Insurer Liable To Indemnify Main Contractor For Sub-contractor Worker s Injury

Transcription

1 Insurer Liable To Indemnify Main Contractor For Sub-contractor Worker s Injury Introduction Mohammed Shahid Late Mahabubur Rahman v Lim Keenly Builders Pte Ltd (Tokio Marine Insurance Singapore Ltd, third party) [2010] SGHC 142 had generated a lot of interest when the Singapore High Court ruled last year that a main contractor could not claim indemnity against an insurer in respect of its liability for personal injury to a workman employed not by the main contractor itself but by its sub-contractor. The decision left a lacuna where a main contractor under the circumstances was left without any recourse to be reimbursed for the payment it had made in relation to a non-employee s injury sustained in carrying out works for the main-contractor s project. As it is common practice in the construction industry for the main contractor to arrange for workmen s compensation insurance for itself and its sub-contractors, the ruling of the Court of Appeal in Lim Keenly Builders Pte Ltd v Tokio Marine Insurance Singapore Ltd [2011] SGCA 31 has clarified an industry-wide concern brought about by the High Court ruling. With the reversal of the High Court ruling, the Court of Appeal has now made clear that the subject workmen s compensation insurance policy ( WC Policy ) applied regardless of whether the liability was incurred towards the main contractor s own employee or towards anyone in the pool of individuals employed by the various co-insured for the relevant project. In coming to such a conclusion, the Court of Appeal re-examined the Operative Clause and the relevant clauses of the WC Policy, specifically the Name of Insured Clause and the Risk 001 Clause. It was held that the Insured within the contemplation of the WC Policy referred collectively to all contractors in the project and they were to be treated as a single entity for the purposes of the WC Policy. In addition, although the Main Contractor had abandoned its reliance on the Contractors All Risks Policy ( CAR Policy ) and therefore was not explored in the court below, the Court of Appeal deemed it necessary to look into this angle of the case to ascertain the intent of the parties with respect to the coverage of the WC Policy. It found that the fact that the CAR Policy excluded all liability with respect to cases concerning injury to employees of any sub-contractors appears to lend weight to the inference that the parties understood this to be dealt with somewhere else (i.e. the WC Policy). The court below relied on Awang bin Dollah v Shun Shing Construction & Engineering Co Ltd [1997] 2 SLR(R) 746 in support of its decision that the insurer was not liable to reimburse the main contractor 1 Rajah & Tann LLP

2 for payments made in relation to injuries suffered by a sub-contractor s employee. The Court of Appeal said that, although the operative clause in Awang bin Dollah was materially identical to the case at hand, it was not on all fours with the instant case. Awang bin Dollah therefore did not apply here. A commentary on the High Court case was previously featured in the June 2010 issue of our Client Update. To view this Update, please click on this link. Brief Facts (1) Lim Keenly Builders Pte Ltd, a main contractor, engaged a sub-contractor, Utracon Structural System Pte Ltd ( Sub-contractor ), to carry out post-tensioning works at Lim Keenly s worksite ( Project ). (2) The Main Contractor took out a Workmen s Compensation Policy ( WC Policy ) and a Contractors All Risks Policy ( CAR Policy ) for the Project. It is common industry practice that the main contractor of a project arranges and pays for both the WC Policy and the CAR Policy for itself as well as on behalf of all its sub-contractors. This was also stipulated in the main contract for this particular Project. (3) Mohd Shahid Rahman, an employee of the Sub-contractor, was injured while working on the scaffolding at the worksite. He commenced an action against the Main Contractor for breach of statutory duties and for occupier s liability. His claim was settled on the first day of trial. (4) The Main Contractor then brought third-party proceedings against Tokio Marine Insurance Singapore Ltd ( Insurer ), seeking indemnity under the WC Policy and / or the CAR Policy for the damages payable to Rahman. It eventually opted to proceed only under the WC Policy. (5) The High Court ruled in favour of the Insurer and dismissed the Main Contractor s claim, holding that the WC Policy only covered indemnity claims brought by the insured in respect of any liability incurred by it in relation to claims made by a direct employee of that particular insured. (6) Dissatisfied with the decision of the High Court, the Main Contractor appealed. Issue The issue in this case centered on whether the WC Policy applied only where a co-insured incurred liability towards its own employees. 2 Rajah & Tann LLP

