Oversea-Chinese Banking Corporation Limited v Argoglobal Underwriting Asia Pacific Pte Ltd & Others (The “Teras Lyza”)

DMC/INS/25/02

Singapore

Oversea-Chinese Banking Corporation Limited v Argoglobal Underwriting Asia Pacific Pte Ltd & Others (The “Teras Lyza”)

Singapore High Court: Kwek Mean Luck J: [2025] SGHC 82: 30 April 2025

Judgment Available on e-Litigation at: https://www.elitigation.sg/gd/s/2025_SGHC_82

Tan Chee Meng SC, Tan Kai Yun, Deya Dubey, Teo Jen Min, Jayakumar Suryanarayanan, Jerrick Lim and Alexis Loy (WongPartnership LLP) for OCBC (Insureds)

Chan Leng Sun SC (instructed), Loh Wai Yue, John Seow, Prakash Nair, Glenn Tennyson Ong and Martin Lee (Incisive Law LLC) for Argoglobal & Others (Insurers)

MARINE INSURANCE: CONSTRUCTIVE TOTAL LOSS: PERILS OF THE SEAS: DUTY OF FAIR PRESENTATION: BREACH OF WARRANTY: POLICY PROOF OF INTEREST (“PPI”) CLAUSE

DMC Classification: Confirmed

Summary

The Singapore High Court ordered insurers to pay USD56 million for the constructive total loss (CTL) of the jack-up rig “Teras Lyza” to her mortgagee bank insureds, OCBC. The rig capsized and was lost during a tow from Vietnam to Taiwan. The Court found the loss was caused by a “peril of the seas” and rejected the insurers’ various defences.

The judgment provides important guidance on several key areas of marine insurance law under the English Marine Insurance Act of 1906 and the English Insurance Act of 2015.

• Proving a Constructive Total Loss (CTL): The Court accepted documents from the time of the incident (like surveyor reports and emails) as sufficient proof for CTL, even without a witness testifying to every cost detail. It dismissed the insurers' late objections to this evidence, noting they had possessed the documents for years and suffered no real prejudice.
• Perils of the Seas: The Court confirmed that an unexpected entry of seawater is a peril of the seas. It rejected the insurers’ argument that the insureds had to explain exactly how the water got in, clarifying that this high burden of proof is not the general rule.
• Breach of Warranty: The Court took a strict, literal view of a warranty requiring compliance with "statutory or regulatory requirements," finding it did not include general industry guidelines or non-mandatory codes.
• "Policy Proof of Interest" (PPI) Clauses: The Court confirmed that a section of the policy for "Increased Value" containing a PPI clause (which purported to waive the obligation on the insureds to prove they had an insurable interest) was void and unenforceable as a "gaming or wagering" contract under English law. This decision reduced the payout from USD70 million to USD56 million.

Case note contributed by Jin Wei Ng, LLB (Hons), Solicitor & Advocate of the Supreme Court of Singapore, Associate at DennisMathiew and International Contributor to DMC’s CaseNotes

Background

OCBC was the mortgagee bank for the rig "Teras Lyza" and was a co-insured party on its marine insurance policy. The policy was governed by English law and was split into two parts: Section [A] covered the rig's hull and machinery for USD56 million, and Section [B] covered its "increased value" for USD14 million.

The rig was a newbuild. In June 2018, during its maiden voyage under tow from Vung Tau, Vietnam, to Taichung, Taiwan, it developed a list, capsized, and was eventually scuttled after it could not be salvaged.

The vessel's owner notified insurers of a claim for a Constructive Total Loss (CTL), but the insurers rejected it. OCBC then pursued the claim for the full USD70 million. The insurers defended the claim on multiple grounds, arguing that the loss was not fortuitous, was caused by the rig's unseaworthiness, and that the insureds had breached policy warranties and their duty of fair presentation. They also argued that Section [B] of the policy was void.

Judgment

The Honourable Justice Kwek Mean Luck reviewed the evidence and expert opinions on English law and found in favour of OCBC on most key issues, but agreed with insurers regarding the invalidity of Section [B] (the Increased Value section) of the policy.

