Allianz General Insurance Company (Malaysia) Berhad v Chubb Insurance Malaysia Berhad (WA-22NCC-325-09/2016)

The defendant had through a notice of application, sought to obtain discovery of some documents from the plaintiff. The application was made pursuant to the provisions of O. 24 r. Rules of Court 2012, or the inherent jurisdiction of the court.

I had dismissed the application with costs. The defendant has appealed against the decision. This judgment will be concise, to enable the defendant have its appeal heard expeditiously, as this suit has already been set down for trial. 2

The plaintiff was the lead insurer of the ‘Machinery Breakdown Policy’ for the Prai Power Plant. As the lead insurer, the plaintiff assumed 55% of the risk. The defendant had assumed 6% of the plaintiff’s 55% risk through a reinsurance contract.

An incident occurred at the Prai Power Plant on the 18 July 2015, which led to a forced outage. A claim was made on the plaintiff’s policy.

The plaintiff paid up RM71,500,000.00 under the policy, and had in turn sought for the defendant’s 6% contribution under the reinsurance contract. The amount claimed was RM4,290,000.00.

The defendant had refused to pay its share which led to this suit. In gist, the defendant was not satisfied in the manner that the plaintiff had settled the claim. The plaintiff takes a contrary view. It contends that the reinsurance contract does not entitle the defendant to pay according to their personal satisfaction.

The plaintiff contends that the defendant is obliged to follow the plaintiff’s settlement pursuant to the ‘follow the settlements’ clause in the reinsurance contract, which states:- 3 „The Reinsurance is subject to the same Terms, Clauses, Warranties, Exceptions, Conditions, Extensions and Endorsements as the original and follow its settlements as far as applicable as hereto (excluding rate, retention and limit).‟

The plaintiff contends that it has the sole discretion and control in dealing with the claim. It also contends that the defendant is obligated to pay its share, as long as the plaintiff had dealt with the claim in good faith and in a business-like manner.

Conversely, the defendant took the position that the ‘Claims Cooperation Clause’ in the Reinsurance contract prevails over the ‘follow the settlement’ clause. The clause reads as follows:- „Notwithstanding anything to the contrary contained in this Reinsurance, it is a condition of this Reinsurance that:

The Reinsured shall give to the Reinsurer(s) written notice as soon as reasonably practicable of any claim made against the Reinsurer in respect of the business reinsured hereby or of its being notified of any circumstances which should give rise to such a claim.

The Reinsured shall furnish the Reinsurer(s) with all information known to the Reinsured in respect of claims 4 or possible claims notified in accordance with (a) above and shall thereafter keep the Reinsurer(s) fully informed as regards all developments relating thereto as soon as reasonably practicable.

The Reinsureds shall co-operate with the Reinsurer(s) an any other person or persons designated by the Reinsurers in the investigation, adjustment and settlement of such claim notified to the Reinsurer(s) as aforesaid.‟ [10] The defendant contends that the plaintiff has failed to provide it with full information, and had also failed to engage the defendant in the decision-making process. The defendant surmises that the ‘Claims Cooperation Clause’, takes precedence over the ‘follow the settlement’ clause. The application [11] The documents that the defendant sought to discover are in essence pertaining to the investigation and settlement of the claim. This would include for example, the documents exchanged between the plaintiff, the engineers, the adjuster and the insured. The defendant had also sought to discover documents pertaining to an incident at the same plant sometime in September 2006 and also 2009, including documents pertaining to the claim and settlement of the insurance claim. 5 The law on discovery [12] The leading authority is the case of Yekambaran s/o Marimuthu v Malayawata Steel Bhd [1994] 2 CLJ 581 (HC). Edgar Joseph J. (as his lordship then was), held that an applicant must satisfy the following three elements before being entitled to an order for discovery:-

