MA KIM YING v. MANULIFE (INTERNATIONAL) LTD

HCA 1989/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1989 OF 2008

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BETWEEN

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J U D G M E N T

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Dispute

1.  Mr Wong Shiu Tong applied for a life insurance with the defendant by way of an application dated 12 July 2004.  On 6 August 2004, the defendant issued a life insurance policy no 28-9194344-9 (dated 1 July 2004) to Mr Wong in the sum of HK$2 million (“the Policy”) with the plaintiff, his wife, as the sole beneficiary.  Because Mr Wong was a Hepatitis B carrier since 2000, he was required to pay an extra premium of HK$5,800, totaling HK$40,920 per annum.  Mr Wong passed away on 14 May 2007 because of bleeding gastric varices, Hepatitis B and cirrhosis.  Prima facie, the plaintiff was entitled to payment under the Policy.  So she notified the defendant on Mr Wong’s death in around June 2007 and repeatedly requested for payment.  However, by letter dated 9 May 2008, the defendant purported to rescind the Policy, alleging material non‑disclosure and misrepresentation by Mr Wong pertaining to the true condition of his liver when he made the application in July 2004 and breach of warranty.

2.  The plaintiff then commenced the present action, claiming for payment of HK$2 million under the Policy.  The defendant counterclaimed for rescission of the Policy.  In reply, the plaintiff relied on a number of matters, including Clause 14 of the Policy, which reads :

“The Owner’s or the life insured’s failure to disclose any fact or their misrepresentation of any fact within their knowledge that is material to the insurance (and it is not disclosed by the other party) will not, in the absence of fraud, render this policy voidable by the Company after it has been in force during the life insured’s lifetime for 2 years from its date of issue or date of reinstatement, whichever is later. Such failure to disclose or misrepresentation could be in the application for this policy, any medical evidence form, or any written statements and answers furnished as evidence of insurability. This provision will not apply to a misstatement of age or to any supplementary benefits.”

The plaintiff contended that Clause 14 applied because when Mr Wong died in May 2007, it was more than 2 years after the issuance of the Policy.  Any non-disclosure or misrepresentation as allegedly made by Mr Wong would not render the Policy voidable by the defendant.

Background

3.  The background facts leading to the proceedings are not in dispute.  They are outlined below.

4.  Between 9 and 11 February 2004, Mr Wong was hospitalized at the Hong Kong Baptist Hospital (“BH”) for right ureteric stone.  His treating doctor was Dr Edward KW Leung (“Dr Leung”).  (Dr Leung was not called as a witness because according to the defendant he is no longer registered as a practising medical doctor and his current whereabouts are unknown. No issue arose from not calling him.)  In response to the defendant’s enquiry, Dr Leung had written two letters dated 5 September and 13 November 2007 (“the First Letter” and “the Second Letter” respectively).  The contents of the two Letters, which are not disputed, form an important basis of the defendant’s case.

5.  In the First Letter, Dr Leung stated that Mr Wong first attended his clinic on 6 February 2004 whereupon he told Dr Leung that he was a Hepatitis B carrier.  He had no symptoms there and then.  While he was at BH, Mr Wong was discovered to have impaired liver function on 9 February 2004 and irregular liver outline, which could be early cirrhotic change, on 11 February 2004.

6.  Upon Dr Leung’s recommendation, a CT Scan was performed on Mr Wong on 11 February 2004 (“the CT Scan”).  The report of the CT Scan read :

“The size of the liver is normal. Liver outline is slightly irregular. Findings could be due to early cirrhotic change. Suggest clinical correlation. …”

7.  On 1 June 2004, Mr Wong consulted Dr Leung again.  Dr Leung stated in the Second Letter, among other things, that Mr Wong was told that he had liver problem according to the result of the blood tests and the CT Scan; that Dr Leung had explained to Mr Wong the reason of doing the CT Scan (increase in the α protein and impaired liver function); and that the CT Scan result was explained to him as per the radiological reports.  Dr Leung did not prescribe any medication or give any treatment to Mr Wong for his liver problem.  Mr Wong said he wanted treatment in the Mainland.

8.  On 21 June 2004, Mr Wong attended the Accident & Emergency Department of the Tuen Mun Hospital (“TMH”).  According to the medical report dated 3 December 2007 prepared by Dr Wong Ting Ting of TMH, he was admitted for epigastric pain for a few weeks, associated with nausea and weight loss.  Mr Wong was given medication upon discharge and follow-up was arranged on 26 June 2004.  Dr KL Chung (“Dr Chung”), then senior medical officer of the A&E Department of TMH saw Mr Wong on 26 June 2004.  He referred Mr Wong to the Medical Department of TMH for further management.  In the referral form dated 26 June 2004 (“the Referral Form”), Dr Chung recorded the provisional diagnosis/reason for referral as :

“Chronic Active Hepatitis, + cirrhosis”

The reference of + cirrhosis meant “suspected case of cirrhosis”, Dr Chung explained in his oral testimony.

