In Grace Electrical Engineering Pte Ltd v EQ Insurance Co Ltd [2016] SGHC 233, the plaintiff ("Grace Electrical") was the occupier of a factory unit. Grace Electrical was the insured under a public liability policy (the "Policy") issued by the defendant ("EQ Insurance") on 15 March 2012.
In the early hours of 6 September 2012, a fire started at the factory unit occupied by Grace Electrical, which spread to an adjoining factory united occupied by Te Deum Engineering Pte Ltd ("Te Deum"). In a separate case, the Singapore High Court found Grace Electrical liable in negligence for the fire damage to the unit occupied by Te Deum. In Grace Electrical, Grace Electrical sought an indemnity from EQ Insurance in respect of its liability to Te Deum.
After an investigation conducted by the Singapore Civil Defence Force into the fire, Grace Electrical was charged under the Fire Safety Act ("FSA") on eight charges concerning the unauthorised use of the factory unit for storage and accommodation purposes and for carrying out unauthorised fire safety works. Eventually, Grace Electrical pleaded guilty to five of the eight charges. Grace Electrical had also previously been fined for similar offences committed in October 2009 and May 2012.
There was a general declaration clause in the Policy which stated that the "due observance and fulfilment of the terms provisions and conditions of this Policy insofar as they relate to anything to be done or not to be done by the Insured ... shall be condition precedents to any liability of [EQ Insurance] to make any payment under this Policy" (General Condition 13 ("GC13")). In that regard, General Condition 9 ("GC9") of the Policy stated that the Grace Electrical "shall exercise reasonable care ... that all statutory requirements and bye-laws and regulations imposed by any public authority are duly observed and complied with".
One of the issues was whether GC9 should be construed literally as applying to "all statutory requirements and bye-laws and regulations" (emphasis added). In that regard, the court held that the regulatory provision must be a "relevant" one. In this case, the court found that GC9 did apply to breaches of the FSA. The court held that under GC9 "the insured is required to comply with fire safety statutory provisions and regulations so as not to increase the insured risk during the period of insurance", and that GC9 had been breached.
The question then was whether GC9 was a condition precedent to liability by virtue of GC13. The court said that the use of the term "condition precedent", while relevant, is not decisive "especially when the label is attached to a number of terms of different nature" and that "it may not be possible to give effect to a general declaration clause because to do so would give rise to absurdity". Amongst other things, factors to be considered include the workability of the contractual obligation as a condition precedent to liability, the purpose of the condition or that of the Policy itself and, in the event of ambiguity, the contra proferentem rule. In this case, the court considered that there was no reason not to apply GC9 as a condition precedent as "fire safety was Grace Electrical's responsibility and any outbreak of fire would present a significant risk to the nearby third party property and business". The court therefore held that breach of GC9 was breach of a condition precedent and that there was "no need to examine whether the non-compliance breach caused the relevant loss".
EQ Insurance also argued that by pleading guilty to five of the charges under the FSA Grace Electrical was in breach of General Condition 4 ("GC4") which required Grace Electrical to obtain the consent of EQ Insurance before making "any admission ... in connection with any accident or claim". However, the court held that a criminal charge was not a "claim" for the purposes of GC4, and that in any event the guilty pleas were not in themselves admissions within the meaning of GC4 as the charges related to strict liability offences, which did not imply negligence on the part of Grace Electrical.
Finally, General Condition 12 ("GC12") of the Policy provided that if legal proceedings are not commenced within 12 months from the time when EQ Insurance "shall offer an amount in settlement or disclaim liability for any claim hereunder", then such claim shall be deemed to be abandoned. GC12 therefore constitutes a 12-month contractual time bar. EQ Insurance argued that GC12 applied as it had disclaimed liability by a letter on 17 March 2013, with Grace Electrical's legal proceedings against EQ Insurance only commencing on 14 July 2014. However, the court held that as the objective of the Policy was to indemnify Grace Electrical against "legal liability", no claim for an indemnity could arise under the Policy until the "establishment of liability and quantum of the underlying third party claim". At the time of EQ Insurance's letter of 17 March 2013, Grace Electrical's liability to Te Deum had not yet been established. Grace Electrical was therefore not in breach of GC12.
Comment: General declaration clauses stating that compliance with policy conditions is precedent to the liability of the insurer are commonly used. This case is good news for insurers, confirming the Singapore courts' willingness to give effect to such terms, albeit its effect on any individual condition will need to be considered on a cases-by-case basis.
Singapore High Court Construes Conditions Precedents In A Public Liability Policy
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