour of the policy-holder".
o 35 The contra proferentem rule is particularly pertinent in insurance
policies because these policies are invariably drafted and/or vetted by
experts for the benefit of insurers so as to protect the latter's interest.
Invariably, the insured has no choice but to accept whatever terms and

38

conditions, especially general terms and conditions, are imposed by the


insurer.
In our view, the rule applies in the present case. The meaning of the
Qualifying Words and their effect on the right of legal action
conferred by the Legal Action Clause are unclear. As we pointed out
earlier, these words could mean that in the event of a breach of the
Arbitration Clause, the appellant would either: (a) lose the right of
action conferred by the Legal Action Clause, or (b) lose only his right
of arbitration but not his right of legal action. The former
interpretation favours the respondent, while the latter favours the
appellant. In these circumstances, the contra proferentem rule
entails that the respondent should not be allowed to construe the
Qualifying Words as negating the appellant's right to sue on the
Policy on the basis of the latter's breach of the Arbitration Clause.
Similarly, the Condition Precedent Clause, which refers to only the
respondent's "liability ... to make any payment under [the] Policy"
without mentioning the appellant's right to sue on the Policy, should
likewise be construed against the respondent; ie, this clause cannot
be read together with either the Arbitration Clause alone or both the
Arbitration Clause and the Legal Action Clause so as to nullify the
appellant's right to sue on the Policy despite his breach of the
Arbitration Clause.
o 37 We will now consider whether the appellant is entitled to recover for
the alleged total loss of sight in his left eye, given that he has already
been indemnified in respect of the total loss of the lens in that eye. The
respondent's contention before this court was that the appellant's claim
for his alleged loss of sight was barred by the principle against double
recovery for the same injury.
o 38 The insured benefits which the appellant could potentially claim as a
result of his eye injury relate to the total loss of the lens in his left eye (for
which the respondent has already accepted liability and made payment
under the Policy) and the alleged total loss of sight in that eye. These
benefits, along with the Double Recovery Sub-Clause, are set out in the
Accidental Disability Benefit Clause as follows:
If the Insured Person sustains Bodily Injury which results in his/her
Permanent disability, the Company will pay the Accidental Disability
Benefit; subject to the following percentage for each category of
loss set out below:
Total Loss of ... Sight in One Eye
50%
Total Loss of Lens in One Eye
50%

39

o 40 The only issue is whether recovery in respect of this alleged loss would
amount to recovery for a loss for which he has already been paid under
the Policy.
o 41 It will be recalled that the Judge held that the principle against double
recovery applied on the basis the appellant had already recovered
$300,000 for the loss of the lens in his left eye, which was loss of part of
"a whole member" within the meaning of the Double Recovery Sub-clause.
He reasoned, graphically, that an insured could not also claim for a broken
window if he claimed for destruction of the entire house. On this basis, the
Judge held that since the "whole member" in this context encompassed
either the total loss of sight or the total loss of the entire eyeball of an
eye, if the appellant succeeded in recovering for his alleged total loss of
sight in his left eye, he would have to return the money paid for the loss of
the lens in that eye.
o 43 With respect, we do not think that the Judge's interpretation of the
structure and intent of the Accidental Disability Benefit Clause is correct.
The benefit payable in respect of the total loss of sight in one eye is
categorised differently from the benefit payable in respect of the total loss
of the lens in one eye, although the amount payable for each loss is
limited to 50% of the applicable benefit amount. In other words, the Policy
expressly provides that the total loss of the lens in an eye (which is a
physical loss) is a type of loss which is different from the total loss of sight
(which is a functional loss). In this regard, the appellant's argument on
issue (b) is consistent with the structure and intent of the Policy. As these
two types of losses (ie, loss of the lens in an eye and loss of sight in an
eye, respectively) are separate and distinct, where both the lens and sight
in an eye are lost, the loss of the lens does not constitute part of the loss
of sight for the purposes of the Double Recovery Sub-clause; conversely,
the loss of sight is not part of the loss of the lens. In the present case,
although the appellant has been paid in respect of the (physical) loss of
the lens in his left eye, he has not been paid yet for the (functional) loss of
sight which he claims to have suffered in that eye. With respect, the Judge
was wrong in comparing apples (viz, loss of the lens in an eye, which is a
physical loss) with oranges (viz, loss of sight in an eye, which is a
functional loss).
o 44 We would pose the following hypothetical example to illustrate the
difference between the two types of claims (viz, for the loss of the lens in
an eye and for the loss of sight in an eye, respectively). Suppose the
appellant had expended the $300,000 which he recovered in respect of
the total loss of the lens in his left eye on a series of operations to replace
that lens so as to restore his sight in that eye (which he claims has been
totally lost), but the operations failed. In such a situation, can it be the
position that since the appellant has been paid "Accidental Disability
Benefit" for the loss of the lens, he cannot then recover such benefit for
40

his alleged loss of sight? If the answer is yes, then the appellant would, in
substance, have recovered nothing for the loss of sight in his left eye. Is
this what is contemplated by the Accidental Disability Benefit Clause,
which classifies the loss of the lens in an eye and the loss of sight in an
eye as separate and distinct types of insurable losses? We think not. In our
view, this is another situation where the contra proferentem rule dictates
that any ambiguity in the extent of insurance coverage provided by the
Policy should be construed against the respondent. As such, the appellant,
despite having already been paid $300,000 in respect of the total loss of
the lens in his left eye, is entitled to recover a further sum of $300,000 for
the alleged total loss of sight in that eye provided he can prove the latter
in a court of law.
3.3

Theft
Poh: When a term is an accepted legal term, the courts are likely to construe the
term in its legal sense.
The term theft in a policy insuring jewellery was to be construed in its legal
sense to cover a situation where the insured property was taken away from the
insured without his consent (Lake v. Simmons [1927] UKHL).
o FACTS:
o A jewellers insurance policy covered the insureds jewellery against loss,
damage or misfortune arising from any cause. The policy excluded loss
by theft or dishonesty committed... by any customer or broker... in respect
of goods entrusted to them. A woman who claimed to be a mans wife
was allowed to take away two necklaces so that her husband and a
relative could look at them (they were to buy and receive the necklaces)
and they were subsequently disposed off. The insurers disclaimed liability
on the ground that the losses came within the exclusion provision as they
were the result of theft or dishonesty committed by a customer in respect
of goods entrusted to the customer.
o HOLDING:
o The term theft in a policy insuring jewellery would be construed in its
legal sense to cover a situation where insured property was taken away
from an insured without his consent. However the articles stolen were not
entrusted to the thief as a customer as the thief was not a customer of the
plaintiff (there was no consent). What took place constituted a theft under
the policy. Per Viscount Simmons.
o The criminal law was of direct assistance in the construction of the terms
in this case. Per Viscount Simmons: Criminal law should not be treated as
irrelevant merely because a document is commercial, it is still and so are
its definitions and rules. Besides the distinction between real consent
obtained by deceit and an unreal consent extracted by a trick is equally
applicable to civil disputes.
41

Poh: In criminal law, there is a clear distinction between the offence of theft and
the offence of cheating.
Taking a contrary decision, when property was obtained by means of a worthless
cheque, the event constituted a theft of the property because a layman would
consider the property to have been stolen or loss by theft (Pawle & Co v. Bussell
[1916]: the term theft was capable of covering a situation where property was
obtained by means of cheatin).
o FACTS:
o A stockbrokers insurance policy covered the risk of share certificates
being lost, destroyed or otherwise made away with robbery, theft, fire,
embezzlement, burglary, accident, or abstraction or taken out of their
possession or control by any fraudulent means. A client paid for shares
purchased with a cheque which was dishonoured. The client disposed off
the shares and was subsequently found dead. The insurers disclaimed
liability contending that the plaintiffs were cheated by their customer and
this risk was not covered by the policy.
o HOLDING:
o The loss was the result of a theft or a loss by fraudulent means. Per
Bailhache J: The act of handing over cheques that he knew would not be
honoured and was worthless entitling him to get the securities by false
representations would in common parlance and legal terms be called a
theft.
Disagreeing with Pawle, when property was obtained by a person through the
use of a worthless cheque, the property was obtained by cheating and not theft
(Lim Trading Co v. Sinclair [1967] SG: that the securities were taken out of the
plaintiffs possession and control by fraudulent means is correct, that it was also
a theft is however considerably doubtful).
o FACTS:
o A stockbrokers insurance policy covered the risks of loss by robbery, theft,
fire, explosion, burglary or abstraction. A client bought shares using
cheques which were later dishonoured. The insurers contended that there
was no loss of shares by theft but that the insured were swindled by the
client and under English law the client would have been guilty of obtaining
the shares by false pretences. Under the Singapore Penal Code, the client
would have been guilty of cheating.

o HOLDING:
o This was a case of cheating and not theft. Per Buttrose J: The plaintiff
intended and did pass the entire property in the securities to their
customer. In essence the transaction was one of obtaining the shares by
false pretences and not by theft within the meaning of the policy. Under

42

English law it would be punished as false pretences and under Singapore


law as cheating and in neither case as theft.
The term theft would be construed in accordance with the meaning provided in
the Malaysian Penal Code (Naza Motor Trading Sdn Bhd v. Malaysian Motor
Insurance Pool [2011] MACA).
o FACTS:
o A car dealers salesman allowed a potential buyer to test drive a car. In
the course of the test drive, the customer requested the salesman to buy
some food. When the salesman returned after buying the food, the car
was nowhere to be found.
o HOLDING:
o The term theft in cl 1 of section 1 of the policy does not expressly
stipulate any definition, whereas the term cheating in exclusion cl 8
expressly stipulates that the term is as defined under the Penal Code. The
term theft was used and although not defined in the policy, it was held
that such term was to be construed as defined in the Penal Code.
o Pursuant to Illustration (b) of s 378 of the Penal Code and upon taking into
account Explanation 5, it was clear that the purported potential purchaser
of the vehicle did take out of the possession of the vehicle which was then
in the possession of the plaintiffs salesman and it was done dishonestly
and without the consent of the salesman. Such loss of the motorcar was
therefore a result of a theft.
o Based on the facts, it was clear that the intention and purpose of the
insurance policy was to provide coverage for loss of vehicle during test
driving by potential customers. There is no conceivable situation where
the salesman is to take all reasonable precautions to prevent such a theft,
in such circumstances that took place as in this case. Even then any such
reasonable precaution should not be repugnant to the commercial
purpose of the contract between the plaintiff and the defendant. In such
circumstances, under the insurance policy, the defendant could not deny
liability and was therefore liable to the insured plaintiff.
A policy insuring against the risk of theft also covers an aggravated form of theft
like robbery (Wong Kon Poh v. New India Assurance Co Ltd [1970] MAFC: a policy
insuring against the risk of theft also covered the risk of robbery because
robbery was an aggravated form of theft.
o FACTS:
o A motorcyclist was insured against loss by burglary, housebreaking or
theft. The insured was robbed by four persons of his money and his
motorcycle. The insurers contended that what took place constituted a
robbery and not a theft and that robbery was not an insured risk.
o HOLDING:
o The risk of theft also covered the risk of robbery. The risks insured under
the policy should not be given a technical construction as the insurers had
43

used terms like burglary which had no technical meaning in Malaysia. Per
Ong CJ: A policy which insures against loss by burglary, housebreaking or
theft but says nothing of robbery must on any reasonable construction be
held to include robbery within the coverage of theft. Like housebreaking or
burglary, it is merely a variation of the same theme. How the risk can be
considered different between loss by robbery and loss by theft is
incomprehensible. An aggravation of the offence of theft is not in any
manner an aggravation or extension of the risk insured against.
3.4

