GLUE3013/Group 1/Case Review

1.0

Introduction
Name of the case Type of case Source Date of Judgment Original Title Suit No Court Quorum : Overseas Assurance Corporation (Malaysia) Berhad v MSIG Insurance : Court of Appeal : Federal Court website : Monday, 16 May 2011 : Overseas Assurance Corporation (Malaysia) Berhad v Msig Insurance : Civil Appeal No. W-02-(NCC)-120-2011 : Court of Appeal : Zainun binti Ali, HMR; Ramly bin Hj Ali, HMR; Balia Yusof bin Hj Wahi, HMR (Judgment delivered by Ramly bin Hj Ali, HMR) Cases referred : North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co [1877] 5 Ch D 569; Goldstein v Salvation Army Assurance Society [1917] 2 KB 291; Legal and General Assurance Society Ltd v Drake Insurance Co Ltd [1991] 2 Lloyds Law Report; Gale v Motor Union Insurance Co Ltd [1928] 1KB 359; Commercial Union Assurance Co Ltd v Hayden [1977] QB 804, [1977] 1 All ER 441 CA; Scottish Amicable Heritable Securities Association v Northern Assurance Co [1883] 11 R 287; Bovis Construction Ltd v Commercial Union Assurance Co Plc [2001] 1 Lloyds Rep 416; Shatomah v Kader Maydin [1870] SLR Leic 275; Pentagon Construction [1969] Co Ltd v United States Fidelity and Guarantee Co [1978]1 Lloyds Rep 93; Queensland Government Railways and Electric Power Transmission Pty Ltd v Manufacturers Mutual Insurance Ltd [1969] 1 Lloyds Rep 214

GLUE3013/Group 1/Case Review

2.0
2.1

Case analysis
Issue
The respondent, MSIG Insurance (Malaysia) Berhad, had issued a fire policy and the appellant, Overseas Assurance Corporation, a contractors all risk policy, in respect of the development of a residential township which had several two-storey terrace houses. Following the completion of the development, cracks appeared in the houses in one phase of the project. The crack where known as Nadia Parkhomes. On being notified of the incident, the respondent appointed loss adjusters to investigate and assess the loss. The loss adjusters recommended settlement of the insured's claim. The respondent paid out RM1,011,838.31 to the insured for its total loss and then sought contribution from the appellant for the sum of RM522,838.31. The appellant refused to contribute and the respondent sued for the amount in the High Court. The court allowed the respondent's claim with costs. Against that decision the appellant appealed to the Court of Appeal. The respondent argued that since the loss suffered by the insured was a peril insured under both the policies, the obligation to compensate the insured for the loss fell equally upon both insurers. As the respondent had indemnified the insured for its total loss the respondent said it was entitled to contribution from the appellant for half of the total payment made to the insured. The appellant, however, said:i. The cause(s) identified for the damage to the houses were not ones that made the respondent liable to pay under its fire policy ii. iii. There was no element of double insurance to give rise to a right of contribution The respondent had no legal or contractual obligation to pay anything whatsoever under its policy. Even in the event of liability, the respondent's policy had a rateable proportion clause limiting liability to 50% of any total loss. The appellant said the respondent's payment of the insured's total loss was wholly ex-gratia and it was not liable to contribute.

GLUE3013/Group 1/Case Review

2.2

Solution & decisions

As Ramli Ali JCA delivering the judgment of the court, three decisions have been made. First, where a policy contained a rateable proportion clause, the insurer was not entitle to contribution from other insurance if it paid out more than the proportion it was liable to pay under its policy, since contribution can only arose out of legal obligation to pay, as its stated in paragraph 17. Second, in this case, both policies had rateable proportion clauses. The liability of each insurer was based on 50:50. The respondent was legally liable to pay only half of the total claimed by the insured. Since the respondent paid the full amount (100%) claimed by the insured it had pain the extra 50%, which it had no legal obligation to pay, on an ex-gratia basis. Equity will not assist a volunteer, as it in paragraph 24, 25 and 53. Lastly, in any event, the whole payment (100%) made by the respondent to the insured was clearly made voluntarily and an ex gratia basis as the respondent was not legally liable under the fire policy to pay. The cause of the loss was design related, which was excluded from the cover under the respondents fire policy. Such voluntary payment did not trigger the application of contribution from the appellant (paragraph 54).