9.  On 20 August 2004, Mr Wong consulted Dr Law Kwan Kin (“Dr Law”) of TMH’s Medical Department.  In the consultation note prepared by Dr Law of the same date, he recorded Mr Wong was “found to be HBsAg+ve (which means ‘Hepatitis B Surface Antigen positive’) with deranged liver function and probable cirrhosis by CT in ‘BH’ when [he] was [treated] for right ureteric stone”.

10.  Mr Wong had since then attended regular follow-ups for his liver problem with TMH until his death.

11.  In the meantime, Mr Wong applied to the defendant for a life insurance policy on 12 July 2004.  The defendant arranged him to be examined by Dr Tung Kwok Fai (“Dr Tung”) on the same date.  Dr Tung filled in a medical examination form (“the Examination Form”), which contained answers provided by Mr Wong in reply to the questions asked in the Form.

12.  Question 6 asked when his last consultation was as at 12 July 2004.  Mr Wong’s answer was that the last medical consultation that he had was with Dr Leung at BH in relation to treatment of renal stone in March 2004.

13.  Question 10 asked : “So far as you know have you ever had and/or been treated for and/or been told you had any disease or disturbance of : Jaundice, Hepatitis B carrier, ulcer, colitis, gallstones, diverticulitis, recurrent indigestion or other disorder of the stomach, intestines, liver or gallbladder?”  Mr Wong’s answer was he had never had and/or been treated for and/or been told he had any disease or disturbance of his liver, except that he was known to be a Hepatitis B carrier since 2000.

14.  Question 20 asked : “Within the past five years have you had any : Illness, operation, medical advice or hospital treatment not mentioned above?”.  Mr Wong’s answer was within the past 5 years reckoning from 12 July 2004, he had not had any illness, operation, medical advice or hospital treatment not mentioned in the Examination Form above.

15.  I will refer to these answers provided by Mr Wong as “the Answers” below.

16.  Mr Wong also made a declaration in these terms :

“I … have read the above statements and answers.  They are complete and true to the best of my knowledge and belief and form an integral part of the application and the basis of the policy to be issued. … I am obliged to supply the information required under this form which is a condition precedent for me to be the life insured of the policy…” (“the Declaration”)

He then signed on the Examination Form.

17.  On 6 August 2004, the defendant issued the Policy.  The underwriter was Ms Ng Sze Man (“Ms Ng”).

18.  In gist, the defendant’s complaint is that Mr Wong had failed to disclose the matters concerning his liver problem referred to in paragraphs 5 to 8 above save and except that he was a Hepatitis B carrier since 2000 (“the Undisclosed Matters”) when he applied for the Policy on 12 July 2004, although he was fully aware of the same.  The failure to disclose the Undisclosed Matters is dishonest and amounts to material  non-disclosure. He had also acted dishonestly in providing the Answers as he did, amounting to misrepresentations which had induced the defendant to issue the Policy.  The defendant further contended that the Declaration is an insurance warranty, the breach of which by Mr Wong automatically brought the Policy to the end.  The defendant is entitled to rescind the Policy.

Main issues

19.  The main issues are :

(1)     Was Mr Wong aware of the Undisclosed Matters when he applied for the Policy?

(2)     Were the Answers, provided by Mr Wong without disclosing the Undisclosed Matters, misrepresentations?

(3)     Did Mr Wong act dishonestly when he provided the Answers without disclosing the Undisclosed Matters at the same time?

(4)     Were the Undisclosed Matters material to the defendant’s consideration of whether to issue the Policy?

(5)     Had the defendant been induced by the material non‑disclosure and misrepresentation complained of in issuing the Policy?

(6)     Does Clause 14 of the Policy apply?

(7)     Is the Declaration a warranty and if so, was Mr Wong guilty of breaching it?

I will discuss them in turn.

Issue 1 – Mr Wong’s knowledge

20.  There is a wealth of evidence showing that Mr Wong was fully aware of the Undisclosed Matters when he applied for the Policy on 12 July 2004.

21.  In both the First and Second Letters, Dr Leung stated that he had informed Mr Wong of his liver problem at the time.  As said, the contents of the Letters are not disputed.  The plaintiff said in her oral testimony that Dr Leung had asked Mr Wong to be careful with his liver problem and advised him to see a doctor for follow-up.  She said that that was the exact reason why Mr Wong went to the A&E Department of TMH on 21 June 2004.  He wanted to receive treatment or follow-up of his liver problem and since he knew no other way to go about it, he went to TMH’s A&E Department.  He even lied that he had epigastric pain for a few weeks in order to gain admission to the A&E Department.  Dr Chung said in his oral testimony that according to the records kept by TMH, Mr Wong was referred to him because of his liver problem specifically.  Further blood tests were performed on his liver function on 24 June 2004.  Mr Wong was asked to bring along reports issued by BH when he came to see him on 26 June 2004.  In the Referral Form, Dr Chung recorded that Mr Wong was “found abnormal LFT (ie liver function test) by private specialist at [BH][in] 2/04”; with “HBsAg+ve” and “CT Scan in private : irregular liver surface”.  Dr Chung said and I accept that such information must have been provided by Mr Wong as TMH was unable to obtain any reports from BH.  Dr Chung also said, which I also accept, that according to his usual practice, he must have explained his liver condition and the reason for referral to Mr Wong.