Limiting Recovery & All Risks Term


Poh: When goods are insured against the risk of burglary and theft, it is very
common for recovery to be limited to losses resulting from the forcible entry
into the premises where the insured goods are kept. Thus the manner a burglar
gains entry into the insured premises is crucial for determining whether a loss
comes within the purview of the policy.
o If a burglary policy expressly requires entry into the insured premises to
be violent, the term has been construed to mean the use of force
accompanied by some physical conduct which may properly be described
as violent in nature (see Dino Services Ltd v. Prudential Assurance Co Ltd
[1989] UKCA: the CA following long established authorities in construing
cover provided against theft by forcible and violent means denied
recovery where the loss had been effected by thieves who used stolen
keys to gain entry into the relevant premises without having to resort to
violence such as breaking down a door or forcing upon a window. The
court did not like the result though and urged ex gratia payment).
o When an insured building is surrounded by a fence and gates, would a
forcible entry made through the gates constitute a forcible entry into the
insured premises?
Unless the policy expressly excluded the risk, a forcible entry into an insured
premises could be effected by forcing open the gates (John A Pike (Butchers) ltd
v. Independent Insurance Co Ltd [1998] UKCA)
o FACTS:
o The insureds commercial combined policy included the risk of theft. It
provided cover for loss or damage to the property (which shall not include
any gardenyard or outbuilding) due to theft (or any attempt thereat)
involving entry to or exit from the Premises by forcible and violent
means).
o The insured butchers operated from a building surrounded on three sides
by a yard and flanked on each side by sets of double gates which were
chained with padlocks when they were closed for business. Thieves made
away with their property from the premises. They forced open the padlock
at the gates to gain access into the yard and entered the building by a
side door. This door was not forced open but the lock might have been
picked. The thieves then made their way to an entrance lobby where they
44

forced open an internal door leading to the workshop. They also forced
open the door to the cold store from where they stole the meat.
o The insurers contended that there was no forcible entry into the insured
premises and such entry did not include forcible entry into the yard.

45

o HOLDING:
o Forcing open the gate to the yard constituted a forcible entry into the
insured premises. Per Evans LJ:
The issue posed by these strictly literal considerations is whether
the express exclusion of yard was intended to qualify that reference
alone or whether it applies also to all subsequent references in the
section. On balance, they tend to suggest that subsequent
references were not intended to be qualified as the first one was.
Moreover if the exclusion was intended to apply generally
throughout the section, it would seem more natural to include an
express opening definition to that effect. Thus the court would be
inclined to hold that premises in the second part is not subject to
the express exclusion of the yard in the earlier part of the clause.
The matter is put beyond doubt by the contra proferentem rule. It is
at least uncertain from the wording of the clause whether the
exclusion was intended to apply to the premises throughout the
section or only in that particular case. The uncertainty should be
resolved in favour of the insured. This achieves a sensible result. We
are sure that the draftsmans intention behind the words of
exclusion was only to exclude from the cover, property stolen from
the yard rather than from the buildings, for e.g. vehicles which
might be left there.
Poh: When goods are insured against all risks, the policy covers any fortuitous
damage to the goods provided the damage is not caused by the deliberate
conduct of the insured or due to the inherent vice or wear and tear of the goods.
An all risks insurance policy does not mean that the policy is not subject to any
limitations, it may be issued subject to the limitations imposed by the insurer
(Siang Hoa Goldsmith Pte Ltd v. The Wing on Fire & Marine Insurance Co Ltd
[1998] SGCA: an all risks policy was not intended to cover literally all risks. The
risk insured was to be read subject to the terms of the policy).
o FACTS:
o An insured who traded in gold jewellery was covered under an all risks
policy against loss or damage arising from any cause whatsoever. The
policy excluded loss or damage caused by fraud, dishonest or dishonest
deception committed by any customer. A fraudster deceived the insured
with a forged bankers letter of indemnity and disappeared with the
jewellery. The insurers disclaimed liability contending that the loss came
within the exclusion provision as it was caused by the dishonesty of a
customer of the insured.
o HOLDING:
o The loss came within the exclusion provision.
o An all risks policy did not mean that both foreseeable and unforseeable
risks were covered under the policy. In the context of the endorsement
46

and policy, the word "sendings" meant delivery from Singapore to Miami,
and not any other loss which occurred. The alleged fraud occurred only
after the goods had landed safely in Miami and this was not covered by
the policy or its endorsement: at [20] and [27].
20 Whilst there was no dispute that the policy was an all risks policy, and
the respondents accepted this, this did not in fact mean that all possible
risks, both foreseeable and unforeseeable, were covered under the policy.
We found useful guidance in The Law of Insurance by Malcolm Clarke (2nd
Ed, 1994), where the author stated:
All risk cover does not mean cover literally against all risks. First,
there is a practical limit to those risks to which the particular
subject-matter in its particular location is exposed; limits on the
range of risks are usually built in to the risk situation. Second, there
is usually a contractual limit: an all risks policy usually contains an
express exception particular risks. Third, there is a conceptual limit;
English law imposes limits as part of the definition of all risks cover.
These limits, which are sometimes called implied exceptions, are
that loss must be fortuitous, and lawful to insure.
22 In our opinion, first and foremost, in determining the precise ambit of
an all risks policy, one must first have regard to the terms and conditions
contained within the policy and the construction of those terms and
conditions thereof. We think it was wrong of the appellants to assume that
all risks meant literally all and any risks without any regard to the policy
itself.
23 On a true construction of the policy, it being an all risks policy, we
think there was clearly a territorial limit of within Singapore. This limit was
found within the policy at cl 1 under the territorial limit condition.
27 In our judgment, it was clear that the endorsement meant to cover the
carriage of the goods from Singapore to Miami and no more. This was
borne out by the word sendings which, in our opinion, taken literally and in
the context of the endorsement and policy, must have meant delivery. In
other words, apart from the transit of the goods on board BA 12 from
Singapore to Miami, the endorsement would not cover any other loss
which occurred. The policy, by itself, applied only within Singapore. When
the endorsement was granted, it extended the policy to cover for loss of
goods during the delivery of such goods from Singapore to Miami, subject
to the endorsement not being contrary to the original terms of the policy.
It did not extend the policy to cover all risks within the territory of Florida,
where the goods were delivered to. When the goods arrived in Miami, the
policy ceased to have any further effect. Insofar as the judgment of the
learned judge was concerned, he was right in saying that the present
factual scenario was one whereby the goods were not lost in transit but
rather taken away fraudulently without the appellants' permission and
neither the policy nor the endorsement extended to cover this situation.
47

The alleged fraud occurred only after the goods had landed safely in
Miami, and not while it was in transit from Singapore to Miami. This was
not covered by the policy nor its endorsement on any reading of the
same.
o 28 Our conclusion therefore made it strictly unnecessary to consider
whether the loss of the goods due to fraud amounted to a loss as defined
within the policy.
4.

Loss
Poh: When insured property suffers damage or harm, recovery under the policy
will not automatically follow. An insurance policy will specify the risks insured it
is a fundamental principle of insurance law that an insurer is only liable for an
event falling strictly within the insured risk. To render an insurer liable, an
insured has to show that the event causing the loss comes within the policy
terms and the loss is caused directly by the insured risk. In other word, a loss
has to be caused directly or proximately by an insured risk. When a court is
asked to adjudicated on an insurance claim, it has a twofold task: 1) The court
has to ascertain the policys precise scope and this is usually a question of
construction and 2) The court has to see whether the loss is caused proximately
by an insured risk and this is a question of fact.
Birds: In some contexts, loss appears merely as a part of a wider phrase, such
as loss by fire. In this sort of case, the meaning of loss is not important. Whether
or not the insured can recover depends upon the meaning of fire and on
whether his loss was caused by that insured peril. However in other contexts
(especially in insurances of goods), loss is itself one of the forms of cover
provided, for e.g. loss, damage or destruction,
o In marine insurance law, there is a doctrine of constructive total loss
whereby even if a ship or other property insured is not actually lost or
cannot be proved to be so lost, the insured can, by giving notice, claim as
for a total loss, the insurer thereafter becoming entitled to the ship or
property if it should turn up (MIA ss. 60-63). This is because traditionally
marine insurance has been regarded as insurance of the adventure as
much as of the ship or other property insured.
o The same result can be in non-marine insurance by agreement between
insurer and insured, for e.g. an insurer might agree to pay in respect of a
stolen car even if it cannot be shown to have been actually lost (on the
tests to be examined shortly), but it is well established that there is no
automatic doctrine of constructive total loss in non-marine insurance
(Moore v. Evans [1918] UKHL); if necessary, the insured must prove an
actual loss.
Poh: When property is insured against the risk of loss, a loss takes place if it is
caused by a fortuitous or unexpected event. An insurance policy is intended to
insure against the occurrence of an uncertain event and is not intended to
insure against a certainty (except perhaps in a life policy). An event is fortuitous
48

if it is unexpected to an insured even though the event is deliberately or


intentionally caused by a third party.
o A loss was fortuitous if it was unexpected to an insured even though it
might have been intentionally caused by a third party (London &
Provincial Leather Processes Ltd v. Hudson [1939] UKCA: if the insured
property has been interfered with or taken by someone without authority,
then it may well be lost even if in theory the insured might have a legal
remedy that would entitle him to reclaim the property. The test would
seem to be whether, after all reasonable steps have been taken, recovery
is uncertain).
Birds: If goods are destroyed, they are lost, but cover in this respect falls more
naturally under destruction. If goods are mislaid or are missing or have
disappeared, then they become lost if after a reasonable time and a diligent but
fruitless search, recovery of them is uncertain or unlikely.
When property is insured against the risk of loss, a loss takes place when the
property cannot be found or its recovery is uncertain (Holmes v. Payne [1930]:
when goods were insured against the risk of loss, a loss took place when the
recovery of the goods was uncertain. If goods are mislaid or are missing or have
disappeared, then they become lost if after a reasonable time and a diligent but
fruitless search, recovery of them is uncertain or unlikely).
o FACTS:
o An insured necklace was mislaid and could not be found despite all the
insureds efforts (a thorough search was made and a further search was
made at the suggestion of the insurers). The insurers agreed to replace it.
Some months later the necklace was found in the insureds cloak, having
probably fallen into the lining.
o The insureds policy covered the jewellery against all loss wheresoever
which the assured may sustain by the loss of or damage to the property
specified herein.
o The insurers sought to rescind the replacement agreement on the ground
that they entered into the agreement under a mistake of fact that there
was a loss of the necklace when there was in fact no such loss. The term
loss referred to a permanent deprivation of the insured property and the
necklace was merely mislaid.
o HOLDING:
o It was held that the necklace had truly been lost. The insurers were
therefore bound by the replacement agreement, although of course, the
insured was not entitled to keep the necklace as well as the replacement
jewellery. Indeed she had before the action brought by the insurers,
offered it to them as salvage.
o To constitute a loss of the insured property, uncertainty of recovery was
sufficient. On the evidence, recovery of the insured property was
uncertain. Per Roche J:
49

