Eastmont Sdn Bhd v Allianz General Insurance Company (Malaysia) Berhad (WA-22NCC-599-09/2024)

The Plaintiff sued the Defendant for RM1,195,246.02 under a Contractors’ All Risk Policy for flood damage after the Defendant denied liability for the claim. The Defendant contends that the repudiation of the claim was valid and lawful because the Plaintiff had breached the terms for coverage under the policy. Background facts

The Plaintiff was the contractor in the construction of an 18-storey apartment building with a 4-storey podium car park and a semi-basement car park at Level LG (“Project”). Level LG is understood to be the ground or street level. The construction site for the Project is at Bandar Sunway.

The Plaintiff purchased a Contractors’ All Risk Policy No. 19ETP0000036-00 from the Defendant for indemnity against loss or damage covering the period from 28-5-2019 to 28-4-2021 (“Policy”). It was thereafter extended until 2024.

The Plaintiff had awarded lift works for the Project to Otis Elevator Company (M) Sdn Bhd (“Otis”). Otis supplied all parts and equipment for the installation of 3 Otis lifts and these were delivered between 10-11-2021 and 12-11-2021 (“Lift Equipment”).

The Project site was inundated on 18-12-2021 due to flash flooding caused by continuous heavy rain (“Flood”). The building was only partly constructed at the time. The upper floors were constructed up to around Level 10 and the Otis lifts were not yet installed.

There was widespread flooding in Peninsular Malaysia in December 2021 and the flooding of areas covering the Project site was reported in the media. All parties accept that it was a “1-in-100 years” flood event as reported. Apparently, a month’s worth of rain fell in 24 hours.

The Lift Equipment was in 120 wooden crates and was kept in an enclosed area at Level LG of the partly constructed building at the Project site. It was submerged in about 3 feet of flood water and damaged, along with other construction materials.

On 20-12-2021 and 21-12-2021, the Plaintiff notified the Defendant and submitted a claim for RM1,678,882.70, comprising 3 categories of items of loss: a) the Lift Equipment, being the most expensive item damaged in the Flood; b) other construction materials; and c) cleaning and clearing costs.

On 27-10-2022, the Defendant repudiated the Plaintiff’s claim on the basis that its loss adjusters, Century Independent Loss Adjusters Sdn Bhd, had investigated and determined that the Plaintiff was unable to substantiate compliance with clauses MCAR-109 and MCAR-110 of the Policy. Analysis and findings

The issues for determination are as follows: a) Whether the Defendant was entitled to repudiate liability under the Policy because of alleged non-compliance with clauses MCAR-109 and MCAR-110 of the Policy; b) Whether the Defendant was entitled to forfeit the claim in any event because the Plaintiff had submitted an alleged fraudulently exaggerated claim; c) If the Court is not with the Defendant on (a) and (b), whether the Plaintiff has sufficiently proven and substantiated the liquidated sum claimed in the Statement of Claim. Validity of repudiation

Clauses MCAR-109 and MCAR-110 in the Policy are as reproduced below: a) MCAR-109: Warranty concerning construction material “It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon, the Insurers shall only indemnify the Insured for loss, damage or liability caused directly or indirectly by precipitation, flood and inundation if such construction material does not exceed three days demand and the exceeding quantities are kept in areas not endangered by 20-year floods.” b) MCAR-110: Special condition concerning safety measures with respect to precipitation, flood and inundation “It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon, the Insurers shall only indemnify the Insured for loss, damage or liability caused directly or indirectly by precipitation, flood and inundation if adequate safety measures have been taken in designing and executing the project involved. Adequate safety measures shall mean that allowance is made for precipitation, flood and inundation up to a return period of 50 years for the location insured and the entire policy period on the basis of the statistics prepared by the meteorological agencies. Loss, damage or liability resulting from the Insured not immediately removing obstructions (eg sand, trees) from watercourses, whether carrying water or not, in order to maintain free waterflow shall not be indemnifiable.”

The Plaintiff advanced two arguments in response to the Defendant’s repudiation of liability: a) MCAR-109 and MCAR-110 are unfair and unreasonable terms in a contractor’s all risks insurance policy; and b) The Flood was a “1-in-100 years” event, such that compliance with MCAR-109 and MCAR-110 would not have prevented the loss.

Unfair terms

The Plaintiff argued that MCAR-109 and MCAR-110 were unfair and unreasonable clauses in a contractor’s all-risks policy because it was impracticable to maintain only 3-days’ worth of construction materials on site and comply with “adequate safety measures” as defined.

Regardless of why the Plaintiff may have considered the clauses to be unfair or unreasonable, this Court rejects that argument as the Policy is a commercial contract and the law in Malaysia recognises and enforces the parties’ freedom of contract. Absent any recognised vitiating factors, MCAR-109 and MCAR-110 are valid and enforceable terms.

