Primary Legislation and Regulation
In Singapore, the Insurance Act (Chapter 142) is the primary legislation that regulates and deals with insurance and reinsurance activities, including insurance intermediaries and related institutions. Aside from the Insurance Act, there are also other relevant legislative regulations regarding specific areas of insurance, such as work injury compensation insurance, marine insurance, and motor vehicles insurance:
The above-mentioned statues govern contracts of insurance and reinsurance. They impose particular requirements on certain types of insurance policies and regulate claims and payments under these policies. Furthermore, the Road Traffic Act (Cap 276) provides specific requirements for liability insurance cover for autonomous vehicles. An insurance contract may also be subject to the Consumer Protection (Fair Trading) Act (Cap 52A) if an insured is a consumer. In the absence of express statutory provisions, insurance and reinsurance contracts are governed by common law through the Application of English Law Act 1996 and Singapore Case Law.
Parent legislations are usually supplemented by subsidiary legislations such as directives, codes, guidelines, and notices issued by the relevant regulatory authorities, all of which have the force of law.
In Singapore, the Monetary Authority of Singapore (MAS) is the main body that supervises and regulates insurance and reinsurance activities under the Monetary Authority of Singapore Act (Cap 186) and the Insurance Act.
The following associations also play an essential role in the regulation of insurers and insurance intermediaries by issuing internal codes of conduct and guidelines to regulate the conduct of their members:
The Financial Industry Disputes Resolution Centre Ltd (FIDReC)
MAS formed an Integration Steering Committee in May 2004 to discuss the creation of a one-stop centre for all retail disputes resolution with financial institutions. As a result, the committee proposed the setting-up of the Financial Industry Disputes Resolution Centre Ltd (FIDReC), which was launched on 31 August 2005. It is an independent and impartial alternative dispute resolution institution that offers services to resolve disputes between consumers and insurers in an amicable, expeditious and affordable manner. It is also a non-profit company that aims to provide consumers with a one-stop centre for resolving disputes in the banking, insurance, and capital market sectors. FIDReC’s role is to administer the FIDRec-NIMA Scheme under the Pre-action Protocol for Non-injury Motor Accident Cases (Appendix C of the State Courts Practice Directions) issued by the state courts.
Non-injury Motor Accident (NIMA) disputes between consumers and insurance companies have to be first heard by the FIDReC (which is known as the FIDReC-NIMA) before court proceedings can commence, unless exempted by the FIDReC pre-action protocol. The scheme applies to NIMA claims below SGD3,000, where consumers claim against an insurance company which is not their own insurer.
If a consumer is dissatisfied with an insurer’s service, a complaint may be lodged/filed with FIDReC, instead of commencing legal proceedings directly. The process of FIDReC dispute resolution comprises the following stages:
When cases proceed to adjudication, consumers have to pay an adjudication case fee.
A consumer who is not satisfied with the outcome of the hearing can commence legal action against the insurer. Consumers should note that the Singapore courts actively encourage parties to attempt alternative means of dispute resolution and will likely require parties to attempt mediation while court proceedings are pending (unless such mediation has already been attempted).
There are no special court procedures for dealing with commercial insurance or reinsurance disputes. An insurance contract is governed by the terms therein. The court will construe the terms in accordance with general contractual rules of interpretation. Contractual interpretation is aided by the Evidence Act which allows for evidence to be adduced in order to shed light on the parties’ intentions.
Filing a Complaint with the GIA or LIA
An insured who wishes to bring a claim against an insurer can file a complaint with the GIA (https://gia.org.sg) or the LIA (www.lia.org.sg) if the insurer is a member of the GIA or LIA. Most (if not all) major insurance providers in Singapore are members of the GIA.
Singapore’s judiciary has a reputation for world-class efficiency, competence and integrity. To deal with specific areas of law, there are specialist courts such as the Syariah Court, the Singapore International Commercial Court, and the Family Justice Courts. Civil proceedings may either be instituted in the state courts (consisting of the Magistrates’ Court and the District Court) or the High Court. In a civil action, any party that is not satisfied:
As for the monetary jurisdictional limits of the court, see 2.3 Unique Features of Litigation Procedure.
General Rules on Limitation
Pursuant to the Limitation Act (Cap 163), claims under insurance/reinsurance contracts must be brought within six years from the date on which the claim accrues. In addition, claims for personal injuries must be made within three years from the date of injury or the earliest date on which the claimant had knowledge of the injury.
An insured may also be barred from making a claim if they do not meet the deadline for giving notice or submitting claim documents under the policy. Some insurance policies also provide for short deadlines for the commencement of proceedings under the insurance policy if the insured disagrees with the insurer's refusal of a claim.
In Singapore, ADR is a prevalent alternative to litigation. The Singapore courts actively support and encourage the use of ADR and there are several alternative channels of dispute resolution available to parties.
The popular ADR methods in Singapore to settle disputes are mediation, arbitration and neutral evaluation.
Generally, insurance contracts will include clauses that provide for the choice of court and law. The court will give effect to such a clause and hence, disputes in insurance law over the proper forum or governing law are rare. This was further affirmed by the passing of the Choice of Court Agreements Act 2016. In particular, Section 9(6) of the Choice of Court Agreements Act 2016 affirms that a proceeding under a contract of insurance and reinsurance is not excluded from the application of the Act by reason only that the contract relates to a matter to which the Act does not apply.