Uncertainty as to recovery of the thing insured is in non-marine


insurance matters, the main consideration on the question of loss. It
is true that a thing may be mislaid and yet not lost, but if a thing
has been mislaid and is missing or has disappeared and a
reasonable time has elapsed to allow of diligent search and of
recovery and such diligent search has been made and has been
fruitless, then the thing may properly be said to be lost. The
recovery of the thing is at least uncertain and unlikely.
Birds: A rather different situation (as opposed to missing goods) is where the
insured knows where his property is, but he is unable to recover it. If it remains
his property and is safely in the hands of parties who are bailees of it for him,
then it is not lost even if physically he is temporarily deprived of possession.
Poh: When property is insured against a specified risk, an insurer is not liable
unless a loss falls strictly within the risk insured. Thus if property is insured
against the risk of loss, the policy covers the physical loss of the insured
property. It does not cover an economic loss suffered by an insured or the loss of
a business opportunity arising from the loss of the insured property.
A policy insuring against the loss of goods was primarily intended to cover the
physical loss of the goods and did not cover the insured for an economic loss or
the loss of a business opportunity (Moore v. Evans [1918] UKHL: where the
insured knows where his property is, but he is unable to recover it. If it remains
his property and is safely in the hands of parties who are bailees of it for him,
then it is not lost even if physically he is temporarily deprived of possession).
o FACTS:
o Just before WWI, the insured jewellers sent a quantity of pearls to trade
customers in Frankfurt and Brussels on sale or return. When war broke
out, the Germans occupied Brussels. Thus for some four years, both sets
of pearls were irrecoverable. However the available evidence showed that
they were being safely kept for the insured and had not been seized or
interfered with by the German authorities.
o The jewellers insured their stock of jewellery against the risk of loss of
and/or damage or misfortune arising from any cause whatsoever.
o The insurers contended that there was no loss or damage to the insured
goods as they were in physical possession of the consignees who were
holding them on behalf of the insured. The insured contended that inter
alia, the term loss ought to be construed in a commercial sense to cover a
situation where owing to the outbreak of war the insured were unable to
get back their goods and were commercially lost as the insured had lost
the opportunity to sell the goods and had suffered a damage or
misfortune.
o HOLDING:
o The goods were therefore not lost.

50

o The losses did not come within the risk insured. Per Lord Atkinson:
Damage to the property must mean physical injury to the property.
Misfortune to the property can only rationally mean loss or physical injury.
The detention of the goods is a misfortune to the insured but not to the
goods.
Where insured property is voluntarily handed over to a third party by the
insured, the property cannot be said to have been lost. A loss however takes
place when the person to whom the property is entrusted converts the property
to his own use (Webster v. General Accident Fire & Life Assurance Corpn Ltd
[1953]: A loss could take place even though the insured voluntarily parted with
the possession of the insured chattel where the agent to whom the chattel was
entrusted converted the chattel to his own use).
o FACTS:
o The insured was persuaded by his agent (auctioneer) after the car was not
sold during the auction to leave the car with him as he had a private bid
(buyer) but the agent later sold the car and kept the money. The car
passed through the hands of a number of people before it reached a
purchaser who probably but not necessarily received good title to it under
the provisions of the Factors Act. On discovering his loss, the insured
contacted the police and the motoring organisations but failed to try to
recover possession of his car as he was advised that it was hopeless to do
so. The plaintiffs insurance policy covered the loss of the car.
o The insurers disclaimed liability contending that for a loss to take place,
there must be a de facto loss of the insured chattel and not a mere
impairment of title to the chattel. The insurers also contended that the
insured failed to take reasonable evidence to recover the car and that
there was no evidence to show that the car was irrecoverable.
o HOLDING:
o The insured had taken all reasonable steps to recover the car. The car was
lost within the meaning of his insurance policy.
o A loss took place when the agent converted the car. Per Parker J:
Where a chattel is handed over voluntarily by the owner to another
it may make it difficult for him thereafter to prove a loss; it may be
that in such a case what is lost is not the chattel but the proceeds of
the chattel.
If a chattel is handed over to an agent, whether as a result or not of
a fraudulent misrepresentation and the agent proceeds to deal with
the chattel in a way which amounts to conversion of the chattel,
there may be a loss.
o On the evidence, reasonable steps had been taken by the insured to
recover the car but recovery was uncertain. Per Parker J:
[When insured property was taken by someone without authority]
The test is whether he has taken all reasonable steps and he having
51

taking all reasonable steps, whether recovery is uncertain. In all the


circumstances, the claimant took reasonable steps or did not fail
to do anything which a reasonable man should have done and that
recovery was uncertain. There was therefore a loss within the
meaning of the policy (here the purchaser of the stolen car had
probably got good title).
Birds: Finally it must be the insured property itself that is lost and not for e.g. a
sum of money received for it.
Poh: A distinction has to be drawn between the loss of a chattel and the loss of
the price of the chattel. When a policy insures against the loss of a chattel, the
policy covers the loss of the chattel but not the loss of the price of the chattel.
When the owner of a chattel sells the chattel but is not paid by the buyer, the
owner has lost the price of the chattel but not the chattel. The loss is not
covered by a policy insuring against the loss of the chattel as there is no actual
loss but only a loss of the price of the chattel (Eisinger v. General Accident Fire &
Life Assurance Corpn Ltd [1955]: If the insured voluntarily hands over his
property to another, intending to part with ownership, he cannot claim to have
suffered a loss of it if the cheque that he receives in return for it subsequently
bounces. What has been lost is the proceeds of sale not the property).
o FACTS:
o A car owner accepted a cheque from a buyer. The cheque was
dishonoured and the buyer disappeared with the car. The owners
insurance policy covered the loss or damage of the car. The insurers
contended that the loss of the proceeds of sale was not a risk insured
under the policy.
o HOLDING:
o There was no loss of the car under the policy. What the insured lost was
the proceeds of sale and not the car. Per Lord Goddard CJ:
This is a clear case of obtaining a car by false pretences. That
transaction passed the property in the car. The claimant did not lose
the car; he lost the proceeds of sale. He has lost the price which the
man promised to pay him and purported to pay him by means of a
worthless cheque. This is not a loss within the meaning of the policy.
o **Birds: This contrasts neatly with Webster. There the circumstances were
that the insured entrusted his car to an auctioneer when bidding for it had
not reached the reserve price, upon the latters saying that he had a
private buyer. This statement was a lie and the auctioneer intended at the
time to deprive the insured of the car. He subsequently sent several
cheques that were dishonoured. There was loss of the car because (apart
from reasonable action) the insured did not voluntarily part with property
in the car. The auctioneers dealings amounted to conversion and theft of
the car.

52

53

4.1

Establishing Loss/Onus of Proving a Loss


Poh: The onus of establishing a loss under an insurance policy rests with an
insured. An insurer is not liable unless an insured is able to establish his claim.
The standard of proof required to establish a claim depends on the type of loss
involved. Some losses are more easily established than others. An insured must
produce sufficient proof of his loss before the insurer is liable under the policy.
o Whether an insured had succeeded in establishing his claim was to be
viewed objectively. The matter was to be decided as a question of fact and
not be left to the sole discretion of the insurer (Napier v. UNUM Ltd [1996]
per Tuckey J)
Poh: The onus for showing that a loss comes within the risk insured a policy
rests with an insured (Hurst v. Evans [1917]: the onus of proof rested with the
plaintiff to show that he sustained a loss within the meaning of the policy).
Poh: An insured has to show not only that a loss is covered by the terms of the
policy but also that it is caused proximately by the risk insured.
The onus of proving a loss rested solely with an insured (Regina Fur Co Ltd v.
Bossom [1958] UKCA).
o FACTS:
o The insured fur traders took out insurance coverage to insure furs
belonging to them or held b them as bailees against all risks of loss or
damage from whatsoever cause arising. During the currency of the policy,
the insured premises were burgled. The insurers disclaimed liability
contending that the claim was fraudulent and the insured had not shown
the alleged loss. The insured contended that the onus was on the insurers
to show that the loss did not come within the purview of the policy.
o HOLDING:
o The onus of proving the loss rested solely with the insured. Per Lord
Evershed MR:
Where the underwriter is entitled to say by way of defence that he
requires this case to be strictly proved and admit nothing, the onus
remains throughout upon the insured to establish the case they are
alleging.
o The onus rested with the insured to show his loss. Per Sellers LJ:
In order to succeed, the plaintiffs have to prove a loss of goods
covered by the policy due to a risk insured against, and this
obligation remains nonetheless where the evidence advanced to
prove the loss, if rejected and/or evidence called by the defendant
underwriter, might establish or tend seriously to show that a crime
had been committed by the claimants.
If the evidence of all the witnesses and the effect of all the
documents leaves the court in doubt on the question whether or not
there was a fortuitous loss, the plaintiffs would not be entitled to
54

