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CONSTRUCTION OF POLICY (1)

Stakeholders Look at the stakeholders who are interested in an insurance

transaction.

Construction Consider how ordinary words are to be construed in an insurance

policy.

Clear Terms Examine how the courts deal with terms which are clear.

Stakeholders
Stakeholders

Regulator - MAS

Insurer

Policyholder

Beneficiary

Courts

MAS

Financial Well Being - In Singapore, the regulators primary concern is with an

insurers financial well being. MAS exercises very little control over an insurers
contractual terms.

Market Forces - MAS is less involved with achieving a level playing field for the
parties and market forces are left to operate. MAS does not prescribe standard or
basic terms for insurance contracts.

No Regulatory Control

Unfair Contract Terms Act - Sections 2 to 4 do not extend to (a) any contract of
insurance (including a contract to pay an annuity on human life).

Consumer Protection (Fair Trading) Act 2003 - Act does not apply to transactions
regulated under the Insurance Act. See section 2, First Schedule.

Consumer Protection (Fair Trading) (Amendment) Bill

Inclusion of financial products and services
Clause 8 of the Bill extends the application of the CPFTA to financial products and
financial services which are currently excluded. With the removal of the exclusion, the
CPFTA would be applied to the financial products and services regulated under certain
legislation administered by the Monetary Authority of Singapore (MAS) and under the
Commodity Trading Act with the commencement of this Bill.
Parliamentary Report 2008-08-25
Ministry of Trade and Industry (MTI)

Circumscribing Risk - In relation to insurance contracts, it is proposed that a supplier of an

insurance contract should not be taken to have engaged in an unfair practice by reason only
that the contract includes:
(a) terms that clearly define or circumscribe the insured risk; and
(b) terms that clearly define or circumscribe the insurers liability.
Ministry of Trade and Industry (MTI)
Necessary Terms - Such terms are necessary in insurance contracts because the price of the
insurance policy is determined by the scope of the insured risk and the insurers liability.
Extra Reasons - Thus, for action to be taken under the CPFTA, there needs to be reasons
other than that cited above.
Policy Terms
Not Unfair - For example, if a supplier of a health insurance contract specifies a
waiting period before a claim can be made or provides for certain pre-existing illnesses to
be excluded from the contract, it should not be construed as an unfair practice.
Construction
Insurance Contract - Are there any major concerns that one should worry about
when construing an insurance contract?
Insurance Contract

Equals Does an insured and the insurer transact on an equal footing?

Level Playing Field Is the playing field level for both the insured and the insurer?

Courts Objectives

Results - Is it a legitimate objective when construing an insurance policy for the

courts to ensure that a fair and just result is achieved for the parties?

Parties Situation

Dominance - When a layman contracts with an insurer, who is the dominant party in
the transaction?

Policy Terms - Who controls and defines the policy terms?

Understanding - Would an insured have the same level of understanding of

insurance terms as the insurer?

Legal Formalities
Form - Is an insurance contract subject to any prescribed legal formalities?
Writing
Contract Is an insurance contract required by law to be in writing?
Common Law

Writing - Is there a common law requirement that an insurance contract has to be in

writing?

Goods Insurance - Is a verbal agreement to insure goods enforceable?

Fire Insurance - Is an oral fire insurance policy enforceable?

Formalities

Writing - Is it correct to say that all insurance policies need not be in writing?

Exceptions - Why is it that some policies like life insurance, marine insurance and
motor insurance are required to be embodied in a written document?

UK and Singapore

UK - Section 2 of the Life Assurance Act 1774 requires all insurance contracts based
on the occurrence of a specified event to be in writing.

Singapore - Under section 62(4) of the Insurance Act, all contracts of indemnity are
not required to be in writing.

UK and Singapore

Variation What is the fundamental difference between the UK Life Assurance Act
1774 and the Singapore Insurance Act?

Differences Is it correct to say that most insurance policies in the UK have to be in

writing while most insurance policies in Singapore need not be in writing?

Oral Contract

Potential Problems - What are some of the potential problems associated with oral
or verbal insurance contracts?

Insured - Would an insured benefit from having an oral contract instead of a written
contract?

Written Policy

Advantages/Disadvantages - What are the potential advantages and disadvantages

in having a written policy?

D. & J. Koskas v. Standard Marine Insurance Co. Ltd.

Bankes L.J.:

Binding Effect: 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 produce
blindness in anyone reading it.

Soon Kok Tiang v. DBS Bank Ltd. [2012] 1 S.L.R. 397.

Chan Sek Keong C.J.:

Binding Effect: We think it apposite and timely to remind the general public that
under the law of contract, a person who signs a contract which is set out in a
language he is not familiar with or whose terms he may not understand is
nonetheless bound by the terms of that contract. Illiteracy, whether linguistic,
financial or general, does not enable a contracting party to avoid a contract whose
terms he has expressly agreed to be bound by. The principle of caveat emptor applies
equally to literates and illiterates in such circumstances.