Warranty and condition

The Plaintiff’s primary case was premised on the fact that the Flood was a “1-in-100-years” flood event, and so even strict compliance with MCAR-109 or MCAR-110 would not have prevented the flood damage.

On a plain reading of MCAR-109 and MCAR-110, the Defendant accepts liability only if the flood damaged construction materials on site:

(i) do not exceed three days’ demand or (ii) exceed three days’ demand and are kept in areas not endangered by 20-year floods (MCAR-109); and

adequate safety measures are taken in designing and executing the Project (i.e. allowance is made for precipitation, flood and inundation up to a return period of 50 years based on statistics from the meteorological agencies) (MCAR-110)

Clause 1 of the General Conditions to the Policy further provides that: “The due observance and fulfilment of the terms of this Policy in so far as they relate to anything to be done or complied with by the Insured and the truth of the statements and answers in the questionnaire and proposal made by the Insured shall be a condition precedent to any liability of the Insurers.”

According to the Defendant therefore, MCAR-109 and MCAR-110 are to be construed as containing conditions precedent that must be met for the Defendant to accept liability. The Plaintiff did not contest the Defendant’s interpretation of MCAR-109 and MCAR-110. This is significant because, as a matter of law, warranties and conditions have acquired a meaning peculiar to insurance law, the breach of which entitles the insurer to avoid liability even if it was not prejudiced by the breach.

The position of the law as set out above was confirmed by the Federal Court in Veheng Global Trades Sdn Bhd v AmGeneral Insurance Bhd (formerly known as Kurnia Insurance (M) Bhd) & Anor and another appeal [2019] 4 MLJ 581 when it affirmed the Court of Appeal judgment in AmGeneral Insurance Bhd v Veheng Global Traders Sdn Bhd [2017] MLJU 2319 (“Veheng”): “[118] Where there is a breach of warranties and conditions of the insurance policy, the Courts have consistently found that such breaches entitles the insurer to avoid liability as the strict compliance of warranties and conditions are conditions precedent to the insured’s right to claim and the insurer’s obligation to pay. A frequently cited case is Suhaimi bin Ibrahim v United Malaya Insurance Co Ltd [1966] 1 MLJ 140 where Maclntyre J had opined that when an insured is in breach of a warranty under an insurance policy, the insurer is entitled to avoid liability for a loss which took place after the breach of warranty. … [120] His Lordship again applied this rule of strict compliance of warranties and conditions as a prerequisite to the right to be compensated under the policy of insurance in the case of Putra Perdana Construction Sdn Bhd v AMI Insurance Bhd & Ors [2005] 2 MLJ 123. Although it was a condition 29 under examination in that case, the terms of that condition are extensively similar to the FEA Warranties in the present appeals; and his Lordship added that “where an insurer seeks to repudiate liability for a breach of a condition precedent by the insured, the insurer is not required to show that he was prejudiced by the breach;” [Emphasis added]

Based on the above, the only question to be determined by this Court is whether the Plaintiff had complied with the warranty and condition in MCAR-109 and MCAR-110 as they are separate but related conditions precedent to the Defendant’s liability for the flood damage, either of which entitled the Defendant to deny liability for the Plaintiff’s claim under the Policy.

Burden of proof

The Plaintiff did not address the question of burden of proof, but it is trite based on sections 101 to 103 of the Evidence Act 1950, that it bears the legal burden of proof throughout the trial, as well as the initial evidential burden of proof. As compliance with MCAR-109 and MCAR-110 is a condition precedent forming part of the Plaintiff’s entitlement to coverage, fulfilment of the stated conditions is necessary to trigger liability. As such, the Plaintiff bears an initial evidential burden of showing prima facie compliance. If no evidence is called by either side, the Plaintiff would fail.

Proof of compliance

It was not in dispute that the Lift Equipment had been on site for more than a month before the Flood and was kept at Level LG of the partly constructed building at the Project site. No evidence was led, and no submissions were advanced by the Plaintiff on how long the other damaged construction materials were on site. Based on this, the case called for evidence of the average recurrence interval (“ARI”) of floods in the area, a term introduced at the trial.

No expert evidence was offered by either party to assist the Court as to the meaning of the second condition of MCAR-109 that construction materials exceeding 3-day demand be kept in areas not endangered by 20-year floods, and the requirement in MCAR-110 that allowances be made for flooding up to a return period of 50 years.

The term ARI in civil engineering designs is probably related to the concept of return period for floods. As this Court understands it, 20- year, 50-year and 100-year floods at a location reflect the statistical probability of a flood occurring in any given year, which in turn relates to the severity of rainfall and the conditions of the location.

Considering what a 100-year flood means, the premise of the Plaintiff’s case, namely that the Flood was such an event, is misplaced. This is because the occurrence of flooding or damage during a 100-year flood event at the Project site does not establish that the Project site was not susceptible o 20-year or 50-year flood events.

The extent to which the Project site fell within the floodplain for different flood events was not the supported by any floodplain mapping evidence to show whether the site was susceptible to more recurrent floods. No rainfall statistics from the meteorological agencies were produced and, consequently, no meaningful evidence of “safety measures” were adduced at the trial.