judgment as they would not have established the material fact that
the loss of the goods was due to a risk insured by the policy.
When there was no agreement that a loss was covered by an insurance policy,
the burden was on the insured to show that the loss was so covered (Penguin
Boat International Ltd v. Royal & Sun Alliance Insurance (Singapore) Ltd [2008]
SGHC).
o FACTS:
o The policy covered all sums which the insured shall become liable to pay
by reason of the legal liability of the insured as ship repairers. The
insured supplied at a yacht owners request, a cradle made by the
insureds subcontractor. During a voyage, the ship carrying the yacht met
a severe storm and the cradle broke and the yacht was lost.
o Penguin Boat International Ltd ("the plaintiff"), a shipyard engaged in
shipbuilding and shiprepairing, obtained an insurance policy ("the
shiprepairers policy") from Royal & Sun Alliance Insurance (Singapore) Ltd
("the defendant"), under which the defendant undertook to indemnify the
plaintiff for all sums which the plaintiff should become liable to pay by
reason of its legal liability as shiprepairers for loss of or damage to thirdparty property occurring in the course of or arising from the shiprepairing
operations. An exclusion clause ("the exclusion clause") in the policy
provided that the policy would not cover any loss or damage unless
discovered and reported in writing to the defendant within six months of
delivery to the owners or after work was completed by the plaintiff,
whichever might first occur.
o YTC Yachts (SEA) Pte Ltd sent a yacht, the Paesano, to the plaintiff for
repair works and for the supply of a cradle for the Paesano. The Paesano
was loaded on the cradle on a seagoing vessel for intended delivery to its
owner, and the yacht was insured with the defendant under a marine
cargo policy for this purpose. During the voyage, the cradle broke and the
Paesano was lost. The defendant was notified by the owner of the
Paesano of the loss under the marine cargo policy. The owner then sued
the plaintiff. That suit was eventually settled and the plaintiff sought
indemnity from the defendant under the shiprepairers policy.
o The defendant denied that the plaintiff's loss was covered under the
shiprepairers policy. It also argued that the notification given by the owner
of the Paesano to the defendant did not fulfil the requirement of reporting
within the six-month period in the exclusion clause.
o HOLDING:
o The shiprepairers policy covered loss or damage occurring in the course of
or arising from shiprepairing operations, not just the repair made to ships.
The construction of the cradle for the Paesano was not shiprepair because
the cradle was not a part of the Paesano and the Paesano did not sail
while it was attached to the cradle. Nor did the plaintiff plead that the
cradle was used in repairs to the Paesano. Thus, the loss of the Paesano
55

from the failure of the cradle did not arise from the plaintiff's shiprepair
operations: at [14] to [17], [21].
8 In a situation where there is no agreement that a loss is covered
by a policy, the burden is on the insured to show that the loss is
covered: see Poh Chu Chai, Principles of Insurance Law (LexisNexis,
6th Ed, 2005) at p 665, Regina Fur Company, Ltd v Bossom [1958] 2
Lloyd's Rep 425 (cited by Assoc Prof Poh at p 665, fn 7), and Maratz
Ltd v New India Assurance Co Ltd [1998] 2 SLR(R) 134at [23].
9 Although the policy issued by the defendant was named a
shiprepairers legal liability policy, there was no definition of
"shiprepairer", or "shiprepair" in the policy. There appears to be no
general understanding on the meanings of these terms in the
insurance industry.
11 It would have been helpful if the plaintiff, who had the onus to
prove that cradle construction is shiprepair, had adduced evidence
from parties knowledgeable in the shipbuilding and shiprepairing
and insurance industries in Singapore on the understanding of those
terms in these industries. However, the plaintiff did not adduce
evidence from any person with any special knowledge on these
matters.
o The plaintiff's reliance on the notification given by the owners of the
Paesano ran into two difficulties: first, that the notification was not shown
to have given the defendant all the material knowledge; secondly, that
even if it did, it was not given by the plaintiff. The plaintiff had therefore
failed to report the loss within the six-month period as required in the
exclusion clause. There was no need for the defendant to show actual
prejudice as a result of the late reporting: at [36] to [37].
32 It can be argued that if the clause is construed in the context of
the insurer-insured relationship, the report is to be made by the
insured, or on its behalf, as the insurer cannot be looking to other
parties to report loss or damage under the policy.
33 However, a purposive approach may be taken. If we proceed on
the basis that the purpose for reporting is to protect the insurer's
interests, and not to deprive an inattentive insured of protection, it
is arguable that it is not necessary that the notification comes from
the insured as long as the insurer receives the necessary
information to take steps to protect its interest.
34 Looking at the exclusion clause in this light, prejudice to the
insurer will be a relevant factor. Lord Denning MR had this in
contemplation when he held in Barrett Bros (Taxis) Ltd v Davies
[1966] 1 WLR 1334 at 1340:
[The notification condition] was inserted in the policy so as to
afford a protection to the insurers so they should know in good
time about the accident and any proceedings consequent on
56

it. If they obtain all the material knowledge from another


source so that they are not prejudiced at all by the failure of
the insured himself to tell him, then they cannot rely on the
condition to defeat the claim. [emphasis added]
35 In the present case, the owner of the Paesano which reported the
loss to the defendant had insured the Paesano with the defendant
under a marine cargo policy, and the notification made no reference
to the shiprepairers policy. It was unclear whether the report alerted
the defendant to the possibility that it may be facing a claim from
the plaintiff under the shiprepairers policy so as to enable the
defendant to prepare for a claim from the plaintiff under this policy.
If it did not, it would not satisfy Lord Denning's "all the material
knowledge" requirement. But it would not have made a difference
even if all the necessary information was given.
36 Doubt over the need for the insurer to show prejudice was
expressed in subsequent decisions. This started with the decision of
the English High Court in Farrell v Federated Employers Insurance
Association Ltd [1970] 1 WLR 498 where MacKenna J did not adopt
Lord Denning's reasoning, and said at 502:
I do not regard [Lord Denning MR's] judgment as authority for
the wider proposition that an insurer cannot rely on a breach
of condition unless he has suffered actual prejudice.
His statement was endorsed by Bingham J in Pioneer Concrete (UK)
Ltd v National Employers Mutual General Insurance Association Ltd
[1985] 1 Lloyd's Rep 274 at 281, which was in turn approved by the
Privy Council in Motor and General Insurance Co Ltd v John Pavy
[1994] 1 WLR 462 and the English Court of Appeal in Pilkington
United Kingdom Ltd v CGU Insurance plc [2005] 1 All ER (Comm)
283. Our High Court has come to the same conclusion in Stork
Technology Services Asia Pte Ltd v First Capital Insurance Ltd [2006]
3 SLR(R) 652.
37 In the circumstances, the plaintiff's reliance on the notification
given by the owners of the Paesano runs into two difficulties: firstly,
that the notification was not shown to have given the defendant all
the material knowledge and secondly, that even if it did, it was not
given by the plaintiff. The plaintiff had therefore failed to report the
loss within the six-month period as required in the exclusion clause.
The burden of proof rested with an insured to bring his claim within the ambit of
the policy (Chua Ek Leng v. Tokio Marine Insurans (Malaysia) Bhd: If the plaintiff
succeeds in bringing the claim within the ambit of the policy, the defendant has
to discharge the burden to prove that the policy fell within the exceptions to the
policy or that the conditions of the policy had been breached).
o FACTS:
57

o The policy covered risks of burglary, housebreaking or theft. The policy


excluded mutiny, strike, riot and civil commotion, military or popular
rising, insurrection, rebellion, revolutionary, military or usurped power...
and delay, seizure, confiscation or detention by Government Authorities.
The insurers claimed that the excavators were brought across the
Malaysian border into Indonesia by the criminal act of unknown persons
alleged to Indonesian soldiers (TNI).
o The plaintiff owned two Hydraulic excavators which were insured with the
defendant. The plaintiffs excavators were used for timber extraction in a
timber concession area, which was near the international border between
Malaysia and Indonesia. The plaintiff alleged that on 16 June 2007, 17
Indonesian soldiers encroached into the concession area and forced the
plaintiffs workers to drive the excavators at gunpoint across the border
into Indonesia. Thereafter the plaintiff allegedly received a phone call on
his handphone from the soldiers, who had seized the excavators,
demanding a ransom for the return of the excavators. Negotiations
between the plaintiff and the soldiers broke down and the plaintiff did not
pay the ransom demanded. The plaintiff proceeded to lodge a police
report about the loss of the excavators. The plaintiffs efforts to recover
the excavators though the assistance of the Malaysian army at the border
post and through the Indonesian consulate in Kuching also proved
unsuccessful. The plaintiff then made an insurance claim against the
defendant based on the insured risk of theft but the defendant refused to
indemnify the loss of the plaintiffs excavators and hence this suit.
o The plaintiff pleaded that the excavators were seized from Malaysian
territory and driven to Indonesia and that the defendant was liable to pay
for the plaintiffs losses under the policy. The defendants case was that
even if the excavators were seized from Malaysian territory at gun point
and driven across the border, the loss was not caused by theft within the
meaning of criminal law and within the meaning of the policy. Instead the
defendant argued that the loss of the excavators in the instant case was
caused by extortion or robbery which was not an insured peril. The
defendant further submitted that the plaintiffs policy was repudiated
under two exclusionary clauses, ie that of usurped power and seizure by
government authorities. The defendant also put the plaintiff to strict
proof as to whether the excavators were used within Sarawak when they
were seized by the Indonesian soldiers.
o HOLDING:
o The crucial fact that the plaintiff had to prove on a balance of probabilities
was that the insured peril, ie the theft of the excavators, occurred while
the excavators were being used in Sarawak, as the policy clearly provided
for coverage for the excavators only within Sarawak. In the present case
the plaintiffs evidence about the circumstances of the alleged theft of the
excavators was complete hearsay because the plaintiff was not at the
58

scene and had no personal knowledge that the excavators were taken
from the Malaysian side of the border to Indonesian territory. The only fact
that the plaintiff could directly verify was the alleged demand for the
ransom of RM100,000, which would only establish that the excavators
were in the hands of a third party and that a demand for ransom was
made without establishing that the excavators were taken by force while
being used in Sarawak. The police and insurance investigations did not
probe into its truth as well. There was no direct or circumstantial evidence
that the excavators were stolen or that the excavators were driven at gun
point from Malaysia into Indonesia by an armed band of Indonesian
soldiers. As such, the plaintiff had failed to prove its case on a balance of
probabilities (see paras 9, 10 & 17).
o Regardless of whether there was robbery by theft or by extortion, the
insurance policy had not excluded the peril of robbery. Therefore the
alleged act of the armed Indonesian soldiers if proven, was within the
ambit of the insured peril of theft (see paras 1415).
o Even if the plaintiff succeeded in proving theft, no claim would attach
because of exclusion cl 9(b) and (d) of the policy. The defendant bore the
burden of proving that the case fell within the exclusion clauses. The
objective of cl 9(b) was to exclude coverage in extraordinary situations
such as in the present case where if the plaintiff was right that 17 armed
Indonesian soldiers encroached into Malaysian soil to commandeer the
excavators. Under these circumstances the seizure of the excavators
could not be considered ordinary theft but an extraordinary situation
which the ordinary police could not have dealt with. Further, cl 9 (d) would
also apply if the excavators were seized by government authorities such
as the Indonesian soldiers in the present case (see paras 17 & 2526).
o In the event that the plaintiff had proved his claim, there was a breach of
condition 5 of the policy in that the plaintiff failed to obtain the
defendants consent before negotiating with the Indonesian soldiers about
the ransom (see para 39).
[8] In the statement of claim, the plaintiff pleaded that the
excavators were seized from Malaysian territory and driven to
Indonesia. In the notice of claim submitted to the defendant, the
claim of the plaintiff is based on the insured risk of theft. Regardless
of the exceptions that the defendant are relying on to repudiate the
policy, the burden of proof is on the plaintiff to bring the claim within
the ambit of the policy (see American Home Assurance Co v Nalin
Industries Sdn Bhd [1993] 2 MLJ 409). The Supreme Court in that
case stated as follows in respect of the burden on the plaintiff to
bring the insurance claim within the ambit of the policy:
It is of course incumbent on the respondent as the plaintiff to
establish that the loss it suffered arose out of an accident to
an object covered by the policy. In Regina Fur Co Ltd v
59

5.