In the event that the contract does not include a choice of law clause, the court will examine a variety of factors, including the commercial purpose of the transaction, the places of residence of the contracting parties, the choice of jurisdiction and other factors in determining the implied law of the contract. If the courts find that there was no implied choice of law, the courts will then determine the objective proper law, which is the law with the closest and most real connection with the contract.
In the event that the contract does not include a choice of jurisdiction clause, the court will examine whether Singapore is forum conveniens, if there is a serious issue to be tried on the merits, and if there is a good arguable case that falls within one of the grounds enumerated in the Rules of Court Order 11.
Singapore is a contracting party to the 2005 Hague Convention on Choice of Court Agreement. To give effect to this, the Choice of Court Agreements Act 2016 was passed. Accordingly, judgments obtained from the Singapore courts may be recognised and enforced in the courts of other contracting states. Section 18 of the Choice of Court Agreements Act 2016 specifically provides that the High Court may not limit or refuse the recognition or enforcement of a foreign judgment of liability under the terms of a contract of insurance or reinsurance on the ground that the liability under the contract includes liability to indemnify the insured or reinsured in respect of a matter to which this Act does not apply, or an award of damages that will not be recognised or enforced under Section 16 of the Act.
The Reciprocal Enforcement of Commonwealth Judgments Act (Cap 264) (RECJA) and Reciprocal Enforcement of Foreign Judgments Act (Cap 265) (REFJA) will not apply to any judgment which may be recognised or enforced in Singapore under the Choice of Court Agreements Act 2016. The RECJA is intended to facilitate the reciprocal enforcement of judgments and awards in Singapore and other Commonwealth countries, subject to the restrictions provided in Section 3. The REFJA allows for the recognition and enforcement of judgments of a foreign country that gives reciprocal treatment to judgments obtained from the Singapore courts.
By virtue of the existing Choice of Court Agreements Act, RECJA and REFJA, foreign judgments obtained from the following countries may be registered in Singapore:
In the event that the judgment has not been obtained from a country listed above, the court will refer to common-law principles, ie, it will need to be shown that the judgment is on the merits, it is a judgment for a sum of money, the foreign court has international jurisdiction according to Singapore conflict rules and the judgment is final and conclusive.
Any application for registration of a foreign judgment in Singapore must be done within six years after the date of the judgment; or where there have been proceedings by way of appeal against the judgment, after the date of the last judgment given in those proceedings.
In Singapore, the appropriate courts for commercial disputes depend on the value of the dispute:
Moreover, in 2005, the Singapore International Commercial Court (SICC), a division of the General Division of the High Court and part of the Supreme Court of Singapore, was established to deal with transnational commercial disputes. Generally, the SICC has the jurisdiction to hear and try an action if:
The SICC may also hear cases that are transferred from the Singapore High Court.
Civil proceedings may be initiated by a writ of summons (if a substantial dispute of fact is likely to arise) or by originating summons (generally appropriate for disputes concerning matters of law).
Under Singapore law and the Singapore court system, there are various means by which proceedings may be resolved or terminated before trial, for instance:
If the parties are unable to resolve their conflict, they will have to go through the process of discovery. Parties are expected to disclose all the documents that the party relies on or will rely on, or documents which could adversely affect their own case, affect another party’s case or support another party’s case, and that are relevant and necessary. Parties can also ask for the specific discovery of documents that a party will rely on, a document which could adversely affect their own case, adversely affect another party’s case or a document which may lead the party seeking discovery of it to a train of inquiry resulting in their obtaining information which may support another party’s case and which is relevant and necessary.
Evidence is also given in the form of affidavits of evidence-in-chief, which are sworn on by witnesses before trial and which the witnesses can be examined on during the trial.
It is noted that the limitation period for contractual claims is six years under the Limitation Act (Cap 163).
The Singapore courts will respect the existence of arbitration clauses in an insurance or reinsurance contract and enforce such clauses.
The recognition and enforcement of arbitral awards is provided for in the Arbitration Act (Cap 10) and International Arbitration Act (Cap 143A). An arbitral award may, by leave of the High Court, be enforced in the same manner as a judgment or an order to the same effect, and where leave is given, judgment may be entered in terms of the award.
As Singapore is party to the 1958 New York Convention, foreign arbitral awards made in a Convention country are generally enforceable in the Singapore courts. A foreign award may be enforced in the same manner as an award of an arbitrator made in Singapore.
Arbitration clauses in insurance and reinsurance agreements are enforceable. Where a contract contains an arbitration clause, the matter will be referred to arbitration and any corresponding court action may be stayed where parties to the contract are both domestic under the Arbitration Act (Cap 10), and will be stayed if either party is foreign under the International Arbitration Act (Cap 143A) or if the parties have specifically chosen for the International Arbitration Act to apply.
Arbitration clauses that subject arbitration to the rules of an arbitral institution, such as the Singapore International Arbitration Centre or Singapore Chamber of Maritime Arbitration, are also binding on the parties.