GLUE3013/Group 1/Case Review

3.0

Discussions & comments

Insured have taken two types of policies, Fire Policy and Contractor All Risk Policy. Fire policy commenced from 22 April 2005 to 21 April 2006 while Contractor All Risk Policy commenced from 31 May 2002 to 30 May 2007. The loss occurred on 11 January 2006. The amount of total loss is RM 1,011,838.3. Based on this case, there were two type of principle involved, which are principle of contribution and double insurance. According to USLEGAL.com (definition, 20012013) Double insurance is a type of insurance where the same subject matter is insured more than once. The method of double insurance is considered a legal act. When loses occur insured can claim from both the insurers and the insurers are liable to pay under their respective policies. The features of double insurance are as below:i. ii. iii. subject matter is insured with two or more insurance companies the insured can claim the amount from the policies the insurer cannot claim more than the actual loss

Double insurance also follows the basic principles of insurance. A double insurance does not allow to unjust enrichment of the insured. Meanwhile, according to the International Risk Management Institute (contribution, 2000-2013) the element for contribution include:i. ii. iii. iv. v. vi. Insured must be a common subject matter Not necessarily cover to the same extent but there must be overlapping cover, Policy covers the same peril, On behalf of same insured, Legal interests must be the same and All policies in force legally enforceable.

GLUE3013/Group 1/Case Review

Under doctrine of contribution in perspective of insurance law, the respondent require appellant to recover half of the payment made to the insured because the respondent had made full payment of the loss to the insured. In accordance to the principle of double insurance, since insured had the same subject matter of insurance, they are obliged to share the compensation of loss. But since the policy contain rateable proportion clause, insured is not entitle to contribution if it pays out more than the agreed proportion. Here the respondent was only liable to pay 50% but instead they paid 100%. Thus, contribution doesnt apply here. This case was referred to Bovis Construction Ltd v Commercial Union Assurance Co Plc [2001] 1 Lloyds Rep 416. Here, both Eagle Star Insurance Co Ltd and the Defendant have insured Bovis under different policies. The Defendant had issued a CAR Policy and Eagle Star a Public Liability Policy. On May 7, 1990, it was discovered that a flood had occurred in the building which had originated in the rooftop plant and boiler room. The water had escaped on to the floor of the plant room from a pressure release valve on one of the heating boilers and from there it had penetrated in to the building below via an inadequately sealed cable hole in the floor slab. The building was 11 stories high and the water penetrated as far as the fourth floor causing substantial damage. It was discovered after the incident that a switch on the hot water pressurization unit had been switched to manual that was, in fact, its test mode. The effect of this was that the unit kept pressurizing the system rather than automatically cutting out when the correct pressure was reached. The result was the boiler pressure release valve operated, letting the water escape on to the floor, and this continued until the switch was turned off. Following the flood, extensive remedial works were required to repair the damage. The Defendant had repudiated the claim by Bovis on the grounds that the claim was not covered by the policy. Eagle Star Insurance Co Ltd then proceeded to indemnify Bovis in full and then sought to recover together with Bovis against the Defendant. Thus, the same principle applies in this case. The Respondent paid the full (100%) of the insured claim when it was only legally liable to pay 50% of it. The Respondent had no legal obligation to pay the extra 50% of the claim. As such the Respondent had acted as a volunteer or had paid on an ex-gratia basis on the extra 50%.

GLUE3013/Group 1/Case Review

In our opinion, the respondent should not pay the full compensation at the first place. Since respondent has made 100% of the payment, it was clearly made voluntary and on ex gratia basis. According to the International Risk Management Institute (ex gratia payment, 2000-2013) Ex gratia basis is a voluntary payment made by the insurer in response to a loss for which it is not technically liable under the terms of its policy. The court make decision that allow the Appellants appeal with costs of RM20,000.00 to the Appellant. Deposit to be refunded.

4.0

Conclusion
As a conclusion, we agreed with the Courts decision. Under the contribution and double insurance, they should have same subject matter, same risk and same interest to claim under this principle. The losses are come from Contractors All Risk policy and not from Fire policy. They not cover the same subject matter or risk. So, respondent should pay the claim and cannot recover the claim as contribution from appellant. Besides, the respondent needs to be aware of the rateable proportion in the policy to avoid any over payment.

GLUE3013/Group 1/Case Review

References

contribution . (2000-2013). Retrieved October 24th, 2013, from International Risk Management Institute: http://www.irmi.com/online/insurance-glossary/terms/c/contribution.aspx definition. (2001-2013). Retrieved october 24th, 2013, from uslegal.com: http://definitions.uslegal.com/d/double-insurance/ ex gratia payment. (2000-2013). Retrieved october 24, 2013, from International Risk Management Institute: http://www.irmi.com/online/insurance-glossary/terms/e/ex-gratiapayment.aspx

GLUE3013/Group 1/Case Review

Contents
1.0 2.0 2.1 2.2 3.0 4.0 Introduction .......................................................................................................................... 1 Case analysis ........................................................................................................................ 2 Issue.................................................................................................................................. 2 Solution & decisions ........................................................................................................ 3 Discussions & comments ..................................................................................................... 4 Conclusion ........................................................................................................................... 6

References ....................................................................................................................................... 7