Bossom, Evershed MR held that the onus of proving that its


case fell within the policy, remained at all times with the
insured.
[9] If the plaintiff succeeds in bringing the claim within the ambit of
the policy, the defendant has to discharge the burden to prove that
the policy fell within the exceptions to the policy or that the
conditions of the policy had been breached.

Cover Provided Consequential Issues / Preventive Action


Birds: There are 3 points which follow neatly from the rules of construction
applicable to determining the cover provided by an insurance policy.
o 1) The timing of the insured peril.
o 2) Consequential loss.
o 3) Whether an insured peril must actually operate upon property insured
and costs incurred in preventing an insured peril running.
Birds: Indemnity insurance policies are conventionally of a limited duration,
typically for one year at a time. It may often happen, particularly in the context
of claims under insurances of land and buildings for loss arising from such
matters as subsidence and heave that the damage caused by a particular event
may not evidence itself for some considerable time. It seems self evident that,
in the absence of express provision to the contrary, the insured cannot claim
unless he can show that an insured peril occurred during the term of the policy
(Kelly v. Norwich Union Fire Insurance Society Ltd [1989] UKCA).
Birds: Insurance of property prima facie covers that property only in respect of
loss attributable to its own value. In other words, consequential losses are not
recoverable unless they are separately insured (Maurice v. Goldsnorough Mort
[1939]).
o It is possible to effect insurance against loss of profits arising as the result
of loss of property and such cover now known commonly as Interruption
Insurance is popular with businesses.
Birds: The question that arises here is perhaps partly a matter of cover provided
and partly a matter of causation. Traditionally it is considered under the latter
heading, but it is better examined on its own.
o The problem simply stated is that if property is insured against a specific
loss, can the insured recover if that loss does not actually operate upon
the insured property, but it is lost or damaged in circumstances when the
insured peril was imminent?
o Furthermore if there is no loss, but only because the insured incurs
expenditure in preventing what would have been a certain loss, can the
insured recover this expenditure?
The answer to this is more problematical, there being a clear
distinction in that property insured is not actually damaged in any
way.
60

For e.g. an insured who purchases flood prevention equipment to


prevent a certain flood, can he recover such costs from his insurer?
It might be regarded as a little strange if he could not, if he could
prove that had he done nothing, the house would have been
damaged by an insured peril and the insurer would have been liable.
In marine insurance, a sue and labour clause would permit
recovery and by analogy the same principle was applied by a
charterparty involving marine risks: sums paid to avert a peril may
be recovered as upon a loss by that peril. But in the absence of an
express clause, it is not clear whether prevention costs are
recoverable in marine insurance.
Poh: An insured is entitled to be indemnified by an insurer the moment the
insured property is damaged by an insured peril. However if the insured
property is threatened by an insured peril, the insured is not obliged to stand by
and wait for the property to be destroyed before he can claim against the
insurer.
In the face of an imminent peril, an insured is entitled to take preventive action
to save the insured property from destruction. Any loss or damage resulting
from the preventive action is recoverable as a loss from the risk insured (Stanley
v. Western Insurance Co [1868]: where insured property was damaged following
actions taken to prevent the occurrence of an insured peril, the loss was
recoverable as a loss due to the insured peril).
o FACTS:
o An insured who extracted oil from shoddy, insured the premises where the
operations were conducted against the risk of fire. The policy excluded
liability for loss or damage by explosion, except for such loss or damage
as shall arise from explosion by gas. There was an escape of inflammable
vapour which ignited and caused an explosion at the insured premises.
The explosion blew off the roof and part of the walls of the premises. A
fire followed the explosion. The insured claimed that the damage to the
insured premises was caused by a gas explosion and such a risk was
covered by the terms of the policy.
o HOLDING:
o The court decided that the damage fell within the purview of the exclusion
provision because it was caused by fire.
o The court also agreed with insured that if damage to the insured property
was caused by actions taken to prevent the spread of an insured peril, the
damage was recoverable as having been caused by the insured peril. Per
Kelly CB obiter:
Any loss resulting from an apparently necessary and bona fide effort
to put out a fire, in a word, every loss that clearly and proximately
results, whether directly or indirectly from the fire is within the
policy.

61

Poh: In policies covering marine insurance, the courts have encountered no


difficulties in holding that damage resulting from actions taken to prevent the
spread of an insured peril may be treated as a loss due to the insured peril. The
courts approach in respect of marine insurance policy may be due to the fact
that such a policy is generally more widely worded than a non-marine insurance
policy. A typical marine insurance policy provides insurance coverage for the
risks specified under the policy as well as any other losses or misfortunes. This
slightly wider coverage provided by a marine insurance policy has enabled the
courts to construe the risks insured as covering any damage suffered by the
insured property resulting from actions taken to prevent the spread of an
insured peril. The loss is construed as a loss ejusdem generis with the insured
peril.
When goods were in imminent danger of being destroyed by fire, damage
resulting from actions taken to prevent the spread of fire was recoverable under
a marine insurance policy as a loss ejusdem generis with fire (The Knight of St
Michael [1898])
o FACTS:
o A cargo of coal from Australia to Valparaiso was insured against loss by
fire under a marine policy. The insurance covered the freight against the
risk of fire and all other perils, losses and misfortunes. Because of the
overheating of part of the coal, some was discharged in Sydney. This was
necessary to prevent its spontaneous combustion.
o HOLDING:
o The consequent loss of freight was within the policy and it was suggested
that it was a loss by fire as there was an actual existing state of peril of
fire and not merely a fear of fire although there was no actual fire.
**Birds: The problem with regarding this decision as clear authority
that an insured can recover expenditure in preventing what would
have been a certain loss (and thus no loss) is that there were also
general words of cover in the policy covering other losses and the
judge stated that if the loss was not by fire, it was within the cover
provided.
In the US, there is clear authority that prevention costs can be
recovered under a non-marine policy even in the absence of
express coverage (Leebov v. United States Fidelity & Guaranty
[1960]). This principle could usefully be followed and that such
costs should be recoverable provided that there is an actual
existing state of the peril insured, in other words that loss by a
peril insured against is certain; mere danger of such loss
would clearly not be sufficient (Becker, Gray & Co v. London
Assurance Corp [1918] UKHL).
o However in Yorkshire Water Services Ltd v. Sun Alliance
& London Insurance Plc [1997] UKCA, the court refused
62

to imply a term that would have permitted the insured


to recover such prevention costs and it must be
admitted that this approach seems likely to prevail in
English law.
One reason was that the policy contained an
express term requiring the insured to take
reasonable care and this made it clear that any
prevention costs were to be at the insureds
expense but in addition the court ruled out the
possibility of implying the equivalent of a sue and
labour clause.
o The loss was recoverable under the policy because it was caused by fire or
a risk ejusdem generis with fire. Per Gorell Barnes J:
Fire did not actually break out but it is reasonably certain that it
would have and the condition of things was such that there was an
actual existing state of peril of fire and not merely a fear of fire. The
danger was present and if nothing were done, spontaneous
combustion and fire would follow in natural course. There was
imminent danger of fire and an existing condition of things
producing this danger and if this cannot be termed a loss by fire, it
is a loss ejusdem generis and covered by the general words of the
policy.
Birds: There is clear authority in marine insurance cases that if the peril insured
against has happened and is so imminent that it is about to operate upon the
insured property, loss to the property caused by measures necessarily taken to
avert the risk happening to the insured property is covered. It can be said that
the proximate or real cause of the loss is a peril insured against (Symington &
Co v. Union Insurance Society of Canton [1928] UKCA)
Before an insured is entitled to take preventive action to avert a loss from an
insured peril, the insured property must be in imminent danger of being
destroyed by the insured peril. When an insured peril is already operative, any
action taken to prevent further damage to the insured property is covered by
the policy (Symington & Co v. Union Insurance Society of Canton [1928] UKCA:
when damage was caused to goods following actions taken to prevent the
spread of fire, the loss was recoverable under a marine insurance policy as a
loss due to fire or a risk ejusdem generis with fire).
o FACTS:
o Cork insured against loss by fire and stored on a jetty was jettisoned by
being thrown into the sea to prevent an existing fire from spreading.
o HOLDING:
o The loss was covered, the real cause of it being the fire, an insured peril.
The peril must have happened and be so imminent that the action was
immediately necessary to avert the danger.
63

**Birds: Although there appear to have been very few non-marine


cases on the point, there is no reason to doubt the same principle
would apply, so that if for e.g. house contents are insured against
fire and are damaged by water to prevent an existing fire spreading,
such damage would be covered even if water damage was not
covered or was an excepted peril.
o The damage to the goods was recoverable as a loss due to fire or a risk
ejusdem generis with fire. Per Scrutton LJ: There being an existing fire and
an imminent peril, the damage caused by water used either to extinguish
the fire or to prevent it from spreading was a proximate consequence of
fire which could be recovered under the general words as being ejusdem
generis with fire, it does not matter for which the purpose.
o The damage suffered by the goods could be attributed to the risk of fire
even though fire had not actually touched the goods. Per Greer LJ: The
cause of the loss was the fire. It was right to say that fire never touched
the goods, but damage by water done to save the consequence of fire and
damage by the destruction of property to prevent the spreading of fire can
be held to be the consequence of the fire and within a policy of fire
insurance, as per Stanley.
**Poh: Allowing recovery when preventive action is taken to avert
the spread of an insured peril is laudable and sensible. It is in the
interests of all concerned (insured, insurer and public) that an
outbreak of a peril like fire should be checked immediately before it
is allowed to spread. An insured should not be deterred from taking
preventive action to stop the spread of an insured peril for fear that
he might not be able to recover for his own losses.
As a matter of public policy, this rule ought to apply to all
insurance policies whether or not the policies specially contain
the general words all other perils, losses and misfortune as
found in cases like The Knight of St Michael and in Symington.
The courts have consistently emphasised that for the rule to
apply, the threat of the insured peril must be imminent so that
if no action is taken immediately to diver the course of the
peril, destruction or damage to the property insured would
follow.
In the absence of an imminent threat to the insured property,
the insured is not entitled to take any action which will result
in the destruction or damage of the property.
Poh: Although an insured is generally entitled to take preventive action to avert
an imminent peril, his action is not protected if it is taken out of fear or caution
for the insured peril. When the danger from a peril is not imminent, no recovery
is allowed.