The relevant rules that apply depend on what has been provided in the dispute resolution clause of the insurance contract.
Common law implies a duty of utmost good faith (uberrima fides) in all insurance and reinsurance contracts. For marine insurance contracts, this duty is implied by the Marine Insurance Act. The duty requires both parties to act in good faith and with regard to the interests of the other party. It is particularly relevant where the policy requires the insured to provide information and assistance to the insurer in particular circumstances, and where an insurer exercises its right of subrogation and conducts the insured's defence against a third party.
The insured also has an affirmative duty to disclose all material facts and refrain from making untrue statements when negotiating the insurance contract. The insurer may otherwise be entitled to avoid the policy on the ground that it has been induced into entering the contract by the insured's failure to disclose material facts. In such a case, the insurer must also return any premiums paid by the insured as soon as is practicable.
The duty of disclosure is central to the ideal of fair dealing and has been consistently upheld by the courts, although the precise scope and application of the duty may differ depending on the type of insurance. At present, however, Singapore law does not prohibit insurers from relying on "basis" clauses in relation to the assured's declarations in insurance policies to avoid insurance contracts.
The High Court of Singapore in Sumplies Investments Pte Ltd v AXA Insurance Singapore Pte Ltd (2006) 3 SLR(R) 12 considered the assured's duty of good faith in the context of fraudulent devices in advancing claims and referred to AXA v Gottlieb (2005) EWCA Civ 112. However, the Singapore courts may likely be persuaded to reconsider Singapore law following the influential UK Supreme Court decision in The DC Merwestone (2017) AC 1.
Insurance contracts cannot offer coverage for loss or damage caused by the wilful misconduct of the insured.
An insurer has the right to avoid an insurance policy in the event that there is non-disclosure of materials facts on the part of the insured when the insurance contract was written.
A proposer is also entitled to the return of the premium where an insurer has breached its obligation to deal with the proposer with the utmost good faith.
Policy coverage disputes in the last 12 months have included:
There has been clarification on the non-disclosure of material information that has allegedly led to the inducement of underwriters in renewing a policy. This position was clarified in the recent case of Zurich Insurance PLC v Niramax Group Ltd ((2021) EWCA Civ 590). The English Court of Appeal dismissed the insurers’ appeal. The issue on appeal was whether Zurich’s underwriters had been induced by a non-disclosure.
The insurers’ argument was not that the policy would have been written on different terms had the requisite disclosures been made, but rather that it would not have written the policy at all. The first instance judge found that the policy would still have been written but at a higher premium due to internal errors in pricing the risk rather than because of the non-disclosure. This decision was upheld by the Court of Appeal.
The insurers argued that the relevant test was the "but for" test. However, the Court of Appeal disagreed, holding that the relevant test was whether the non-disclosure was the “efficient cause”. Applying this “efficient cause” test to the facts, the Court of Appeal upheld the first instance judge’s decision in concluding that the underwriters had not been induced to write the policy. There was also evidence that had the non-disclosed information been provided to the insurer, a higher premium would likely have been charged. This would have been a likely reaction to the error in the underwriter’s initial pricing rather than because of the non-disclosure.
The above position would likely remain the legal position in common-law countries like Singapore.
As such, policy coverage disputes in relation to non-disclosure require the said non-disclosure to be the “efficient cause” of the underwriter’s inducement to enter into the contract.
Interpretation of the Term “Deliberate Acts” in a Public Liability Policy
The UK Supreme Court recently had to interpret the term “deliberate acts” in a public liability policy in the case of Burnett or Grant v International Insurance Company of Hanover Ltd ((2021) UKSC 12).
The claimant’s husband was killed following an assault on him by the first defendant, a nightclub door steward employed by the second defendant. It was not disputed that the first defendant had not intended to cause the death of, or any serious injury to, the claimant’s husband. The second defendant was insured under a public liability policy issued by the fourth defendant. The policy covered, among others, liability arising out of accidental injury. However, the policy excluded liability for injury arising out of “deliberate acts” of employees.
The first instance court held that the exclusion applies only when the outcome was the intended objective. Because there was no such intention, the exclusion did not apply. This was upheld on the first appeal where it was held that “deliberate acts” only included acts by the insured with the deliberate intention of reaching a particular objective. In essence, this would require the first defendant to have deliberately intended the death of, or serious injury to, the claimant’s husband.
This was brought up to the UK Supreme Court where the insurers’ interpretation of “deliberate acts” was accepted. It was found that “deliberate acts” mean acts which are intended to cause injury as the policy did not distinguish between different kinds of injury.
As such, it was found that an intention to injure in whatever way was sufficient.
See 1.1 Statutory and Procedural Regime.
Where the law views the insured party as a consumer, this does have an effect on claims, as different protections are afforded to customers under Singapore law.
Under the Consumer Protection (Fair Trading) Act (Cap 52A), consumers can commence legal action against suppliers of services if a supplier has engaged in an unfair practice.
An unfair practice is defined as:
Insurance companies, as suppliers of financial services, are subject to the Consumer Protection (Fair Trading) Act. An insurance company that engages in unfair practices, may face legal action commenced by the consumer. Life and health insurers are also obliged to provide consumers with a 14-day "free look" period from the receipt of the policy to reconsider their decision to enter into the policy.