There must be a document,

(ii) The document must be relevant, and

(iii) The documents must have been in the possession, custody or power of the party that the discovery is sought from. [13] It is pertinent for an applicant to prove that the documents sought are most relevant to its case. The applicant’s case must be based on its pleading; Tan Chin Seng v Raffles Town Club [2002] 2 SLR(R) 465. [14] In order for the documents to be relevant, the applicant must be able to demonstrate that the documents sought would advance its case or damage its adversary’s case. The following passage in the Singapore High Court’s case of Manilal & Sons (Pte) Ltd v Bhupendra KJ Shan (t/a JB International) [1990] 2 MLJ 282, is pertinent:- 6 “Under a general order of court for discovery, a party is obliged to make discovery of all documents relevant to the matters in question in the action. What are the matters in question would depend on the pleadings. A document relates to the matter in question in the action if it contains information which may – not which must – either directly or indirectly enable the party requiring the discovery either to advance his own case or to damage the case of his adversary or which may fairly lead to a train of inquiry which may have either of those two consequences: see Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 at p 62.” [15] The caveat to relevancy in a discovery application however, is that the applicant could not seek to merely trawl for evidence by casting the net over a wide-open area. The applicant needs to be specific, and could not hope to conduct what would amount to a ransacking exercise with the hope of discovering something useful. The discovery must be purposeful. The reinsurance contract [16] A reinsurance contract is one where an insurance company passes a proportion of its obligation under the main insurance contract to another insurance company. In essence, the main insurance company hedges a certain percentage of its indemnity to other insurance companies. This is commonly done where the coverage is huge. 7 [17] The following passage from Agnew and others respondents and Länsförsäkringsbolagens Ab Appellant [2000] 2 WLR 497 is instructive:- “The purpose of reinsurance is to lay off or pass on part of the liability of the insurer under an underlying insurance contract to another insurer. The contracting parties are engaged in the same industry. The reinsurer is an insurance company or underwriter who deals not with members of the public but only with other insurance companies or underwriters”. (p 514) [18] A reinsurer is in gist an insurer’s insurer. An insurer would firstly pay the insured under the policy, and in turn would seek to recover from the reinsurer its agreed portion. A reinsurer would have entered into a reinsurance contract with the lead insurer, distinct from the latter’s insurance contract with the insured. [19] The defendant was one of the plaintiff’s seven reinsurers. Save for the defendant, the other reinsurers had paid up their dues. [20] The bone of contention between the plaintiff and the defendant is their interpretation of the reinsurance contract, in particular whether the defendant is obliged to pay pursuant to the ‘follow the settlement clause’ or entitled to firstly be 8 satisfied of the claim in accordance to the ‘Claims Cooperation Clause’. Findings [21] In a ‘follow the settlement clause’, the main insurer takes the lead and satisfies itself on the validity of the claim before paying up. The reinsured is obliged to follow suit and pay up to the main insurer its portion.’ [22] The House of Lords had in Wasa International Insurance Co Ltd v Lexington Insurance Co [2010] 1 AC 180 explained the workings of the ‘follow the settlement clause’:- “…there thus developed “follow the settlements” clauses or the “full insurance” clause appearing in the present reinsurance. As interpreted by the Court of Appeal in Insurance Co of Africa v Scor (UK) Reinsurance Co Ltd [1985] 1 Llyod‟s Rep 312, the effect of these clauses is to bind the reinsurer to follow the settlement of the insurer (whether made by admission or compromise or as in the Scor case itself, following a judgment against the insurer). The Court of Appeal in the Scor case identified two provisos: the first, that the claims recognised falls within the risk covered by the policy of reinsurance and, the second, that the insurers acted honestly and took all proper and business-like steps in making the settlement. (p 330) (emphasis added) 9 [23] A reinsurer in a ‘follow the settlement clause’ is therefore ceased of the rights to be satisfied of the validity of the claim and the main insurer paying, provided that the main insurer had dealt with the claim in a business-like manner. It is not for the reinsurer to step into the shoes of the main insurer and satisfy itself of the validity of the claim. Its obligation is to pay, even if it would not have done so had it been the main insurer. [24] The defendant, as stated earlier, took the position that the prevailing clause is the ‘Claims Cooperation Clause’ and took umbrage with the fact that the plaintiff had not engaged it in the decision-making process. In reliance to clause (c) of the clause stated earlier, the defendant contends that it was entitled to satisfy itself of the claim before making payment and not merely to pay when the plaintiff pays. [25] The plaintiff has not denied that the documents sought exists and are or were in its possession. The pressing issue here is whether the defendant is obliged under the ‘follow the settlement’ clause or is entitled to rely on the ‘Claims Cooperation Clause’. [26] I am in agreement with the stand taken by the plaintiff and take the view that the defendant is obliged to adhere to the ‘follow the settlement’ clause. The nature of a reinsurance contract is to place the burden on the main insurer, which 10 logically should be the case being the one that takes up the bigger portion of liability. [27] The defendant is merely one of the other six reinsurers. If the defendant’s contention that the prevailing clause is the ‘Claims Cooperation Clause’, it would result in not just the defendant, but all the other six reinsurers to deal with the claim on their own terms. Each reinsurer would then be able to appoint its own investigators, legal advisers and experts to look into the claim. If all seven reinsurers were to conduct their own investigation, this would result in a state of calamity. [28] So long as the plaintiff can prove that it had acted in good faith and in a business-like manner, which I might add would be a pertinent issue at the trial of this suit, the defendant as a reinsurer is obliged to pay its share. [29] The defendant had arduously attempted to justify the relevancy of the documents sought. I had in considering them deduced that the defendant had no inkling of the relevancy of the documents to its case, and that it merely intends to probe. I take the view that the defendant is hoping that these documents could unearth evidence for their benefit. Part of the documents that the defendant has sought to discover for instance relates to incidents that occurred at the plant in the past, which has no bearings to the latest incident. 11 [30] I had therefore for these reasons dismissed the defendant’s application with costs of RM5,000.00. Dated: 30 May 2018. -sgd- (Mohamed Zaini Mazlan) Judge Kuala Lumpur High Court (Commercial Division) Counsel for the plaintiff Liew Teck Huat and Lim Qi Si [Messrs Suflan TH Liew & Partners] Counsel for the defendant Robert Lazar and Lai Wai Fong [Messrs Shearn Delamore & Co]