The court of Singapore examines a claim for constructive total loss under a marine insurance policy and the responsibilities of the assured.

In a recent case, “PT Adidaya v MS First Capital” (PT Adidaya Energy Mandiri v MS First Capital Insurance Pte Ltd [2022] SGHC(I) 14, the Singapore International Commercial Court (SICC) examined a case of damage to a single point mooring buoy (SPM), a buoy deployed offshore, and found that the insurer was not liable to the assured. The collision damage did not result in a constructive total loss (CTL) and the assured did not provide the notice of abandonment within reasonable time. The SICC also found that the assured had breached the warranties set up under the policy.

Background facts:

The Plaintiff company was the Owner of a single point mooring buoy (SPM) operating in the Yetagun Gas Field, an offshore gas field, approximately 230 km off the cost of Myanmar. The SPM was used as a mooring point for a storage tanker attached to it. The Plaintiff had insured the SPM with the Defendant insurer for total loss only, including CTL, under a Machinery and Equipment All Risks Policy, a marine insurance policy.

The insured value was USD 4,700,000.

The policy contained a warranty that “the Insured Equipment is only to be operated by and under the supervision of suitably trained and authorised personnel”; and another warranty that “suitable precautions and preservation/maintenance measures to be adopted when storing, handling, transporting and operating Insured Equipment…”

The parties agreed that the policy was governed by the law and jurisdiction of Singapore. The parties also agreed that all the terms, conditions, warranties contained within the Marine Insurance Act 1906 (as amended by the Insurance Act 2015) were applicable to the policy.

As a result of a number of collisions between the tanker and the SPM, the SPM was damaged. The Plaintiff conducted temporary repairs in situ, to rectify the damage, and further repairs later in the year.

Subsequently, the Plaintiff obtained quotations for further onshore repairs. As these quotations exceeded the insured value of the SPM, the Plaintiff tendered Notice of Abandonment to the insurer. The insurer rejected the Notice of Abandonment and issues arose as to whether further repairs were necessary. Subsequently, the Plaintiff sold the SPM to its associated company, at an undervalue price of USD 400,000, which was approximately equivalent to its scrap value, and continued to use it until the sale.

In the lawsuit, the Plaintiff claimed from the insurer the insured value of the SPM as a CTL on the basis that the costs of repair exceeded the insured value.

The SICC found in favour of the insurer because:

The Plaintiff had breached certain warranties under the policy, namely:

• Clause 1: the SPM is only to be operated by and under the supervision of suitably trained and authorised personnel.
• Clause 8: suitable precautions and preservation/maintenance measures to be adopted when storing, handling, transporting and operation the SPM.

Warranties in a marine insurance policy are promises by the policyholder about certain acts. These are promises that an insured makes to the insurance company regarding the utilization of the insured ship or vessel, or in this case the SPM. All warranties must be exactly complied with.

The SICC found, on the facts, that the assured did not use a static tow to hold the vessel to prevent it from colliding into the SPM. The master and crew had failed to take adequate measures to prevent the vessel from colliding with the SPM. The assured failed to produce evidence that the master and crew were suitable trained.

• The policy provided that it was a strict condition precedent to underwriters’ liability that in the event of the assured becoming aware of any incident giving rise to a claim which may be covered under the policy that underwriters be given written notification of such circumstances within 30 days.

The Plaintiff had failed to give written notice of the incident in time.

The SPM was not a constructive total loss. The Court found that the repairs/replacement of everything other than the skirting could be done offshore, in situ and without lifting the SPM out of the water. The major issue was as to whether it was reasonable or necessary for the SPM to have the skirting renewed. The Court concluded that it was not necessary. Therefore, there was no need for the additional cost of transportation of the SPM to a yard. The operation of the renewal of the skirting could have been deferred to the next compulsory drydocking of the SPM.

The Plaintiff had waived its right to abandon the SPM, as the notice of abandonment was tendered late, about 5 months after receiving three quotations in respect of the repairs’ costs.

• Under section 62(3) of the Marine Insurance Act 1906, a notice of abandonment had to be given with a reasonable diligence after the receipt of reliable information of the loss.

On the facts, the assured, on the basis of the quotations received, by mid-December 2018, could have presented a notice of abandonment. Had the notice of abandonment served in time, the insurers might have been able to secure a better price for the SPM, instead of the USD 400,000 obtained by the assured.

Conclusion

This decision highlighted the importance for the assured to comply with the warranties set out in an insurance policy and to comply with the timeline for notification of a claim to the insurer. The notification of a claim is a matter of fundamental importance to underwriters and compliance with the time limit is a strict condition precedent to underwriters’ liability to indemnify the assured. Should the time limit not be complied with, then underwriters will not be liable to pay for the claim.

If you have any further questions regarding the PT Adidaya v MS First Capital please contact our specialist marine solicitors by emailing online.enquiries@la-law.com or by calling 0344 967 0793