Alternatively, the Consumer Association of Singapore (CASE), a specified body under the Consumer Protection (Fair Trading) Act, can require the insurance company to enter into a voluntary compliance agreement after investigating the matter and determining that the insurance company engaged in an unfair practice. Under such an agreement, the insurance company must undertake in writing to refrain from unfair practices and may also be required to:
Motor Vehicle Act
Under the Motor Vehicle (Third-Party Risks and Compensation) Act, an insurer must comply with judgments made in favour of a third party following a motor vehicle accident. Where the insured has become bankrupt or has been wound up, a victim of an accident or an involuntary creditor may be entitled to recover its judgment debt directly from the bankrupt-tortfeasor's insurer under the Motor Vehicle (Third Party Risks and Compensation) Act. This is regardless of whether the insurer may have been entitled to deny coverage to the insured tortfeasor, if the insurer had at least seven days' notice of the commencement of proceedings and the insurer is not entitled to, and has not avoided, the insurance policy on the ground of non-disclosure.
Third Parties (Rights Against Insurers) Act
Victims and involuntary creditors of bankrupt or wound-up tortfeasors can also seek recovery of the insolvent tortfeasor's liability to the victim from liability insurers under the Third Parties (Rights Against Insurers) Act (Cap 395) in priority to other claimants against the insolvent estate of the tortfeasor. However, the victim must stand in the shoes of the insolvent tortfeasor, and is therefore subject to the terms of the relevant liability insurance policy. The liability insurer may therefore be able to avoid liability to third parties under the Third Parties (Rights Against Insurers) Act by relying on pay-to-be-paid clauses in the relevant insurance policy.
Civil Law Act and Marine Insurance Act
A third party can also claim under the policy if the policy has been duly assigned to them in accordance with the Civil Law Act (Cap 43) (and/or the Marine Insurance Act for a marine insurance policy). Where the right of payment under a policy (eg, a life policy) has been assigned in accordance with the Civil Law Act, the assignee of the right to payment can also claim payment in place of the insured/assignor.
Contracts (Rights of Third Parties) Act
Under the Contracts (Rights of Third Parties) Act (Cap 53B), a third party can also claim under a policy if either:
This Act allows a third party to bypass the doctrine of privity of contract in defined circumstances and to make a claim under the insurance contract in their own name. However, the law on the rights of third parties to a contract is complex, and a third party may not necessarily be entitled to claim under the policy in the above circumstances. A comprehensive analysis of the Act and its corresponding case law will therefore be required. Insurance policies commonly exclude rights of third parties to claim under the policy.
This does not apply in Singapore.
There is a clear public policy interest in ensuring that insurance customers are protected against unreasonable delay in the payment of claims. This point does not appear to be in doubt. For example, the Singapore Insurance Brokers’ Association Code of Practice contains a specific commitment to consumers that claims will be handled “fairly and promptly”, and it is a common licensing condition for all insurance companies registered with the MAS that the insurer will treat all policyholders fairly.
Section 35R of the Insurance Act (Cap 142) provides for representations by insurance intermediaries.
An insurance intermediary is defined in the Act as a person who, as an agent for one or more insurers or as an agent for insureds or intending insureds, arranges contracts of insurance in Singapore. This includes an insurance agent or an insurance broker.
As such, brokers would not be able to make representations that are false or misleading, or omit to disclose any matter on behalf of an insured.
The delegated underwriting segment is one that is on the rise in Singapore. However, it is a rather recent development that has yet to mature.
It was announced in November 2015 that specialist insurance and reinsurance company, Lloyd’s, had launched its new, expanded specialist underwriting platform in Singapore. Data from the MAS showed that Lloyd’s is the largest provider of offshore insurance premium income in Singapore. In April 2015, the MAS gave the green light for Lloyd’s Asia service companies to sub-delegate their underwriting authority to insurance intermediaries both within Singapore and overseas. It remains to be seen whether this arrangement will give rise to more issues to be litigated.
A liability insurance policy protects an insured against claims resulting from injuries and damage to people or properties. In addition, it covers any legal costs and payouts for which an insured is responsible, if the insured is found legally liable.
The main areas of claims where insurers fund the defence of insureds include bodily injury, property damage, advertising injuries, and legal fees.
These are common claims in insurance and are unlikely to change in the near future.
No information is available on this in Singapore.
After-the-event (ATE) insurance, or litigation insurance, is a legal expenses insurance policy put in place once a legal action/dispute has arisen to cover the costs associated with the same. It is available to both the claimant and defendant and provides coverage for legal costs incurred in civil litigation disputes/action. In addition, it can be used for various legal actions such as negligence cases, commercial disputes, contentious probate, and personal injury claims.
ATE policies have been issued for disputes involving international arbitration and litigation, although the same are commonly used in legal proceedings in the United Kingdom. Usually, ATE insurance policies cover legal costs that a plaintiff/claimant is liable to pay to a defendant when a claim is unsuccessful.
Insurers are able to recover sums from third parties who have caused loss to an insured, through the process of subrogation. In this process, the insurer assumes or takes on the rights or conditions of the insured that arose as a result of the loss or diminishment that the insured is insured for.
