Compensation Is Distinct From Civil Liability And Enforceability Of Condition Precedent

• Law Firm: PD Legal
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Author: Mr Ling Wei Hong
• Published date: 21 March 2023

HC Suit 376/2021

Indemnification of sums paid pursuant to settlement agreements - A pragmatic approach to considering civil liability under PI policies.

This case write-up is a short summary on the latest case law on the interpretation of a few common clauses found in PI policies, and should be read by brokers, insurers and any insureds who might benefit from having PI cover.

Summary

Insuring clauses in Professional Indemnity policies frequently define Cover for "Civil Liability", which is "any legal liability to pay Compensation... arising from any civil liability resulting from a Claim for breach of professional duty...".

In this case, the Singapore High Court has held that "Compensation" is distinct from the "civil liability" (even though the former arises from the latter). To meet the requirements to trigger cover, a plaintiff must show that the civil liability gave rise to its obligation to pay "Compensation".

In the specific context of claims by an insured for indemnification of sums paid out under settlement agreements, while actual liability needs to be established, the insured need not show that every single element of a tortious claim would be satisfied.

Instead, the Court takes a pragmatic approach in assessing whether it was reasonable to enter into a settlement agreement, applying the considerations laid out in...