1. Constructive Total Loss (CTL)

The key question was whether OCBC could prove that the cost of recovering and repairing the rig would exceed its insured value of USD70 million. OCBC relied on documents produced at the time of the loss, including surveyor reports, salvage cost estimates, and correspondence showing the rig was unsellable even for scrap.

The insurers argued these documents were inadmissible hearsay. The Court disagreed, allowing them as evidence under an exception for normal business records. The Judge noted that the insurers had received these documents nearly six years earlier and could not claim to be surprised or prejudiced by them. The Court found that these documents were enough to establish an initial case for CTL, and the insurers had failed to produce sufficient evidence to challenge the costings. The Judge also accepted that where a vessel is lost and cannot be fully inspected, a "large margin of error" must be applied to repair estimates, reinforcing the conclusion that the rig was a CTL.

2. Peril of the Seas

The Court confirmed the long-standing test: an accidental and unexpected entry of water is a "peril of the seas." Insurers argued that because the insureds could not explain the exact cause of the water ingress, they had not proven their claim.

The Judge rejected this, stating it was a "misreading" of the law. An insured does not have to prove the precise mechanics of the sinking in every case. That burden only arises if there is strong evidence the vessel was unseaworthy (e.g., due to severe wear and tear, or "decrepitude"). Here, the rig was a newbuild and had passed all its pre-voyage surveys. The Court preferred the evidence of OCBC's expert, who concluded that unexpected flooding had occurred, to that of the insurers' expert, whose theories were not supported by calculations.

3. Breach of Warranties & Duty of Fair Presentation

The insurers alleged several breaches of warranty and duties of fair presentation, all of which were dismissed by the Court. The most significant finding concerned a warranty for compliance with "all statutory or regulatory requirements".

The insurers argued this included a wide range of documents, such as the vessel's Operations Manual, MPA circulars, and IMO guidelines. The Court adopted a much narrower and more literal interpretation, ruling that the phrase meant only formal statutes and subsidiary legislation, not general industry guidance or codes of practice. This strict interpretation severely limited the scope of the warranty.

Similarly, the Court found no breach of the duty of fair presentation. For example, it held that the decision to conduct a "wet tow" instead of a "dry tow" was not a "material circumstance" that needed to be disclosed, because insurers rely on the approved Marine Warranty Surveyor (MWS) to approve such technical operational matters, which the MWS had done.

4. The PPI Clause and Increased Value Cover

The policy included a USD14 million cover for "Increased Value" in Section [B]. However, this section contained "Policy Proof of Interest" (PPI) wording (which purported to waive the obligation on the insureds to prove they had an insurable interest). The English law experts for both parties agreed that under the UK Marine Insurance Act 1906, such a clause renders the insurance a "gaming or wagering" contract and is, therefore, void and unenforceable.

The Court accepted this uncontested expert evidence. As a result, Section [B] of the policy was declared void, and OCBC's claim was limited to the USD56 million insured under (the valid) Section [A].

Comment

This judgment offers clear and commercially sensible guidance on several recurring issues in marine insurance claims and is a valuable read for owners, charterers, and their insurers.

The Court’s practical approach to evidence for proving CTL is a welcome confirmation that procedural rules should not defeat a valid claim where the core evidence is clear and was known to all parties.

The clarification on "perils of the seas" is also important, pushing back against attempts to place an impractically high burden of proof on assureds to explain the inexplicable.

However, the most significant warnings for the market come from the findings on warranties and the PPI clause. The Court’s narrow interpretation of "statutory or regulatory requirements" means that if an insurer wishes to rely on a warranty for compliance with specific industry codes or guidelines, it must ensure that they are explicitly named in the policy. Relying on broad, catch-all wording may not be enough.

Most critically, the case is a stark reminder of the danger of PPI clauses. Their presence in an increased value or ancillary policy section can silently render that cover completely void. Financiers, brokers, and insureds should meticulously check policies for any such wording to avoid discovering at the worst possible moment that a significant portion of their cover is unenforceable.