The principle of subrogation is set out by Brett LJ in Castellain v Preston (1883) 11 QBD 380: “The contract of insurance... is a contract of indemnity... and this contract means that the assured, in the case of a loss against which the policy has been made, shall be fully indemnified but shall never be more than fully indemnified.”
To the extent that an insurer steps into an insured’s shoes, an insurer can only exercise its rights of subrogation through the insured (ie, in the insured’s own name). An insurer would not be entitled to bring an action against a third party in the insurer’s own name unless the insured’s cause of action has been assigned to it (Esso Petroleum Ltd v Hall Russell & Co(1989) AC 643).
The COVID-19 pandemic has had an impact on:
The COVID-19 crisis has been an extraordinary global shock disrupting supply and demand in an interconnected global economy and has had a significant impact on every sector of the worldwide economy. The devastating impact of the pandemic has caused a vicious cycle of dampening business and consumer confidence, tightening financial conditions and job losses, worsening economic prospects, and sending shock waves through the global economy.
COVID-19 is an unexpected and unprecedented event that has adversely affected many economic sectors and individuals in Singapore, and thus the COVID-19 (Temporary Measures) Act 2020 introduced relief for individuals and businesses temporarily in financial distress, inter alia as follows:
The relief period lasted for six months, from 20 April to 19 October 2020.
COVID-19 has posed questions for the insurance industry on a vast scale, for instance, in terms of loss of profit and business interruption.
Most commercial insurance claims are likely to be made regarding business interruption losses for the revenue drop suffered due to disruption from lockdowns/circuit-breakers. However, policyholders may encounter a few problems while making claims.
Most businesses will hold business interruption insurance, however, these policies often contain exclusion of liabilities such as viruses, eg, COVID-19, or cover only named diseases. Although insurance disputes relating to COVID-19 are emerging between insurers and insureds, especially regarding business interruption test cases, there have been no reports of court proceedings currently dealing with the validity of business interruption claims in Singapore, most likely due to "subject to arbitration" clauses in the insurance policy, the proceedings of which are confidential.
This situation is unlikely to change in the next 12 months.
See 7.1 Type and Amount of Litigation.
The measures taken to limit the spread of COVID-19 have significantly disrupted global economic activities. Coverage will differ, depending on the type of insurance policy, and whether the insurance policy will cover COVID-19-related losses will depend solely on what liabilities the said policy includes or excludes.
Some insurance companies have offered detailed coverage for business interruption losses due to an infectious disease outbreak (eg, COVID-19), either as a standalone policy or as an endorsement to a policyholder’s existing business interruption coverage. In addition, some companies are providing free additional insurance cover against COVID-19 to their customers.
Along with the uncertainty brought by COVID-19, risk appetites have consequently also dropped, as businesses are less willing/able to undertake risks when the future remains uncertain and bleak.
The COVID-19 pandemic, along with the associated economic impact, has had a number of key financial implications for insurers including uncertainty in business volumes, claim frequency and severity, capital impacts, customers’ ability to make premium payments, as well as a changing risk profile and business mix.
There is a need to reprice current products or modify product offerings to be more relevant in the COVID-19 environment. There is also a need to assess the existing reinsurance arrangements to understand the exposure to different counterparties and limits.
From 1 February 2021, most of the recent amendments to Singapore’s Personal Data Protection (Amendment) Act 2020 have been in force. The amendments update Singapore's regulatory framework and seek to balance economic needs with the protection of consumers' data rights.
The amendments introduce, among other things, a mandatory breach notification regime. Organisations must notify the Personal Data Protection Commission (PDPC) of significant-scale data breaches, which occur on or after 1 February 2021. A significant-scale breach is one that affects or is likely to affect 500 or more people. Organisations must also notify both the PDPC and affected individuals when a data breach (again, on or after 1 February 2021) results in or is likely to result in significant harm to individuals. This includes a combination of personal data and, often, financial, health or other sensitive data. Schedules to the Personal Data Protection (Notification of Data Breaches) Regulations 2021 stipulate the categories/types of data likely to result in significant harm.
The amendments are likely to increase the demand for cyber-insurance in Singapore. The combination of the PDPC's enforcement approach, mandatory breach notification and the significant increase in the maximum fine amounts (up to SGD1 million or 10% of annual turnover in Singapore, whichever is higher) means that there is likely to be an increase in the number of investigations and higher fines, which might prompt organisations to consider their insurance cover in this regard. Other countries in South-East Asia are also introducing new or modified data protection laws.
This article summarises key changes and provides an overview of anticipated changes to Singapore’s insurance law regime.
SAL Law Reform Committee Report on Reforming Insurance Law in Singapore
Following developments in other prominent jurisdictions such as the UK, Australia, Germany and the USA, the Insurance Law Subcommittee (“Subcommittee”) of the Law Reform Committee reviewed the current state of insurance law in Singapore and published the Report on Reforming Insurance Law in Singapore on 28 February 2020. For non-marine insurance, the Subcommittee recommended that Singapore’s insurance laws be codified into a single Insurance Contract Act, with reforms in the following areas:
Duty of utmost good faith
The Subcommittee highlighted that currently the only remedy available for breach of the duty of utmost good faith is the avoidance of insurance policies. This approach is draconian and prejudicial to the insured, particularly where the insurer is the party in breach.