Robertson v. French

Issue: How are the terms in a marine insurance policy to be construed?

Lord Ellenborough C.J.: There were no special rules to govern the construction
of an insurance contract.

Ordinary words were to be given their plain and ordinary meanings.

When a contract was partly printed and partly written, greater weight would be
given to the written part of the contract.

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.

Robertson v. French

Would giving an ordinary word its plain and ordinary meaning favour the insured or
the insurer?

Ordinary Meaning

Beneficiary - Who would benefit more from the rule that ordinary words are to be
given their plain and ordinary meanings?

Written Policy

Printed/Written Words - When a contract is partly printed and partly written, why
should the written words be given greater weight?

Drafting Insurance Contract

Responsible Party - Who is the party primarily responsible for putting together an
insurance contract?

Ambiguity - When a term in a policy is unclear or doubtful, who should shoulder the
responsibility for the ambiguity?

Construing Terms

Specific Term When a dispute arises, should the court focus exclusively on the
specific term in dispute and ignore the rest of the document?

Context - Should the courts be influenced by the context in which a term is deployed
in the policy?

Hamlyn v. Crown Accidental Insurance Co. Ltd.

Insurer: Injury must be caused exclusively by an external physical force,

unintentional so far as the injured person was concerned.

English Court of Appeal: In construing a term in an insurance policy, regard

must be given to the rest of the policy including any exclusion clause.

A shopkeeper was insured against bodily injury caused by violent, accidental,

external, and visible means.

Policy excluded injury arising from natural disease or weakness, or exhaustion

consequent upon disease.

Insured dislocated the cartilage of his knee while stooping to pick up a marble
dropped by a child as it rolled away from him down a sloping floor.

Hamlyn v. Crown Accidental Insurance Co. Ltd.

Why did the court refuse to give the term external its literal meaning?

Provincial Insurance Co. Ltd. v. Yeo Chee Swee

Insurers: Exclusion applied whenever insured used a motor-cycle.

Insured: Exclusion is limited to a situation where insured used a motor-cycle as part

of some sporting activity.

Malaysian Federal Court: The meaning of a word might be gathered from the
context in which the word was used. (noscitur a sociis maxim).

Policy excluded: Death or disablement caused by or consequent upon participation

in hunting, mountaineering, winter sports, racing of any kind, polo, football, motorcycling or any form of diving in the sea.

Insured died in an accident while riding a motor-cycle.

Provincial Insurance Co. Ltd. v. Yeo Chee Swee

Why did the court refuse to give the term motor-cycling its literal construction as
urged by the insurer?

Policy Terms

Ordinary Word - What meaning should be given to an ordinary word in a policy?

Clear Terms - When a term is reasonably clear, is the court bound to apply the term?

Leo Rapp Ltd. v. McClure

Insurer: No liability as goods were not in a warehouse.

Delvin J.: When a policy used an ordinary word, the word was to be given its
plain and ordinary meaning.

warehouse referred to some sort of building.

Goods in Transit Policy covered: [L]oss or damage by burglary, housebreaking,

theft ... on stock of iron, steel, non-ferrous metals, whilst in warehouse anywhere in
the United Kingdom.

Lorry making a delivery was left in a depot in London.

Depot was in an enclosed compound surrounded by high brick walls and topped with
barbed wires. Lorry was stolen when thieves broke into the compound of the depot.

Leo Rapp Ltd. v. McClure

Could the court have avoided applying the plain and ordinary meaning of the term
warehouse?

Chiew Swee Chai v. British American Insurance Co. (M) Sdn. Bhd.

Insurer: Amputation was a condition precedent to liability.

Shankar J.: When a term was clear, effect had to be given to the term.

As Milton says, they also serve, who only stand and wait. - limp arm serves a
cosmetic purpose - it is still there for the whole world to see.

Life 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.

Insured injured his left arm in a road accident. Doctors recommended amputation of
the arm.

Insured declined saying that the experience would be too traumatic and the operation
cost too much.

Chiew Swee Chai v. British American Insurance Co. (M) Sdn. Bhd.

Was the term loss clearly defined in the policy?

Thompson v. Equity Fire Insurance Co.

Insurer: No liability as gasoline was kept on the insured premises at the time of the
fire.

Privy Council: 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.

A fire insurance policy provided: The company is not liable ... for loss or damage
occurring while ... gasoline ... is ... stored or kept in the building insured.

A chemist used a gasoline stove to heat up some syrup.

Stove caught fire and insured premises were destroyed.

Thompson v. Equity Fire Insurance Co.

Why was the plain and ordinary meaning of the term stored or kept not applied by
the court in this case?

LECTURE REVIEW

Stakeholders MAS less concerned with terms and the courts play a major rule in
construction of insurance contract.

Construction Giving a term its plain and ordinary meaning often benefits an
insured but can sometimes also work against the insured.

Clear Terms Courts have little choice but to apply terms which are clear even
though it might work against the insured.