64

Damage suffered by an insured following actions taken out of fear or caution for
an insured peril will not come within the protection of the rule. Whether a
danger is imminent at any particular point in time is always a question of fact
(Becker, Gray & Co v. London Assurance Corpn [1918] UKHL: damage arising
from actions taken out of fear for an insured peril was not recoverable as a loss
due to the insured peril).
o FACTS:
o A cargo of jute being shipped to Hamburg on board a German vessel was
insured under a voyage policy covering men of war, enemies, takings at
sea, arrests, restraints and detainment of all kings, princes and people.
War broke out between Britain and Germany and the vessels master, a
German subject decided to put into a neutral port to avoid the risk of
capture by hostile cruisers. The insured claiming for a constructive total
loss of the goods as due to men of war submitted a statement from the
Admiralty stating that any German steamer proceeding on or after..
through the Mediterranean on a voyage to Hamburg would have been in
peril of capture by British of allied warships.
o HOLDING:
o This statement was not sufficient to establish that the vessel was subject
to an imminent peril of capture by enemy vessels. The loss was caused by
a fear of capture rather than an imminent danger of capture. Per Earl
Loreburn: It is therefore the measure of the danger which the ship would
run in proceeding on this voyage. The evidence of the statement will not
be sufficient (although I would venture that the capture should have been
a certainty.)
o A loss arising from fear for an insured peril was not recoverable. Per Lord
Sumner: It was self restraint that hindered the captain from putting to sea,
the plain fact is that he could do as he liked. This is a loss by the fear of it
and not a loss by capture.
Poh: Damage or loss resulting from action taken to prevent the occurrence of an
insured peril is recoverable as a loss by the insured peril on grounds of public
policy.
The right to recover may be taken away by an insurer by means of an express
term in the policy (MBf Insurans Sdn Bhd v. Penang Garden Sdn Bhd [2004]
MACA: an insurer may expressly impose a duty on an insured to take action at
his own expense to prevent the occurrence of an insured peril).
o FACTS:
o A contractors All Risks Policy stipulated that The Insured shall at his own
expense take all reasonable precautions and comply with all reasonable
recommendations of the Insurers to prevent loss, damage or liability and
comply
with
statutory
requirements
and
manufacturers
recommendations. Monitoring instruments at the work site indicated that
two buildings constructed were settling and tilting at a high rate. Remedial
65

efforts succeeded in arresting the settlement and tilting of the two


buildings. The insured claimed from the insurers for the remedial work.
The insurers claimed that the remedial work was not covered by the terms
of the policy.
o HOLDING:
o The policy had expressly provided that the expenses for the remedial work
were to be borne by the insured. Per Abdul Aziz J:
The bargain of the policy was that the insured had to take remedial
work or preventive measures and bear the cost of them, and if they
failed to do so and the buildings suffered a collapse, the insurers
would not be liable for the loss or damage. The bargain was that the
insurers would be liable only if despite those measures, which must
be paid for by the insured, the buildings suffered a total or partial
collapse. That was the extent of the risk the insurers were prepared
to bear.
It was a great risk of the worst contingency happening, but the
insurers were prepared to bear that risk on condition that the
insured took safety or preventive measures which must be paid for
by them. There was nothing absurd about such a bargain in view of
what happened when the buildings were being constructed.
6.

Causation
Birds: It is not sufficient in order that an insured should recover for a loss that
the loss falls within the cover provided as a matter of construction or definition.
He must also show that the loss was proximately caused by an insured peril. The
proximate cause does not however mean the last cause, but the effective,
dominant or real cause (see Becker, Gray & Co). Working out what is the
proximate cause in any situation is strictly a question of fact, so that decided
cases cannot be binding but merely illustrations. The doctrine can also be
excluded by appropriate wording.
o Note that the doctrine can operate to find an insurer liable where the
insured peril is the real cause but not the actual instrument of the loss
(Symington).
o Otherwise it seems most relevant (or only relevant) in a case where on the
facts there can genuinely be said to be competing causes of a loss, one of
which is specifically covered by the policy and the other of which is
expressly excepted (Leyland Shipping Co v. Norwich Union Fire Insurance
Society [1918] UKHL).
Poh: An insurer is only liable to indemnify an insured if the loss suffered by the
insured is caused proximately by an insured peril. In practice, there may be
more than one cause acting together to bring about a loss. When there are two
or more competing causes acting together to bring about a loss, it is important
to determine the actual or real cause of the loss. It may be necessary to do this
66

if one of the causes is not insured under the policy or is a risk which is expressly
excluded under the terms of the policy.
o As with all questions involving causation, the difficulty lies not so much in
stating the rule to be applied but in the actual application of the rule to
different factual situations.
o In earlier times, the courts adopted the approach that there was only one
dominant cause for any given event, but today, they are more prepared to
accept that there may be more than one dominant or effective cause for
an event.
Birds: It has been said that determining the proximate cause of a loss is simply
the application of common sense and in many of the cases that would appear to
be so. For e.g. in Marsden v. City & County Insurance [1865], a shopkeeper
insured his plate glass against loss or damage arising from any cause except
fire. Fire broke out in a neighbours property as a result of which a mob
gathered, rioted and broke the plate glass. It was held that this riot, not the fire,
was the cause of the loss and the fire merely facilitated the subsequent loss
rather than caused it. Thus the insured could recover.
Poh: When two or more causes operate together to bring about a loss, it is often
necessary to determine which of the causes constitutes the dominant cause of
the loss. The test to be applied for determining the dominant cause of a loss has
sometimes been labelled as the common sense test, namely the test which an
observer applying his common sense would consider to be the cause of a loss.
Since Leyland, it is settled in insurance law that the cause of a loss is that which
is the effective or dominant cause of the occurrence, or that which is in
substance the cause even though it is more remote in point of time, such cause
to be determined by common sense (Wayne Tank & Pump Co Ltd v. Employers
Liability Assurance Corpn Ltd [1973] UKCA per Lord Denning MR: the court
rejects novus actus and would ask as a matter of common sense what was the
effective or dominant cause of the fire).
o FACTS:
o Wayne Tank was held liable to pay damages to a company for breach of
contract under which installed new equipment in the companys factory.
The equipment was defective and a resultant fire gutted the factory.
Wayne Tank were insured by the defendants under a public liability policy
which excluded indemnity for liability arising from damage caused by the
nature or condition of any goods supplied by the insured. One cause of
Wayne Tanks liability was the defective nature of the equipment used but
another cause was the fact that one of its employees negligently and
without authority turned on the equipment and left it on all night. Had this
not happened, it was likely that the loss would not have occurred, as the
equipment would have been tested under supervision and found to have
been defective before any damage could be done.
o HOLDING:
67

o The real cause of the loss was the defective nature of the equipment.
**Birds: A conclusion clearly in accordance with authority such as
Leyland whereby the original cause predominates unless it merely
facilitates the subsequent cause and the latter totally alters the
situation.
o The court commented obiter though, on the result if it could not genuinely
be said that one of the two causes was predominant, the insurers would
still be protected, on the ground that they had provided for exemption
from liability for one of the causes and the only way to ensure this was to
exempt them totally.
**Birds: It is perhaps unfortunate that they did not consider the
possibility in such a case of apportionment of the loss.
The proximate cause of a loss is not the cause which is the last in time to bring
about the loss but the cause which leads in the natural sequence of events to
the final loss (Reischer v. Borwick [1894] UKCA: the proximate cause of a loss
was the cause which led naturally to the loss of the insured property in the
absence of any intervening cause to interrupt the flow of events).
o FACTS:
o A paddle-wheel steam-tug was insured against the risk of collision and
damaged received in collision with any object, including ice. The policy
excluded damage from perils of the sea. The insured vessel ran into a
snag in the river causing the vessel to spring a leak. The leak was
temporarily repaired and a tug was hired to two her to the nearest dock
for repairs. On the way, the leak reappeared and unable to stop the rush
of water, the master ordered the vessel to be towed ashore. The insurers
paid for the damage arising from the collision with the snag but refused to
pay for the subsequent damage contending that the damage did not arise
from the earlier collision but arose from the masters decision to tow her
to dock for repairs.
o HOLDING:
o The subsequent damage to the vessel was attributable to the collision
with the snag as the damage caused by the collision operated
continuously until the vessel was towed ashore. Per Lindley LJ: An injury to
a ship may fairly be said to cause its loss if before that injury is or can be
repaired, the ship is lost by reason of the existence of that injury under
circumstances which but for that injury, would not have affected her
safety.
Poh: The proximate cause of a loss is not measured by the proximity in time
which a cause bears to the loss. The fact that a particular cause is the last to
take place before a loss occurs does not by itself make that cause the proximate
cause of the loss. The proximate cause of a loss is the cause which sets in
motion a natural sequence of events leading to the loss.

68

The proximate cause of a loss was not the cause which was the last in time to
the loss but the cause which set into motion a sequence of events which led
naturally to the loss of the insured property (Leyland Shipping Co Ltd v. Norwich
Union Fire Insurance Society [1918] UKHL)
o FACTS:
o A time policy covering a vessel warranted against all consequences of
hostilities or warlike operations. The vessel while on a voyage to Harve
was torpedoed by a German submarine. Even though badly damaged, she
was towed safely to Harve. However the port authorities at Harve, fearing
that the vessel might sink, ordered her to a berth outside the breakwater.
She sank at the berth after two days when her bulkheads gave way as a
result of taking to the ground at each tide (because of the sea, it sank).
The insurers contended that the loss was caused by the torpedo hitting
the vessel. The insured argued that the cause which was the last in time
to the loss should be taken into account while the earlier causes
disregarded that the cause of the loss was the entry of seawater into the
vessel while she was at anchorage.
o HOLDING:
o The proximate cause of a loss was to be determined not by looking at the
cause which was proximate in time to the loss but by looking at the cause
which put into motion a sequence of events leading naturally to the loss.
Per Lord Dunedin:
The solution will always lie in settling as a question of fact which of
the two causes was the dominant cause of the two. In other words,
the court seeks for the causa proxima if it is well understood that
the question of time which is proxima is not solved by the mere
point of order in time. After the torpedo struck her, she was a
doomed ship, unless she could get into a real place of safety. She
nearly got into a place of safety but never quite did so. What
happened was in the circumstances the natural sequel to the injury
by the torpedo.
o Per Lord Shaw:
What does proximate mean? The cause which is truly proximate is
that which is proximate in efficiency. That efficiency may have been
preserved although other causes may meantime have sprung up
which have yet not destroyed it or truly impaired it and it may
culminate in a result of which it still remains the real efficient cause
to which the event may be ascribed.
o The loss was not covered, the real cause being the torpedoing and the not
the perils of the sea.
**Birds: Yet had the ship not been moved outside the harbour, it
would have been alright. The point is that original cause
predominates and is regarded as the real cause of the loss unless it
69

was merely facilitating a subsequent cause that totally changed


matters.
**Birds: This analysis does not appear to fit very well with some of
(what have been called) the accident cases (see Winspear &
Lawrence).
When an event leads naturally to a certain end result that event may rightly be
said to be the cause of the result. The fact that a loss is hastened by an
intervening event will not displace the original cause as being the proximate
cause of the loss (Smith v. Cornhill Insurance Co Ltd [1938]: when an event led
naturally and without interruption to a loss, the loss could be said to be caused
by the event even though the loss was hastened by an intervening event).
o FACTS:
o A motorists insurance policy covered the risk of accidental death. The
insured suffered severe head injuries when her car went off the road and
fell into a ravine. The head injuries caused serious damage to her brain.
After the accident, the insured wandered aimlessly through some
brushwood before stepping into a cold stream. The shock of entering into
the cold water caused her heart to fail and she died immediately. The
insurers contended that the real cause of the insureds death could be
traced to the shock of stepping into the cold water.