The duty of disclosure also places an onerous burden on the insured as it allows an insurer to avoid the insurance contract if any undisclosed material circumstance may have influenced the judgement of a prudent insurer in fixing the premium or determining whether it would take on the risk.
The Subcommittee suggested that the justification for such duty is based on the likely outdated notion that an insured knows more about the risk than the insurer; however, the insured often poorly understands the duty of disclosure, and advancements in technology and the information revolution now place insurers in a position to secure greater information on the nature of the risk. Placing the duty of disclosure largely on the insured also allows insurers to play a passive role at the underwriting stage, leaving room for insurers to decline cover when a claim is made. The sole remedy of avoidance also results in the harsh outcome of a claim being rejected in its entirety even if insurers would have accepted the risk at a higher premium.
Furthermore, Section 33(3) of the Marine Insurance Act provides that warranties must be complied with, irrespective of materiality. Together with the use of “basis of contract” clauses converting all statements made by an insured at the proposal stage into warranties, insurers may decline policy liability even for trivial breaches of warranty that do not add to the risk or when such breaches were remedied before loss.
To address these issues, the Subcommittee recommended that the framework and provisions of the UK Insurance Act 2015 (“UK Act”) and Consumer Insurance (Disclosure and Representations Act) 2012 (CIDRA) be considered for adoption, including among others:
The Subcommittee further recommended that desirable features from Australia’s Insurance Contracts Act be adopted to supplement provisions taken from the UK statutes.
The Subcommittee proposed changes to the requirements on insurable interest in life-related and non-life-related insurance. No changes were proposed with respect to liability insurance, as the existence of insurable interest is generally not in question in a liability insurance policy.
Insurable interest in life policies is currently mandated under Sections 57 and 62 of Singapore’s Insurance Act (Chapter 142) (IA). The Subcommittee highlighted that the primary problem with these provisions is that Section 57 only recognises limited types of insurable interest and is not consonant with market practice. Section 62 has also been interpreted as meaning that a life insurance contract without insurable interest is illegal, which goes further than Section 57 (rendering such contracts merely void), with the result that premiums are non-recoverable.
Recognising the unsatisfactory effects and interaction between Sections 57 and 62, the Subcommittee recommended that the largely otiose Section 62 be repealed, and that Section 57 be amended to recognise the existence of insurable interest outside the categories set in Section 57(1)(b) and to encompass scenarios where there is a “reasonable prospect that the insured will suffer economic loss if the insured event occurs” (clause 2(2), UK’s Insurable Interest Bill 2018) even if there is no risk of legally recognised pecuniary loss (held to be required in Halford v Kymer (1830) 10 B & C 724).
As for non-life policies, although there is no statutory requirement for insurable interest under the IA, such requirement has been recognised under common law where it has been held that an insured must have some proprietary interest in the subject matter. However, this requirement has been significantly eroded in bailee insurance and contractors' all-risks insurance cases, where the courts have held that potential legal liability is sufficient to support a claim under these property indemnity policies. In light of such development, the Subcommittee recommended that the requirement for insurable interest in property-related insurance be removed.
Late payment of claims
The Subcommittee also recommended enacting a statutory requirement that insurers make payment of insurance claims within reasonable time, adopting the position taken under Section 13A of the UK Act, to protect the insured who may be confronted with the possibility of an unreasonable delay.
The proposals of the Subcommittee have been submitted to the Ministry of Law and the Monetary Authority of Singapore (MAS). It is likely that a public consultation by the Ministry of Law will follow. We note that the Subcommittee’s recommendations are aligned with international best practices and think that there is a good chance of implementation, which would provide a much-needed update to Singapore’s insurance law.
Guidelines on Environmental Risk Management for Insurers
The MAS issued the Guidelines on Environmental Risk Management for Insurers (“Guidelines”) on 8 December 2020, seeking to enhance the insurance sector’s resilience to and management of environmental risk. The Guidelines set out the MAS’s expectations on environmental risk management for all insurers, which include the following.
In addition to the Guidelines, on 28 January 2021, the Green Finance Industry Taskforce issued a Handbook on Implementing Environmental Risk Management, providing relevant financial institutions (including insurers) practical guidance on implementation and good practices on environmental risk management.
A transitional period of 18 months from 8 December 2020 has been given to insurers to implement the Guidelines to existing and new products/transactions.
Changes to Work Injury Compensation Act
Employees injured at work in Singapore may claim under work injury compensation legislation or common law, but not both. The current legislation in relation to work injury compensation is the Work Injury Compensation Act 2019 (WICA 2019) which was passed in parliament in September 2019, with staggered commencement dates for various amendments to the previous Work Injury Compensation Act (Chapter 354) (WICA).
In addition to enhanced protection for employees, amendments that directly impact work injury compensation insurers include the following.
