Does an insurer’s right of subrogation extend to the right to call upon a performance bond issued to the insured? In Sompo Insurance Singapore Pte Ltd v Royal & Sun Alliance Insurance plc [2021] SGGC 152, the High Court of Singapore confirmed that it does.
The case provides a concise summary of the law of subrogation in Singapore. It confirms that subrogated rights of recovery are not limited to actions against the person responsible for the loss, but include all rights that the insured might have had against any third party (whether in contract, tort, equity or otherwise). The case provides an important reminder to claims managers of the broad scope of subrogated rights.
Background
In December 2013, the Government of Singapore entered into a contract with Geometra Worldwide Movers to transport military cargo. As part of that contract, Geometra agreed to provide an unconditional performance bond for 5% of the contract price. Subsequently, Sompo issued a bond in favour of the Government. The Government purchased its own insurance policy with RSA to cover damage to the cargo.
During transportation, the cargo was damaged. RSA agreed to indemnify the Government for its loss. RSA then commenced a subrogated recovery action and called on the performance bond issued by Sompo. RSA’s lawyers wrote to Sompo and made a demand on the bond “on behalf of the Government of Singapore“. Sompo refused the call for two reasons:
- The subrogated cargo insurer (i.e. RSA) had no right to call on the performance bond; and
- The performance bond had ultimately expired as it was not called upon by the Singapore Government within the validity period.
RSA obtained judgment in the District Court. Sompo appealed the decision to the High Court.
The Parties’ Submissions
RSA claimed that upon indemnifying the Government for the loss, pursuant to its right to subrogation, it was entitled to call upon the Government’s performance bond.
Sompo claimed that as RSA’s lawyers and not the Government had called on the bond, RSA had failed to comply with the bond’s terms and, therefore, the demand on the bond was invalid. Sompo also argued that subrogation only extends to rights against the person responsible for the loss. In this case, the person responsible for the loss was Geometra and not Sompo.
The Court’s Decision
The extent of subrogation
The judge rejected Sompo’s statement of the law of subrogation. He confirmed that the common law principle of subrogation grants an insurer the entitlement to every right the insured has to recover in respect of a loss. In this case, the Government could have called on the bond before claiming under the policy, and if it had done so, RSA would only have paid the loss not covered by the bond. The judge confirmed that the right of subrogation was not limited to the wrongdoer, and RSA had the choice to either pursue Sompo or Geometra.
Was the call valid?
The judge also dismissed the argument that RSA had not strictly complied with the call and that only the Government could call on the bond. As RSA’s lawyers’ letter was written “on behalf of the Government of Singapore” (on the basis that the lawyers’ authority came from their client, RSA, who had ‘stepped into the shoes’ of the Government pursuant to their right of subrogation), this was enough to satisfy the terms of the bond, which only required that the demand is in writing and from “the Government“.
Analysis
The judgment confirms that insurers are not limited to pursuing subrogated recoveries against the person responsible for the loss, but can use all of the rights and remedies that the insured would be able to pursue for a recovery, including calling on performance bonds. When considering a subrogated recovery, claims managers should look at the underlying contract(s) and see whether any performance bond has been issued.
This case is also a reminder that when calling on a performance bond, it is important to ensure that one strictly complies with the call terms of the bond.
If you wish to discuss this case or our subrogation practice, please contact Nicholas Sykes. Nicholas is also able to carry out reviews of insurance claims to identify potential recoveries. Please contact him at Nicholas.Sykes@clydeco.com.