Strict adherence to notifications about material changes is crucial for insurance claims under a Contractor's All Risks Policy, failing which, the insurer may repudiate liability.

[1] This is a claim for payment under a Contractor's All Risks Policy taken up in relation to a project to bring water from mainland Sabah to the island of Labuan. The claim was rejected by the defendant insurance company; and so the plaintiff brought this claim to enforce its rights under the insurance policy.

Factual Background

[2] By contract dated 23 June 2008 [Contract 2] entered into between the Government of Malaysia and a consortium known as "Konsortium Yakin-Kesb-Tisb Malaysia" [Main Contractor], the Main Contractor agreed to construct and complete all works relating to a project known as "Pembinaan Loji Air Beaufort Fasa II dan Pemasangan Paip Dasar Laut dari Loji ke Labuan - Kontrak 2: Pemasangan Paip Dasar Laut dari Loji ke Labuan dan Kerja-kerja berkaitan di Beaufort, Sabah dan Labuan" [the project] for RM195 million. The project involved the laying of pipes over land and the seabed for the supply of water to Labuan from the water treatment plant at Beaufort, Sabah. The length of the pipeline for the seabed was about 27 km [Subsea Pipes]. The Superintending Officer [SO] of the project was the "Ketua Pengarah, Jabatan Bekalan Air, Kementerian Tenaga, Air dan Komunikasi Malaysia." The SO was assisted by SMHB Sdn Bhd, a firm of consulting engineers [Consultants] who were appointed by the Government for the project.

[3] The Main Contractor appointed the plaintiff as its subcontractor to carry out the contract works under Contract 2. The plaintiff in turn appointed Ombak-Wangi JV Sdn Bhd as its subcontractor to lay the Subsea Pipes.

[4] As part of the contract requirements with the Government, the Main Contractor took out a Contractor's All Risks Policy with the defendant [the Policy]. The policy provided insurance coverage for all works carried out under Contract 2, including those relating to the laying of the Subsea Pipes. In the course of laying the Subsea Pipes, the plaintiff encountered three incidents resulting in loss and damage for which it made a claim with the defendant. In these incidents, the pipes buckled. These incidents first occurred on 22 June 2009, 29 & 30 June 2009; and on 12 July 2009. The plaintiff notified the defendant and submitted a claim for the incidents. The defendant appointed a loss adjuster, McLaren Saksama (Malaysia) Sdn Bhd to investigate the cause of the damage and to assist the defendant in deciding cover of the policy to the incidents in question.

[5] McLaren Saksama held several meetings with the plaintiff with regards the plaintiff's claim. At one of the meetings, the plaintiff submitted a report prepared by their own consultants, Det Norse Veritas [DNV Report] to support their claim. The DNV Report, inter alia concluded that the reason for the buckling of the Subsea Pipes in the three incidents was "overstress."

[6] McLaren Saksama reported their findings to and advised the defendant that the defendant was not liable for the losses claimed by the plaintiff. In McLaren Saksama's email dated 8 March 2013, McLaren Saksama stated as follows:

"...the original specification of the concrete weight coating (with iron ore) was 80 mm and this was revised to 125 mm to mitigate costs. The independent engineering consultants appointed on Insurer's behalf had reviewed the information provided to them and concluded that the increase in the concrete thickness and rigidity increased the risk and led to the buckling incidents. In this regard, had the thickness remained at 80 mm, there would be no issue of buckling of the original method statement.

...