Insurance litigation in Singapore is not typically prolific and there have been no significant developments in the sphere of common law. Litigation on the substantive impact of the COVID-19 pandemic on business interruption (BI) claims has not yet come before the Singapore courts. However, the courts have had the opportunity to review and confirm long-standing positions on:
Additionally, the introduction of the Actuarial Tables for use in Personal Injury and Death Claims (“Actuarial Tables”) heralds a likely increase in damages awarded to successful claimants in personal injury and fatal accident clams. The knock-on effect of this will be that liability insurers will likely face increased outlay for such matters and will have to conduct a review of the sufficiency of reserves set aside for cases involving indemnity against liability for personal injury and death.
COVID-19 and business interruption claims
There has yet to be any reported decision in Singapore on the applicability of BI insurance to the COVID-19 pandemic. This is likely, as insurance policies generally contain arbitration clauses requiring parties to attend arbitration or to seek resolution through the Financial Industry Disputes Resolution Centre Ltd (FIDReC). These processes are confidential, masking the existence and outcome of such disputes from the public eye.
The only reported case linked to COVID-19 and BI insurance involved whether a dispute between an insured and insurer (over the issue of whether material damage is required at the risk premises before BI insurance cover is provided), should be stayed for arbitration.
In Silverlink Resorts v MS First Capital Insurance Ltd (2020) SGHC 151 (“Silverlink”), the policy provided a multi-tiered dispute resolution regime, which included an arbitration clause providing that “(a)ny dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination… shall be referred to arbitration...”The policy also contained an apparently contradictory jurisdiction clause, which provides that “(s)hould any dispute arise between the Insured regarding the interpretation or the application of this Policy, the Insurers will, at the request of the Insured, submit to the jurisdiction of any competent Court in Singapore…” The court held that, objectively, the parties’ intention was to carve out disputes regarding the interpretation or application of the policy for the court’s determination. As the question of whether material damage is a precondition to cover under the BI section of the policy involved a dispute over the interpretation or application of the policy, the court held that this dispute would proceed for determination by the court. The main dispute on the applicability of BI insurance remains to be heard.
Lacking judicial pronouncement on issues relating to BI insurance, stakeholders will have to seek guidance from test cases in other common-law insurance jurisdictions, such as the UK decisions in FCA v Arch Insurance and others (2020) EWHV 2448 and (2021) UKSC 1, and the Australian decision of HDI Global Speciality SE v Wonkana No 3 Pty Ltd trading as Austin Tourist Park (2020) NWSCA 296 as well as the second test case commenced by the Insurance Council of Australia, which will determine broader issues such as the meaning of policy wordings around disease definition, COVID-19 outbreak proximity, the impact of government mandates, etc.
As English and Australian decisions have persuasive value in Singapore, the outcome of these decisions will play a significant role in the continued development of BI insurance law in Singapore.
AIG Asia Pacific Insurance Pte Ltd v AXA Insurance Pte Ltd (2020) SGDC 102 (“AIG v AXA”)
The District Court confirmed the continued applicability of the principle in Richards v Cox, that a motor insurance policy procured by a vehicle owner seeking to cover the vehicle owner and the vehicle's authorised driver is in effect two policies – a policy insuring the vehicle owner and another policy insuring the authorised driver. When an employee of the vehicle owner is injured in the course of employment while travelling in the vehicle, the vehicle owner is not entitled to indemnity from their insurers if the policy contains an exclusion against liability for injuries to employees where these injuries arise out of and in the course of their employment. However, the authorised driver, who is separately insured under the policy, will be entitled to such indemnity.
In AIG v AXA, injuries were sustained by two passengers of a vehicle driven by their co-worker when it met with a road traffic accident. The driver and two passengers were employees of Vision Marine Engineering (“Vision Marine”), which had two insurance policies in force at the time: (a) a work injury compensation policy issued by AIG Insurance (“AIG”); and (b) a commercial vehicle policy issued by AXA Insurance (“AXA”). The passengers sued the driver and Vision Marine jointly for their injuries.
AXA’s motor policy contained the commonly found clause excluding cover for death or bodily injury to employees arising out of and in the course of such employment. While AIG accepted that the exclusion clause applied against Vision Marine (as the passengers were travelling in the course of their employment with Vision Marine), AIG argued that pursuant to the decision of Richards v Cox, which was followed by China Insurance Co Ltd v Teh Lain Lee (1974-1976) SLR(R) 820 (“China Insurance”), the exclusion clause did not apply to the liability incurred by the driver since the passengers were not travelling as the driver's employees.
AXA denied that its motor policy applied to the driver, arguing that the policy considered in Richards v Cox was different from AXA’s policy as it provided that the motor insurance policy would “…treat as though he (the authorised driver) were the insured person”; whereas the policy in China Insurance and AXA’s policy merely provided that the insurer “will indemnify any authorised driver”.
The District Court held that there was no difference between the policy in Richards v Cox and that under consideration in this case, as the intention was to provide separate and distinct indemnity to the driver. As the passengers were not employees of the driver, the exclusion clause was not applicable, thus maintaining the position in Richards v Cox.
Tan Yi Lin Cheryl v AIA Singapore Pte Ltd (2021) SGHC 130
When applying for a life insurance policy from AIA Singapore Pte Ltd (“AIA”), the plaintiff’s husband answered “No” in the application form in answer to the question of whether he had made any application for other life insurance policies that were pending. It was not disputed that the answer provided was false as he had made previous applications for life insurance prior to submitting the application form to AIA. He also applied for three further life policies after submitting the application form to AIA and did not disclose such applications to AIA.
