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The Singapore High Court handed down judgment in Oversea-Chinese Banking Corp Ltd v ArgoGlobal Underwriting Asia Pacific Pte Ltd [2025] SGHC 82, a claim under a marine insurance policy which addresses a number of issues of English insurance law. Of note, the Court considered the application of section 11 of the Insurance Act 2015, and particularly (for the first time in case law) what constitutes a term "defining the risk as a whole".
BACKGROUND
The Claimant, OCBC, was mortgagee of the rig "TERAS LYZA" (the Vessel) which was insured under a hull and machinery marine insurance policy governed by English law (the Policy), issued by the Defendant insurers. The Vessel owner and manager also initially brought claims under the Policy but elected not to pursue them after going into liquidation.
The Policy comprised two sections:
- under "Section A", the Defendants undertook to insure the hull and machinery of the Vessel up to an insured value of US$56m (Section A); and
- under "Section B", the Defendants undertook to insure the Vessel for increased value and/or excess liabilities up to a value of US$14m (Section B), subject to a "policy proof of interest" clause.
The Vessel capsized whilst being towed from Vietnam to Taiwan. Salvage attempts failed, and the Vessel owner tendered a notice of abandonment, which was rejected by the Defendants. No buyers could be found for the Vessel (even for scrap) and it was scuttled in deep waters.
OCBC's primary claim was that there was a constructive total loss of the Vessel because the cost of recovery and/or repair would exceed the insured value and that the loss fell within the scope of the Policy because the capsize and/or loss of the Vessel was caused by "perils of the seas" pursuant to clause 6.1.1 of the Institute Time Clauses (Hulls) (ITC), a standard set of terms in marine insurance that were incorporated (with amendments) into the Policy. The claim was quantified at US$56m and US$14m, being the respective insured values under Section A and Section B of the Policy.
The Court observed that the Defendants had adopted a "kitchen sink" approach in raising a wide range of defences to the policy claim.
DECISION
The Court found that OCBC had satisfied its legal burden of proving that the Vessel was a constructive total loss under s 60(2)(ii) of the Marine Insurance Act 1906 and clause 19 of the ITC.
Perils of the sea
In examining whether the Vessel was lost by perils of the sea (as a matter of English law), the Court rejected the Defendants' submission that the burden was on OCBC to prove precisely how the vessel capsized (based on what the judge held was a misreading of The Popi M [1985] 1 WLR 948). The Court affirmed the continuing validity of the decision in Canada Rice Mills v Union Marine and General Insurance [1941] AC 55 to the effect that where there is an accidental unexpected ingress of seawater into a vessel causing loss or damage, there is a rebuttable presumption that she was lost by perils of the seas.
It is only if the loss could be said to be due to uneventful decrepitude of a vessel in the prevailing conditions or to inherent characteristics of a vessel not involving any fortuitous external accident or casualty, that the Defendants would have any defence based on ordinary action of wind and waves. On this basis, and on the balance of probabilities, the capsize of the Vessel was caused by perils of the seas.
Breach of fair presentation
The Defendants asserted that OCBC had breached its duty of fair presentation under section 3 of the Insurance Act 2015 (the Act), by failing to disclose or falsely representing matters that would have increased the risks involved in the tow voyage of the Vessel from Vietnam to Taiwan. The Court found that, on the facts, there were no such breaches of OCBC's duty of fair presentation.
Breach of warranty and application of section 11
The Defendants alleged that OCBC had breached warranties in the Policy in respect of complying with certain statutory and regulatory requirements and operational procedures in relation to the tow of the Vessel from Vietnam to Taiwan. Whilst the judge found that none of the relevant warranties had been breached, he nonetheless went on briefly to consider section 11 of the Act, which prevents insurers from denying liability for losses on the basis of an insured's breach of a term of the insurance contract designed to reduce particular risks, where the loss that actually occurred is not one that the particular term was designed to prevent; the exception is terms which "define the risk as a whole".
The judge considered whether the subject warranties were terms "defining the risk as a whole". OCBC's evidence on this issue, with which the judge was inclined to agree, was that terms defining the risk as a whole were those which were so fundamental and extensive that they delimit the risk that the insurer is underwriting, such as for example geographical and usage restrictions. This meant only warranties that are fundamental and extensive define the risk as a whole. The Defendants' evidence, which the judge did not favour, supported a broader view: other than utterly irrelevant terms, all other warranties define the risk as a whole.
On this basis, the judge made an obiter finding that the subject warranties did not appear to define the risk as a whole. The judge did not go on to consider whether OCBC would have been able to demonstrate that the non-compliance with the subject warranties could not have increased the risk of loss which actually occurred (under section 11(3) of the Act), on the grounds that it was unnecessary in circumstances where he had found that none of the relevant warranties had been breached.
The judge also made obiter findings in respect of OCBC's argument that, even if the warranties had been breached, it could rely on the "held covered" clause for coverage under the Policy. He was inclined to accept that the duty of utmost good faith is retained when parties seek to exercise a held covered clause without notice.
Gaming or wagering contract
The Defendants argued that Section B of the Policy, namely the Increased Value section, was void as a gaming or wagering contract under section 4 of the Marine Insurance Act 1906. In that part of the Policy, the underwriters undertook to insure the vessel for increased value and/or excess liabilities but it was subject to a "policy proof of interest" clause. The judge accepted the joint view of the English law experts that Section A of the Policy was not void as a gaming or wagering contract but that Section B of the Policy was. As such OCBC's claim was limited to Section A.
COMMENT
The decision addresses several issues of English law, including under the Insurance Act, which will be of interest to insurance lawyers and practitioners. The Court's obiter comments on section 11 of the Insurance Act are potentially significant given the lack of judicial authority on this provision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
