MBF INSURANS SDN BHD v. PENANG GARDEN SDN BHD
COURT OF APPEAL, PUTRAJAYA
ALAUDDIN MOHD SHERIFF JCA, ABDUL AZIZ MOHAMED JCA, RAUS SHARIF J
[CIVIL APPEAL NO: P-02-164-96]
10 APRIL 2004

JUDGMENT

Raus Sharif J:

This is an appeal against the decision of the High Court made on 26 February 1996. The High Court declared that, by a Contractor’s All Risk Policy dated 10 August 1984, the respondent is entitled to be indemnified in respect of all expenditure, losses and damage incurred and sustained by it in consequence of carrying out remedial works to the site it was piling as well as to adjoining buildings.

The respondent was the developer of a project known as Wisma Penang Garden. The project was divided into two phases. Phase I was an eleven (11) storey building with a two storey annex. Phase II was a seventeen (17) storey building adjacent to phase I. Phase I was duly completed and occupied in 1983. The piling and foundation works for phase II started in October 1984.

By a Contractor’s All Risk Policy dated 10 August 1984, the appellant insured the respondent and others, in respect of certain construction works to be carried out by respondent’s contractor. The policy coverage includes loss or damage in relation to the construction of phase II, as well as for the third party liability in connection with the construction and erection of phase II. The policy further provided that in the event of any occurrence which might give rise to a claim under the policy, the respondent shall take all steps within its power to minimise the extent of the loss and damage. Further, by Endorsement 105 of the policy, the insurance was extended to cover loss or damage occurring in connection with the insured contractor’s works to the structures in the vicinity of the site.

Upon the commencement of the piling operations on phase II, it was observed that the building structures on phase I were settling and tilting at a high rate. As a result, the piling works were suspended. Remedial works were immediately undertaken by the respondent.

Thus, the claim by the respondent in this case was in respect of all the expenditures, losses and damages incurred and sustained by it, due to the said remedial works. It was agreed by the parties that the amount claimed be limited to RM1,327,441.40 as the measure of damages.

The central issue in this appeal is whether or not the respondent is entitled to be indemnified in respect of all expenditures incurred and sustained by the respondent in carrying out the remedial works in order to save the buildings in phase I from "further settlement and irreversible deterioration".

The fourth paragraph of endorsement 105 of the policy expressly states as follows:

There is no dispute that the piling works falls within the above clause. But what is in dispute is the definition of the word "collapse". It is the contention of the respondent that when remedial works were undertaken, actual collapse was under way. Therefore, the indemnity as appears in the fourth paragraph of endorsement 105 would have operated with the help of general condition 5 of the policy.

General condition 5 of the policy provides as follows:

Thus, it is submitted for the respondent that the general condition 5 of the policy is to require the respondent to intervene in exactly the way it did in this case in order to minimise the extent of loss or damage. To the respondent, the imposition on the respondent of a duty, to act in this way to prevent the occurrence of further and more serious loss or damage, is balanced by an implied obligation on the part of the appellant to indemnify the respondent in respect of the cost of remedial measures.

With respect, we are unable to agree. We share the view of the appellant that the policy must be read as a whole. Therefore, general condition 5 must be read in the light of both endorsement 105 and general condition 3. The second paragraph of endorsement 105 expressly states as follows:

The above paragraph did not indicate that the costs incurred in taking the necessary safety measures will be indemnified by the appellant. In fact the third paragraph of endorsement 105 expressly states that:

Thus, to us, the respondent’s claim in respect of remedial works to save the structure of phase 1 are merely safety measures which became necessary during the construction, and, by virtue of the above clause, are not recoverable. Our view is further supported by general condition 3 which provides as follows:

The above provision clearly states that reasonable precautions taken, to prevent loss or damage are at the respondent’s expense.

Thus, taking the policy as whole, we are of the view that the appellant can only be liable for the loss or damage resulting from piling works if the building of phase I either collapsed wholly or partially. The word ‘collapse’ has been defined to mean ‘to undergo or experience a falling-in, shrink suddenly together, break down, give way, cave-in’ (See vol. I, p. 438 of the New Shorter Oxford Dictionary). In other words, the building in phase I must fall down either totally or partially, for the appellant to be liable. But in our case, it is undisputed that, although phase I building suffered serious cracks and settlement, it remained standing.

The learned counsel for the respondent has invited the court to adopt a more liberal interpretation of the word "collapse" in line with the American cases which have defined the word collapse to mean "The settling, falling, cracking, bulging or breaking of the insured building or any part thereof in such manner as to materially impair the basic structure or substantial integrity of the building". (See Anderson v. Indiana Lumbermen’s Mutual Insurance Co. of Indianapolis, Indiana, 127 Southern Reporter (2nd Series) 304 CA). Thus, according to learned counsel for the respondent, to interpret the words "total or partial collapse" appearing in endorsement 105 to mean standing aside until the crashing down of glass and mortar to validify a claim would mean to give an interpretation which will produce an absurd result. We were urged to construe the policy document based on its practicality and not strictly, so as to give effect to the presumed commercial purpose. The case of Pans Food Importers & distributors Pty. Ltd. v. Australia and New Zealand Banking Group Ltd. [2000] 74 ALJR 79 HC was cited as the authority to support the said proposition.

With respect, we are unable to agree. To us the word ‘collapsed’ has only one ordinary meaning ie, falling or shrinking together or breaking down or giving way through external pressure or loss of rigidity or support which means that the building must cave in or fall down. Thus, when the words of the policy are crystal clear, those words must be given effect to. Moreover, as stated earlier the policy must be read as a whole. General condition 5 must be read in the light of both endorsement 105 and general condition 3. A paragraph in endorsement 105 expressly states that safety measures are not indemnifiable under the policy. Further, general condition 3 expressly states that reasonable precautions to prevent loss or damage are at the respondent’s expenses.

For the abovementioned reasons we are of the view that the costs incurred by the respondent for the necessary safety measures are not indemnifiable under the policy. Accordingly, the appeal is allowed with costs here and in the court below and that the deposit be refunded to the appellant.