When the plaintiff’s husband passed away, the plaintiff made a claim under AIA’s policy. When reviewing the papers filed in support of the plaintiff’s application for Grant of Probate, AIA discovered that the plaintiff’s husband had in fact procured up to 12 life insurance policies, most of which had not been disclosed to AIA.
The High Court accepted AIA’s argument that the plaintiff’s husband had fraudulently misrepresented and/or failed to disclose his earlier applications for other life policies and was under an obligation of continuing disclosure, to disclose to AIA his applications for further policies after submission of the application form. It also accepted AIA’s evidence that an insured’s annual income and insurance history were material to the underwriting of life insurance policies as they allowed insurers to determine whether the insured’s income and financial resources justified the total amount of coverage or proposed coverage. An insurer in Singapore would not accept an application for life insurance cover if the total amount of coverage or proposed covered exceeded the insurer’s per life limit.
Based on the plaintiff’s husband’s age and disclosed annual income, the per life limit was SGD2,250,000, whereas the total coverage obtained by the plaintiff’s husband under all 12 policies exceeded that. AIA would have rejected the plaintiff’s husband’s application if they had known of these 12 policies. The court thus allowed AIA’s avoidance of the policy.
AIA also relied on a basis clause in the application form, in which the plaintiff’s husband declared that the statements and answers given in the application form would form the basis of the contract entered between parties, and that if the information given was incomplete or inaccurate, the policy might be void. As this meant the plaintiff’s husband’s answers in the application form became warranties or conditions precedent, AIA was also entitled to avoid the policy on this ground.
Sompo Insurance Singapore Pte Ltd v Royal & Sun Alliance Insurance plc (2021) SGHC 152
The High Court considered the scope of an insurer’s rights of subrogation, confirming that insurer’s rights of recovery are not limited to actions against the responsible third party, but also extend to the right to call upon a performance bond issued in connection with the insured’s original contract with the party responsible for the insured loss.
Importantly, the High Court confirmed that common law rights of subrogation grant an insurer every right an insured has with respect to the loss, including the insured’s rights obtained under a performance bond. This is not limited to the insured’s rights to seek recovery against the wrongdoer, subject to the principle of indemnity, ie, that an insured may not recover more than a full indemnity for their real loss.
Actuarial Tables for Use in Personal Injury and Death Claims
The multiplier-multiplicand approach is applied in assessing claims for loss of future earnings and the costs of future medical expenses in personal injury claims, and loss of dependency in fatal accident claims. The multiplicand is derived by taking the difference between an injured plaintiff’s loss of income/anticipated medical expenses or a dependant’s loss of pecuniary benefit; while the multiplier is derived by estimating the likely number of years that a plaintiff is likely to suffer such reduction in earnings/increase in expenses/loss of pecuniary benefit as a result of the accident.
There is much uncertainty, as the courts are required to predict not just the length of time a plaintiff is likely to suffer the loss, but also to apply a discount rate for accelerated receipt. These inherent problems were explored before the Court of Appeal in Lai Wai Keong Eugene v Loo Wei Yen (2014) 3 SLR 702. Although the Court of Appeal ultimately declined to revise the discount rate embedded in multipliers used in previous cases (and relied upon as precedents), the judiciary was sufficiently concerned to conduct a comprehensive review of the compensation regime in personal injury and fatal accident claims, where it found that, in the precedents built up over the years there was an underlying assumption that a 4.5% per annum rate of return was achievable when considering accelerated receipt. Such rates are unlikely to be consistently achieved today.
The Personal Injury (Claims Assessment) Review Committee (“PIRC”) comprising members of the judiciary, MAS, representatives of various insurance associations and the Law Society of Singapore undertook a comprehensive study after which actuarial tables (“Actuarial Tables”) were issued based on the 2019 preliminary population data on mortality produced by the Singapore Department of Statistics covering Singapore residents. In addition to projected mortality, the PIRC applied a “yield curve” to account for expected investment returns for investments of different periods of time to apply a discount rate factor to account for accelerated receipt of lump-sum compensation payments. While the multiplier-multiplicand approach remains unchanged, the Actuarial Tables assist in achieving greater accuracy when ascertaining a suitable multiplier.
The Supreme Court and State Court Practice Directions Actuarial Tables now direct that as from 1 April 2021, the courts will refer to the Actuarial Tables in all proceedings for the assessment of damages in personal injury and death claims for the determination of the multiplier, unless the facts of the case and ends of justice dictate otherwise.
While the increased accuracy in the quantification of damages through the use of the Actuarial Tables is to be lauded, this is also likely to increase the awards granted, as multipliers produced under the Actuarial Tables are generally greater compared to the multipliers awarded in precedent cases.
The impact of this on insurers is that liability insurers providing indemnity against personal injury and fatal accident claims will be exposed to greater outlay moving forward and may have set aside insufficient reserves to meet their liabilities, necessitating urgent review of reserves. Insurers’ increased exposure may also in turn affect the assessment of premiums charged on liability policies covering personal injury and death.