o HOLDING:
o No new cause intervened to interrupt the chain of events which started
after the insured received the head injuries in the accident. The insureds
death might be said to have been caused by the accident. Per Atkinson J:
If there is a chain of causation, starting with the accident, each
cause the result of a preceding cause, leading up to the death,
death results solely from the primary cause. If a cause intervenes
which is not also a result of previous cause forming part of the
chain, then there is in that event a new act intervening, an act
which is independent of the chain of causation set up by the
accident.
There was only one cause here, the injury sustained in the accident.
There was no independency between anything which followed and
that accident so that the causation of events, each one of which was
the result of the preceding event, led back to the accident and was
the sole cause of death.
Poh: When several events follow one another very closely, the task of separating
the events is clearly not easy and if one event is selected as the dominant
cause in preference over another, the selection may appear at times to put a
severe strain on the dominant cause concept. However, when an insurer seeks

70

to rely on a competing cause found in an exclusion provision, it is incumbent on


the insurer to show that the cause is clearly covered by the exclusion provision.
If there is any ambiguity in the exclusion provision, the ambiguity is to be
resolved in the insureds favour (Winspear v. Accident Insurance Co Ltd [1880]
UKCA: a man who drowned after falling into a shallow stream following an
epileptic fit died from an accident and not as a result of the fit).
o FACTS:
o The policy covered death or injury caused by accidental, external and
visible means and excluded any injury caused by or arising from natural
disease. While crossing a stream, the insured suffered a fit, fell in and was
drowned.
o HOLDING:
o The cause of death was accidental, namely the drowning, and not the fit
even though had it not been for the latter, the insured would not have
died as the stream was very shallow.
o The death of the insured was caused by an accident due to drowning and
not the fit. The exclusion provision in the policy was intended to apply to a
situation where the death of the insured was caused solely by the
complications of a disease. Per Lord Coleridge CJ:
The death was not caused by any natural disease or weakness or
exhaustion consequent upon disease but by the accident of
drowning. Those words in the proviso mean what they say, they
point to an injury caused by natural disease, such as where epilepsy
had really been the cause of the death.
**Poh: The court was clearly right when they decided that the death
of the insured was caused by drowning rather than epilepsy even
though the presence of epilepsy might have facilitated the
drowning. Even if epilepsy could be said to have had the same
dominance as drowning, the loss would still come within the scope
of the policy as drowning was one of the risks insured under the
policy whereas death facilitated by epilepsy was excluded under the
terms of the policy. If the insurers wanted to escape liability, they
would have to show that the death facilitated by epilepsy was
expressly excluded under the policy.
In this case the court decided that the exclusion provision was
intended to cover a situation where the death or injury of the
insured was caused by the natural consequence of epilepsy;
that the death of the insured was caused solely by the
complications arising from epilepsy.
If an exclusion provision is capable of more than one possible construction, the
court is entitled to construe the provision more strongly against the insurers
(Lawrence v. Accidental Insurance Co Ltd [1881] UKCA: an insured who fell onto

71

a railway line after suffering a fit, died as a result of an accident when he was
run over by a train).
o FACTS:
o The policy included in the same wording as in Winspear but also required
that accidental injury be the direct and sole cause of death. The policy
provided that it does not insure in case of death or disability arising from
fits... or any disease whatsoever arising before or at the time, or following
such accidental injury (whether consequent upon such accidental injury or
not and whether causing such death or disability directly or jointly with
such accidental injury). The insured suffered a fit while standing on a
railway platform causing him to fall on to the track whereupon he was run
over a train.
o The insurers contended that they were only liable if the accident was the
sole cause of the insureds death and were not liable if the accident and
the disease acted concurrently to cause the insureds death.
o HOLDING:
o The accident of being run over was the proximate cause of death.
o The exclusion provision was intended to apply to a situation where the
death of the insured was caused solely by the complications of a disease.
Per Watkins Williams J:
The true meaning of that proviso is that if the death arose from a fit,
then the company are not liable, even though accidental injury
contributed to the death in the sense that they were both causes,
which operated jointly in causing it.
It is essential to that construction that it should be made out that
the fit was a cause in the sense of being the proximate and
immediate cause of the death, before the company are exonerated.
Therefore according to the true construction of this policy and the
proviso, this was not an act arising from fit and therefore whether it
contributed directly or indirectly or by any mode to the happening of
the subsequent accident is wholly immaterial.
**Poh: The court again adopted a narrow construction of the
exclusion provision. This was something they were clearly entitled to
do if there was an ambiguity in the exclusion provision. However
when an exclusion provision is clear, the court has no choice but to
give effect to the provision (see for e.g. Wayne Tank)
**Birds: Decisions like these can be interpreted in different ways.
o It might be said that the natural cause, the fit, merely facilitated the real
accidental cause, but if that is so, surely it could be said of the Leyland
case that the torpedoing merely facilitated the sinking by the perils of the
sea.

72

o Alternatively the judges (see Lawrence) may have been interpreting


proximate as meaning latest, which subsequent cases (Leyland; Wayne
Tank) revealed clearly to be wrong.
o A further possibility is that the cases can be justified on the ground that
the accident superseded the prior, excluded, cause, to such an extent that
it constituted a totally fresh cause (see explanation in Jason v. Batten
[1969]) but this is difficult to understand on the facts.
o Perhaps the best explanation is the generosity of the judges who decided
these cases. Needless to say, insurers have been astute to draft changes
in wordings so as to attempt to gain a more favourable result in this sort
of case and more recent case law reveals that they have succeeded.
o See the case of Jason v. Batten.

Birds: It may be said that in a case without such a clause qualifying the
proximate cause rule (see for e.g. Lawrence; Jason), the court cannot genuinely
say that one cause is more effective than another, so that an excepted cause
and a covered cause are equally strong. This was a possible view of the facts in
Wayne Tank.
If property is damaged by an insured peril occurring elsewhere (not at the
insured premises), the damage is recoverable by the policyholder (Martini v.
McGuin [2000]).
o FACTS:
o A policy insuring a family holiday house covered loss or damage directly
caused by explosion. The insured property was damaged when volcanic
activity on the island where the house is located caused tephra
(fragments ejected from a volcano) to be deposited on the property. The
insurers did not dispute that a volcanic explosion constituted an explosion
within the meaning of the policy but they disputed the extent of the
damage.
o HOLDING:
o On the evidence, the damage was caused substantially by the volcanic
explosion and it was not appropriate to apportion the damage. Per
Timothy Walker J:
Finally it was not disputed by the insurers that a volcanic explosion
constitutes an explosion within the meaning of the policy.
On the evidence, was the explosion a proximate cause of both 1) the
deposit of tephra and 2) of the damage which the insured alleges
results from the deposit? If the peril insured against was a proximate
cause and the competing cause is neither i) excluded by the terms
of the policy (which does not arise here) nor ii) in itself a dominant
cause so as to negate the causative effect of the peril insured
against, then the insured can recover under the policy.
In the second stage of the causative analysis, the two main types of
damage claimed were deposit damage and corrosion damage with
73

associated staining and discolouration. In the context of the second


type of claim, volcanic acid is abrasive and contains absorbed acids.
Thus corrosion was itself a natural and probable consequence of the
deposit of tephra on the property. Given that the substantial
proportion of tephra arrived as a result of the explosion, it is on the
face of it, an obvious conclusion that the explosion tephra made a
substantial contribution to the corrosion and staining damage. That
obvious conclusion was supported by the evidence.
It was an insureds duty to establish that his loss was caused by a peril insured
under the policy and that the event causing the loss was an unforeseen and
sudden occurrence (Bina Puri Sdn Bhd v. MUI Continental Insurance Bhd [2010]
MAHC).
o FACTS:
o The plaintiff contractor undertook for the construction of a building (the
contract work). Cracks appeared in buildings and drains near the work
site.
o The plaintiff had earlier taken a contractors all risks policy from the
defendant. The policy covered damage to the contract work and damage
to third party property and provided cover for any unforeseen and sudden
physical loss or damage from any cause, other than those specifically
excluded. The relevant exclusion clause stated that the insurers were not
liable for loss or damage due to faulty design.
o Section 2 provided cover for accidental loss of or damage to property
belonging to third parties occurring in direct connection with the
construction or erection of the items insured under section 1 and
happening on or in the immediate vicinity of the site during the Period of
Cover. Section 2 precluded cover for damage caused by vibration or by
the removal or weakening of support or injury or damage to any person or
property.
o The plaintiff made a claim under the policy which was eventually rejected.
PW3, the expert for the plaintiff maintained that the cause of the damage
was sudden and unforeseeable and was the unpredictable consequence
of the surprisingly heavy rainfall in early 1996. The defendant on the other
hand, maintained that the damage was foreseeable and not sudden
thereby precluding coverage under the policy. DW1, the defendants
expert testified that the cause of such damage was the wrong choice of a
retaining wall and faulty design. Similar arguments were raised in relation
to the damage to the surrounding third party buildings.
o HOLDING:
o With respect to the contract work in section 1, the plaintiff had to
establish that it came within the peril insured against in the policy, namely
that it had suffered unforeseen and sudden physical loss and damage
from any cause. As for those causes specifically excluded it followed that
it was incumbent upon the defendant to establish that the causes fell
74