3 Holding of the Court The Court of Appeal overturned the High Court decision and allowed the appeal of the Main Contractor. It held that the WC Policy applied regardless of whether the liability was incurred towards the Main Contractor s own employee or towards anyone in the pool of individuals employed by the various co-insured for the relevant project. Operative Clause Read Together with Relevant Clauses The Court adopted a holistic approach in interpreting the WC Policy, specifically the Operative Clause vis-à-vis the relevant provisions of the WC Policy. It likewise considered the intent of the parties in taking out the WC and CAR Policies. The Operative Clause of the WC Policy provided that: if any workman in the Insured s employment shall sustain personal injury by accident or disease caused during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business, the Company will indemnify the Insured against all sums for which the Insured shall be liable to pay compensation either under the Legislation or at Common Law (Italics supplied) Crucial to the resolution of the case is the determination of who is (or, as the case may be, who are), the Insured within the meaning of the Operative Clause itself. Once this is established, the scope of application of the subject policy can then be ascertained. The Name of the Insured Clause reads: Lim Keenly Builders Pte Ltd &/or their sub-contractors of all tiers and level [sic] as contractor &/or M/s Kim Teck Leong (Pte) Ltd &/or the Land Transport Authority as principals for their respective rights & interests. The Court held that from a plain reading of the Name of the Insured Clause, the Insured in the Operative Clause refers collectively to all contractors. Lim Keenly Builders Pte Ltd &/or their subcontractors of all tiers and level[s] are to be treated as a single entity for the purposes of the WC Policy. Hence, the Operative Clause does not apply only to situations where there is an employeremployee relationship between the particular co-insured and the injured workman towards whom the co-insured has incurred liability, as what was held by the court below. It was also noted that since the Project involved not only the Main Contractor but numerous other sub-contractors, it was consistent with the commercial purpose of the WC Policy that the Operative Clause treated them as a single entity. It was essential that the WC Policy covered liability towards all employees of all contractors because the Project entailed a fair amount of crossover interaction amongst the various contractors and employees. 3 Rajah & Tann LLP

4 Awang bin Dollah v Shun Shing Construction & Eng g It follows in this regard that the High Court s reliance on Awang bin Dollah v Shun Shing Construction & Engineering Co Ltd [1997] 2 SLR(R) 746 in rendering a decision in favour of the Insurer was, with due respect, misplaced. There, the Court of Appeal observed as an obiter dictum that even if the subject insurance policy had covered the main contractor, the main contractor was not entitled to an indemnity in relation to an injured workman because the latter was not its employee but that of a sub-sub-contractor. Even if it was an obiter dictum, the same may not apply in the present appeal. While the court below noted that the operative clause in Awang bin Dollah was materially identical to the Operative Clause, that did not (in and of itself) take the Court of Appeal far without establishing the class of insured to which the operative clause in Awang bin Dollah applied: the coverage of the policy in that case was explicitly limited only to the main contractor and the sub-contractor s three general labourers; the WC Policy in the instant case covered the Main Contractor and the sub-contractors of all tiers and levels as a single entity. Additionally, the Risk 001 Clause in the WC Policy defined the risk insured against as being on all employees of the insured and all tiers subcontractors. Hence, the WC Policy, read in its entirety, covered indemnity for claims in connection with personal injury of any employee of the co-insured regardless of whether this individual is a direct employee of the insured claiming indemnity unlike the provision of the workmen compensation policy in Awang bin Dollah s case. Interplay Between the WC Policy and the CAR Policy Although the interaction between the WC Policy and the CAR Policy was not explored in the proceedings below because the Main Contractor abandoned its reliance on the CAR Policy, the Court of Appeal thought it significant to also look into this angle of the case to ascertain the scope of the WC Policy. As stated above, it is common industry practice that main contractors make necessary insurance arrangements for itself and its sub-contractors comprehensively in respect of each construction project. The CAR Policy insured, amongst others, against Third Party Liability, including accidental bodily injury or illness to third parties occurring in direct connection with the construction or erection of the Project. Excluded from the coverage was liability consequent upon bodily injury or illness of employees or workmen of the Contractor(s) or the Principal(s) The fact that the CAR Policy excluded all liability with respect to all cases concerning injury to employees of any level of sub-contractors appears to lend weight to the inference that the parties understood this (i.e. injury to employees of sub-contractors) to be dealt with somewhere else. Thus, if the Main Contractor had taken out a comprehensive insurance cover for the Project as both parties claimed, the liability for injury of employees of the Main Contractor and the sub-contractors (including the Sub-contractor) should have been intended by the parties to be covered by the WC Policy. 4 Rajah & Tann LLP

5 Concluding Words With this ruling, the Court of Appeal has made it clear that, under the circumstances, a main contractor will be able to claim indemnity from an insurance company under a workmen s compensation policy for injuries suffered by an individual working at the main contractor s project even if such injured individual is not its direct employee. This is a reminder that the terms of an insurance contract will be construed with regard to the context of the contract which includes the intention of the parties thereto and the commercial purpose of the insurance contract in ascertaining whether a claim is covered under the insurance contract. Contacts Simon Goh Partner D (65) F (65) simon.goh@rajahtann.com Elaine Tay Partner D (65) F (65) elaine.tay@rajahtann.com Please feel free to also contact the Knowledge and Risk Management Group at eoasis@rajahtann.com Rajah & Tann LLP is one of the largest law firms in Singapore and Asia, with representative offices in Shanghai and Vientiane, as well as an associate office (Kamilah & Chong) in Kuala Lumpur. As a full service regional law firm, our knowledge, resources and insight can be your business advantage. Rajah & Tann LLP is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealing with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The contents of this Update are owned by Rajah & Tann LLP and subject to copyright protection under the laws of Singapore and, through international treaties, other countries. No part of this Update may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of Rajah & Tann LLP. Please note also that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann LLP or the Knowledge & Risk Management Group at eoasis@rajahtann.com. 5 Rajah & Tann LLP