SYT Consultants Pte Ltd v QBE Insurance (Singapore) Pte Ltd [2022] SGHC 251

In SYT Consultants Pte Ltd v QBE Insurance (Singapore) Pte Ltd, the General Division of the Singapore High Court (“Singapore High Court”) considered whether an insured, who had settled a claim against it by third parties without obtaining the insurer’s approval on such settlement, could subsequently rely on the settlement as the basis for its claim under an insurance policy. The decision related to a claim by SYT Consultants Pte Ltd (“SYT”) against its insurer, QBE Insurance (Singapore) Pte Ltd (“QBE”). 

Allen & Gledhill Partner Ramesh Selvaraj and Counsel Daniel Seow successfully acted for QBE in resisting SYT’s claims in full.

Background 

Pursuant to a professional indemnity insurance policy (“Policy”), QBE insured SYT against legal liability for any breach of professional duty by SYT in its supply of professional engineering services to third parties.  

SYT had been engaged by a builder to prepare the documents for certain engineering structures in relation to a construction project. SYT’s principal was appointed the Qualified Person (“QP”) for the relevant engineering works. In the course of the construction project, damage was caused to neighbouring properties (“Damage”), whose owners brought claims against the builder and developer in respect of the Damage. In turn, the builder and developer brought claims against SYT and the QP alleging that they were in breach of their contractual duties and/or were negligent. 

When SYT was first informed of a potential claim by the builder and developer, it notified QBE. Following this process and QBE’s investigations, QBE communicated to SYT its decision to deny coverage under the Policy. SYT and the QP subsequently settled the builder’s and developer’s claim against them at 100% liability pursuant to a settlement agreement (“Settlement Agreement”), and consent judgment was entered in a prior suit between them. 

SYT then brought HC/S 376/2021 (“Suit”) against QBE, seeking an indemnity of S$2 million under the Policy. Among other grounds QBE raised to resist SYT’s claim, QBE relied on the fact that the Settlement Agreement and consent judgment did not constitute a liability covered under the Policy, given that it was not a reasonable settlement and that SYT had not shown that it would have been 100% liable to the builder and developer independent of the Settlement Agreement. 

Singapore High Court’s decision 

After hearing the evidence at trial and reviewing the parties’ submissions, the Singapore High Court dismissed SYT’s claim in full. In reaching its decision, the Singapore High Court made several findings that are significant for both insurers and insured parties: 

  • The court agreed with QBE that, based on the wording of the Policy, SYT had to show that it would have been liable to pay the damages to the builder and developer independent of the Settlement Agreement. In particular, the language used in the Policy expressly provided that QBE would only cover “any legal liability to pay Compensation … arising from any civil liability resulting from a Claim for breach of professional duty in the conduct of [SYT’s business]”. Hence, while the Settlement Agreement itself created a “legal liability to pay Compensation”, the Policy wording required SYT to go further and show that the liability to pay pursuant to the Settlement Agreement itself arose from “civil liability resulting from a Claim for breach of professional duty”.
  •  While SYT had to show actual liability, that did not mean that SYT had to prove on a balance of probabilities that each element of the builder’s and developer’s claim would have been established and that damages would be at least as much as the settlement amount. Instead, it was sufficient for SYT to show that the Settlement Agreement was reasonable. In determining whether a settlement agreement is reasonable, the court would consider a non-exhaustive list of factors such as the duration and general content of negotiations as well as whether the negotiations were conducted bona fide. 

On the facts of the case, the Singapore High Court found that SYT had not proven that liability would attach in the absence of the Settlement Agreement. In particular, there was no evidence provided that showed that the Settlement Agreement was reasonable, as no evidence on the content of the negotiations or assessment of the prospects of success of the builder and developer’s claim was adduced. Further, SYT’s evidence at trial was that SYT was not at fault for the Damage, and that at the least the builder and other parties contributed to the Damage. 

Key takeaways of the decision 

The Singapore High Court’s decision is significant as it provides guidance as to the applicable principles where an insured party has reached a settlement agreement in respect of third-party claims and thereafter seeks to recover under a third-party liability insurance policy. 

For insurers, a close review of the wording of the relevant clause(s) in the policy is critical. The Singapore High Court’s decision turned significantly on the specific wording used in the Policy, in particular the requirement that “any legal liability to pay Compensation” must arise from “civil liability resulting from a Claim for breach of professional duty”. 

For insured parties, the Singapore High Court’s decision highlights the risks involved if one chooses to settle a claim by third parties, particularly in a case where the insurer has communicated its position that policy coverage is denied (e.g. on other grounds). If an insured wishes to settle a claim by third parties and intends to keep open the option of claiming under its policy for such sums paid out under the settlement, it is critical that the insured is able to demonstrate that the settlement agreement was reasonable. In this regard, such an insured should carefully document the negotiations, considerations and any advice received leading up to the settlement agreement. There would typically also be clauses in the insurance policy which expressly provide for the requirement of the insurer’s approval for any settlement by the insured with third parties, particularly for cases where the insurer has not denied policy coverage on other grounds. 

Reference materials 

The judgment is available on the Singapore Courts website www.judiciary.gov.sg.