within the exceptions set out in the policy which excluded liability (see
paras 1819).
DW1s evidence was to be preferred to that of PW3. Accordingly, the
cause of the damage was the wrong choice of a retaining wall and not the
heavy rainfall. The ground anchors failed as a consequence of weakening
of the soil around it which was caused in turn by the flow of water because
of the permeable retaining wall system used. If a less permeable system
had been designed and utilised, water would not have flowed across the
retaining wall weakening the anchors despite heavy rainfall (see para 87).
The failure of the wall was foreseeable because it was directly attributable
to the weakening of the soil around the ground anchors supporting it due
to the flow of water and fines from the retained earth side of the
excavation into the excavation site which reduced the ground water table
level on the retained side. This resulted in ground settlement or
consolidation which was foreseeable (see para 88).
The deflections of the wall were progressive over a period of several
months. In fact remedial measures were taken to try and stop the damage
to the retaining wall as well as the third party property. The nature of the
deflections and the period over which they occurred suggested that the
damage to the wall was not sudden (see para 91).
Therefore, the damage to the contract works under section 1 of the policy
was neither unforeseeable nor sudden. As such the damage did not fall
within the ambit of the peril insured against. Even if the damage was
indeed sudden and foreseeable, it would have been due to a design
fault. This would have fallen within the exclusion (c) to the policy which
excluded the insurer from liability (see paras 9293).
The wrong choice of a retaining wall and pressure grouting may well have
caused consolidation settlement resulting in the damage to the third party
property. The weakening or removal of support was the last link in the
chain of events giving rise to the third party damage. But it was not
necessarily the proximate cause of such third party damage. The
proximate cause of a loss is not the cause which is the last in time to bring
about the loss. It is the cause which leads in the natural sequence of
events to the final loss. Since the proximate cause of the loss was the
wrong choice of retaining wall or faulty design and pressure grouting, the
loss was not caused by a removal or weakening of support. As such,
section 2 applied. The defendant was liable to the plaintiff for all losses
arising from damage to property belonging to third parties (see paras 104,
108 & 111).
[87] Having considered both PW3s and DW1s evidence it appears,
for the reasons set out above and particularly after the crossexamination of PW3, that DW1s evidence is to be preferred to that
of PW3. In any event, PW3 conceded that the soldier pile wall was
defective, that he had foreseen ground settlement although he had
75

believed it would be within tolerance levels and finally that the


rainfall during the material period was foreseeable. PW3 effectively
agreed with the theory put forward by DW1 relating to the seepage
of water resulting in ground settlement. DW1s evidence suffered
solely from the infirmity that he had not inspected the site
physically, because he was retained long after the incident.
Notwithstanding this, his analysis of the cause of the damage, to
which PW3 agreed, is the more tenable and credible version, given
the testimony of both witnesses. Accordingly it appears that the
cause of the damage to the wall is the wrong choice of a retaining
wall and not the heavy rainfall. The ground anchors failed as a
consequence of weakening of the soil around it which was caused in
turn by the flow of water. This was possible because of the
permeable retaining wall system used. If a less permeable system
had been designed and utilised, water would not have flowed across
the retaining wall and weakened the anchors, notwithstanding
heavy rainfall. Finally it is relevant that a study of the rainfall records
for the material period, compared with the corresponding years prior
to, and immediately after the material period, does not disclose with
any degree of certainty that such rainfall can be categorised as
excessive. Even PW2 did not state so. As such it is the finding of
this court that the cause of the loss and damage to the contract
work under section 1 of the policy is the wrong choice of a retaining
wall as contended by the defendant and not heavy rainfall as
contended by the plaintiff.
6.1 Accidents & Diseases
Poh: An interesting question concerning causation can arise in a situation where
an insured who is injured in an accident dies from a pre-existing disease after
the accident. The question likely to arise in such a situation is whether the death
of the insured is caused solely by the accident or the disease or by both such
causes acting together. The courts appear to have adopted the following
approaches in resolving the problem.
o When an insured is suffering from a latent pre-existing disease which
ordinarily causes no harm to the insured but the latent disease is
triggered by an accident, the insureds injury may be attributed to the
accident rather than the disease.
o On the other hand, if a disease is already manifest before an accident and
is aggravated or accelerated by the accident to a point where it causes
injury to the insured, the injury is attributable to the disease rather than
the accident.
o However in cases dealing with workmens compensation, a different rule is
applied. If a workman is injured or dies in the course of his employment,
the injury or death of the workman is treated as being caused by an
76

accident even though the workman may be suffering from pre-existing


disease and the disease is accelerated by the exertion of the workman to
a point where it causes injury or death.
When an insured is suffering from a pre-existing disease and the disease is
accelerated by an accident to a point where it causes injury, the injury is
attributable to the disease rather than the accident (Jason v. Batten Ltd [1969]).
o FACTS:
o The policy provided benefits to the insured if he sustained in an accident
bodily injury resulting in and being independently of all other causes
the exclusive, direct and immediate cause of the injury or disablement.
There was an exception in respect of death, injury, or disablement
directly or indirectly caused by or arising or resulting from or traceable to
any physical defect or infirmity that existed prior to an accident.
o The insured suffered a coronary thrombosis after being involved in a
motor accident, the clot blocking a coronary artery that had been
narrowed by disease existing before the accident.
o HOLDING:
o The insurers were not liable. Stress associated with the accident had
precipitated the thrombosis, but assuming that the clot was an injury
sustained in the accident, it was not independently of all other causes
the exclusive cause of the insureds disablement.
**Birds: It would appear therefore that with the phrase
independently of all other causes, insurers should ensure that they
are liable under their personal accident policies only when there is
an accident and nothing else.
o The disablement suffered by the insured did not arise solely from the
accidental injury but was due mainly to the diseased condition of the
insured. Per Fisher J:
A policy of insurance is subject to the same rules of construction as
any other written contract. The words used in it must be given their
plain, ordinary meaning in the context of the policy looked at as a
whole, subject to any special definitions contained in the policy. In
case of ambiguity, the contra proferentem rule will apply but apart
from this, there is no rule of law which requires the court to strain
the language of the policy in favour of or against the insured person.
The bodily injury was not independently of all other causes, the
exclusive cause of the disablement. There were two concurrent
causes, the pre-existing arterial disease and the formation of the
clot. These two causes were independent of each other and the
thrombosis would not have occurred after the accident unless both
had operated. Here the arterial disease and the clotting were
simultaneously present together, each a necessary condition of the
thrombosis.
77

The words physical defect or infirmity are apt to cover any


malfunctioning or departure from a healthy state of any part of the
body.
When an insured meets with an accident which accelerates a pre-existing
disease to a point where it causes the death (or injury) of the insured, the
insureds death (or injury) was attributable to the disease rather than the
accident (Leong Luen Kiew v. New Zealand Insurance Co Ltd [1939]).
o FACTS:
o A comprehensive motor insurance policy covered the insured against
bodily injuries caused by violent accidental external and visible means
independently of any other cause. The insured was injured in a road
accident and he subsequently died. In the accident, the insured suffered
personal injuries including a laceration on his scalp, abrasions on his right
leg and right hip and a fracture. The immediate cause of the insureds
death was shock resulting from the haemorrhage of a gastric ulcer.
o The insurers contended that the bursting of the blood vessel was caused
by the gastric ulcer aggravated perhaps by diabetes, heart and arterial
disease rather than the injuries received in the accident. The insured
contended that the death was caused by the shock of the accident
because the haemorrhage of the brain and the sepsis of the leg combined
to aggravate the gastric ulcer, causing the blood vessel at the base of the
ulcer to burst.
o HOLDING:
o It had not been shown that the death of the insured was caused by the
accident. Per McElwaine CJ: The accident certainly did not cause the
gastric ulcer and it was from the gastric ulcer that the man died. To come
within the policy, it must be shown that any violent, accidental, external
and visible means independently of any other cause resulted in death.
Even if the accident and its natural consequence contributed to the
assured death as the plaintiff alleges, the accident did not result in death
independently of any other cause, but because of another cause, the
weakened condition of the blood vessel due to the assureds diseased
condition.
The fact that an injury suffered by an insured in an accident is not sufficient to
cause the immediate death of the insured, will not alter the fact that the
accident is responsible for the insureds death if death follows as a natural
consequence of the accident (Re Etherington & the Lancashire & Yorkshire
Accident Insurance Co [1909] UKCA: an insured who died of pneumonia after
falling from a horse onto wet ground, died from the accident).
o FACTS:
o A personal accident policy covered the risk of death provided the accident
was the direct cause or proximate cause thereof, but not where the direct
or proximate cause thereof is disease or other intervening cause, even

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though the disease or other intervening cause may itself have been
aggravated by such accident or have been due to weakness or exhaustion
consequent thereon, or the death accelerated thereby. While out hunting,
the insured fell from his horse onto wet ground. Having no change of
clothes with him, he rode home in wet clothes. Owing to the exposure to
the cold, the insured developed pneumonia and died.
o The insurers contended that the insureds death was caused by
pneumonia, a weakness or exhaustion due to a disease and not the
accident.
o HOLDING:
o If there was an ambiguity in terms of the policy, the ambiguity was to be
resolved against the insurers. The insureds death was attributable to the
accident and not the pneumonia as the pneumonia followed as a natural
consequence from the fall. Per Kennedy LJ:
The fatal pneumonia was a natural sequence of the accident against
the consequence of which it was the object of the policy to insure.
The company cannot bring themselves within those words merely by
showing that the disease from which the assured died was due to
weakness consequent on the accident, the words were intended to
cover cases where a man is weakened by an accident and then a
disease wholly unconnected with the accident attacks him by reason
of his weakness or is aggravated by that weakness.
When an insured meets with an accident which triggers off a pre-existing latent
infection, the resulting injury is attributable to the accident rather than the
infection (Fidelity and Casualty Co of New York v. Mitchell [1917] PC: when a preexisting latent infection was triggered by an accident, the resulting injury was
attributable to the accident and not the infection.
o FACTS:
o A personal accident policy covered bodily injury through accidental
means and resulting directly, independently and exclusively of all other
causes. The insured was thrown out of his sleeping berth while travelling
on a train. He suffered a sprained wrist as a result of the accident. Owing
to the sprain, the insured could not perform operations as a specialist. The
insured suffered from tuberculosis of the lungs some 10-15 years
previously but the infection has since cleared. The accident triggered the
latent infection and it prevented the insurers wrist from healing properly
with a period of 6 months after the accident.
o The insurers contended that the disability of the insured was not caused
solely by the accident independently of all other causes, the other cause
being the tuberculosis condition without which the insured would not have
suffered such a continuous period of disability as the sprain would have
cleared up in the natural course of events.
o HOLDING:
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o The insureds disability was caused solely by the accident and not the
infection. Per Lord Dunedin:
What is insured against is bodily injury sustained through accidental
means. This bodily injury must result in immediate and continuous
total disability that prevents the insured. The wrist was disabled at
the moment of the fall and has been disabled ever since. Prior to the
accident, there was only a potestative tuberculosis tendency; after
it, and owing to it, there was a tuberculosis condition. In other
words, the accident and a double effect, it sprained the tendons and
it induced the tuberculosis condition. These two things acted
together, and were the reason of the continuing disability; but while
they are both ingredients of the disabled condition; there has been
and is on the true construction of the policy, only one cause, namely
the accident.

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