On 28 February 2020, the Singapore Academy of Law's Law Reform Committee published its Report on Reforming Insurance Law in Singapore. The report reviewed areas of Singapore's insurance laws the Committee considered might be potentially outdated and whether reform was needed. Features relating to general insurance aspects have been covered in our previous legal update here. This article covers the proposed changes that only affect marine insurance, specifically brokers’ responsibility for unpaid premiums.
Summary of the report
The report recommends that marine insurance brokers should no longer be personally liable to pay premium to the insurer. Unique to maritime insurance law, a broker is directly responsible to the insurer for the payment of premiums. Section 53 of the Marine Insurance Act (‘MIA’) provides that:-
(1) Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which may be payable in respect of losses, or in respect of returnable premium.
(2) Unless otherwise agreed, the broker has, as against the assured, a lien upon the policy for the amount of the premium and his charges in respect of effecting the policy; and, where he has dealt with the person who employs him as a principal, he has also a lien on the policy in respect of any balance on any insurance account which may be due to him from such person, unless when the debt was incurred he had reason to believe that such person was only an agent.
Historically, this was to safeguard underwriters’ interests as the underwriters would now have had a familiar party (i.e. their broker) against which they could seek recovery for unpaid premiums. This custom was thereafter codified into legislation.
The report considered the position in other jurisdictions.
The report observed that the original policy concerns were no longer a pressing issue. Instead, various conflicting decisions had emerged surrounding the application of the custom leading to legal uncertainty. Moreover, the law did not reflect practice, where insurers rarely sought recovery directly against brokers, preferring instead to maintain their commercial relationship.
In the circumstances, the report proposed two changes to the law, which are to:-
The proposed amendments better reflect commercial realities for the payment of premiums.
Moreover, the general insurance industry in Singapore has already developed general rules governing the payment of insurance premiums through the Premium Payment Framework (“PPF”). These rules provide recourse for the non-payment of premiums, in particular, through cancelling the unpaid policies after 60 days. At present, the PPF explicitly excludes marine insurance, and if the proposed reforms are adopted, it is possible that the PPF would be expanded to include marine insurance. This would increase harmonisation of the insurance industry.
As this report is presently a proposal, further developments and public consultations are expected before any proposals in the report would be adopted. We will keep you up to date with developments.