All that the Plaintiff sought to prove was that a) the Lift Equipment was in wooden crates and inches off the ground at Level LG at the Project site; and b) the Plaintiff’s Design of Internal Drainage System and On-Site Detention Tank (“Drainage and OSD Tank”) was designed to cater for a “100-year ARI storm” at full capacity. As it transpired, however, the Drainage and OSD Tank had not been installed when the Flood happened.

As such, this Court is constrained to find that the Plaintiff failed to discharge its burden of proving its prima facie compliance with MCAR-109 and MCAR-110, a necessary precondition to coverage for a valid claim before the evidential burden shifted to the Defendant to justify the repudiation. Exaggerated claim

The Defendant also relied on both the Court of Appeal and Federal Court in Veheng that expressly recognised that insurance contracts are contracts uberrimae fidei which impose a continuing duty of disclosure on the insured. Based on authorities referred to in Veheng, the Defendant submitted that the common law duty of good faith in such contracts enjoins the insured to abstain from fraudulent conduct even after commencement of legal proceedings.

In this regard, the Defendant amended its Defence after production of the Plaintiff’s expert report on 15-2-2026 for the trial, which revealed that, by approximately 19-1-2023, the Plaintiff knew that its actual loss for the Lift Equipment was only RM708,918.42, and not: a) RM1,678,882.70 based on Otis’ quotation dated 18-1-2022; b) RM1,110,000.00 based on Otis’ subsequent quotation dated 9- 6-2022 and as eventually pleaded in the particulars of loss in this action on 6-9-2024. and that RM53,649.20 claimed in respect of construction materials was not insured or claimable.

The amendment pleaded that the Plaintiff had forfeited its entitlement under the Policy based on Clause 8 of the general conditions as a further defence i.e. that the Plaintiff’s “claim” is deliberately exaggerated and therefore fraudulent. Clause 8 reads as follows: “If a claim is in any respect fraudulent, or if any false declaration is made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is made and rejected and no action or suit is commenced within three (3) months after such rejection or, in the case of arbitration taking place as provided herein, within three (3) months after the Arbitrator or Arbitrators or Umpire have made their award, all benefit under this Policy shall be forfeited.”

On the facts, several estimates of loss were obtained for the Lift Equipment over the course of 2022 based on repair and/or replacement estimates. On 19-1-2023, Otis gave a quote of RM708,918.42 to replace the 3 lifts altogether, which was cheaper than repairing or replacing parts. The damaged Lift Equipment was kept in storage and never disposed of.

The Plaintiff argued that the reduced quote from Otis was not known at the time of the initial claim submission, but had no explanation for why the pleaded claim amount remained at RM1,110,000.00 on 6-9- 2024 and indeed, why that claim amount remained unamended thereafter. The Plaintiff did not attempt to argue that RM1,110,000.00 is a valid basis of loss settlement, but contended through witness evidence that it would only pursue the lower sum.

In this case, breach of Clause 8 of the General Conditions of the Policy was not a ground relied upon by the Defendant to deny liability under the Policy when it repudiated the Plaintiff’s claim. This Court is of the view that Clause 8 is engaged only in reference to the submitted insurance claim. A subsequently reduced quantum of loss proved in a lawsuit may be evidence of fraud at the time of claims submission, but there is no evidence of fraud at the time of claims submission here since the Plaintiff relied on Otis to quote for repair or replacement.

This Court agrees that it is material that the Plaintiff persisted in filing an exaggerated claim for RM1,110,000.00 in respect of the Lift Equipment in September 2024, knowing full well since January 2023 that its actual loss was only RM708,918.42. The issue is somewhat academic in the light of the Court’s findings above, but for completeness, this Court will say that it is not a ground to forfeit a valid insurance claim that was wrongly denied, if the question of liability had been so determined.

As noted above, steps taken in mitigation of the loss can be addressed in the quantification stage in the legal proceedings and evidence was also led on this. However, this Court finds it unnecessary to deal with issues raised on the quantum of the claim as the reduced sum of RM687,817.61 sought by the Plaintiff was not seriously contested.

In conclusion, the Defendant’s avoidance of liability is valid as the Plaintiff failed to prove compliance with the warranties and conditions precedent to coverage under the Policy in Clauses MCAR-109 and MCAR-110. Insufficient evidence was adduced by the Plaintiff to otherwise shift the burden of proof to the Defendant. Accordingly, the Plaintiff’s claim is dismissed with costs of RM75,000.00, subject to allocatur. Bertarikh: 03 Julai 2026 ELAINE YAP CHIN GAIK PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA KUALA LUMPUR Peguam Untuk Plaintif: Kwong Sook Wen (Liaw Li Juan bersamanya) Tetuan Ricky Tan & Co Untuk Defendan: R Thayakugan (Lau Zhi Ying bersamanya)