22.  In my view, it is beyond any reasonable doubt that as at 12 July 2004, Mr Wong knew full well that he was not just a Hepatitis B carrier but in fact, he was a Hepatitis active patient with possible early cirrhotic change for which he had already begun to receive medical attention there and then.

Issue 2 – Misrepresentation

23.  The effect of the Answers provided by Mr Wong was that he had been a Hepatitis B carrier since 2000 of which he had not received any medical treatment, suggesting that he was a mere carrier with no particular problem that merited medical attention or treatment at the time.  The picture painted by the Answers was clearly false when the undeniable truth is that he was a Hepatitis active patient with possible early cirrhotic change for which he had already begun to receive medical attention.  The Answers are clearly misrepresentations.

Issue 3 – Dishonesty

24.  Whether Mr Wong had acted dishonestly when he failed to disclose the Undisclosed Matters and provided the Answers is really a matter of inference to be drawn from all the evidence available.

25.  By his answer to question 6 on the Examination Form, Mr Wong represented that, reckoning from 12 July 2004, the last medical consultation he had was one with Dr Leung in March 2004 in connection with renal stone.  That is plainly untrue.  He had 3 important consultations for his liver problem in the eventful month of June 2004.  He could not possibly have forgotten about them by 12 July 2004.

26.  In reply to question 10, the only detail Mr Wong provided was that he was known as a Hepatitis B carrier in 2000.  However, what is glaringly missing is the reference to the impaired liver function and the possibility of cirrhosis.  On 1 June 2004, Dr Leung had already told him that he had impaired liver function and also possible early cirrhotic change. Then on 26 June 2004, just about 2 weeks before he applied for the Policy, Dr Chung referred him to the Medical Department of TMH for chronic active Hepatitis and the possibility of cirrhosis.  Dr Chung had explained to him his condition and the reason for referral.  Mr Wong could not have forgotten what the two doctors had told him.

27.  In reply to question 20, Mr Wong answered “no”. This is also untrue.  For by the time of the Examination Form, Mr Wong had already had 2 consultations at the A&E Department of TMH where his liver condition was mentioned; and he had already been referred to further following up on his liver condition, which he later duly attended.

28.  In my judgment, when the evidence is viewed objectively in the round, it inferentially but strongly shows that when Mr Wong failed to mention any of the Undisclosed Matters and provided the Answers, he did it deliberately with a view to concealing the true condition of his liver from the defendant.  He had acted dishonestly in doing so.

29.  Mr Lau, for the plaintiff, argued that Mr Wong might not be aware of the seriousness of his liver problem and therefore did not mention any of the Undisclosed Matters.  I disagree.  There is no evidence whatsoever to suggest that Mr Wong would not have regarded his liver problem other than something serious.  In fact, the evidence points to the contrary. For it is the plaintiff’s evidence that he was advised by Dr Leung to take care of his liver problem on 1 June 2004 and then on 21 June 2004, he went to the A&E Department of TMH.  Surely he must have regarded his liver problem as something serious so much so that he even resorted to lying that he had epigastric pain in order to gain medical treatment at TMH.

Issue 4 – Materiality

30.  Initially, the plaintiff contended that the Undisclosed Matters were not material to the defendant’s consideration in issuing the Policy.  However, in his closing submission, Mr Lau conceded, and rightly so in my view, that they are material.

Issue 5 – Inducement

31.  As Ms Ng explained in her witness statement, had she been told the Undisclosed Matters, she would not have recommended the defendant to issue the Policy in its current terms or at all, without first calling for a thorough medical examination of Mr Wong’s liver conditions, and assessing the results of such examination in terms of risks to the defendant. She went on to say in her oral testimony that even with the further medical examination, she would most probably recommend to the defendant not to issue the Policy.  I accept Ms Ng’s evidence.  Plainly, the defendant had been induced by the material non-disclosure and misrepresentation by Mr Wong as complained of.

Issue 6 – Applicability of Clause 14

32.  Clause 14 applies only if the material non-disclosure and misrepresentation made by Mr Wong involved no fraud.  Mr Lau accepted that to determine if fraud existed for the purpose of Clause 14, the test is the same as that enunciated by Lord Herschell in Derry v Peek (1889) 14 App Cas 337 at p 374 :

“… fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true of false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief.’

33.  In light of my finding above that Mr Wong acted dishonestly in failing to mention the Undisclosed Matters and providing the Answers, he was equally guilty of fraud under the Derry v Peek test. Clause 14 accordingly does not apply.

Issue 7 – Breach of warranty

34.  What I have found under Issues 1-6 are sufficient to dispose of the action.  For completeness, I will deal with Issue 7 briefly as follows.

35.  The Declaration clearly constitutes a warranty the breach of which will automatically bring an end to the Policy, the insurer being relieved from its obligations independent of questions of materiality. See Leung Yuet Ping v Manulife (International) Ltd, HCA2380/2006, unreported, 19 May 2009, per Deputy Judge Carlson at paras 18 and 19.

36.  In Economides v Commercial Assurance Co Plc [1998] QB 587, Simon Brown LJ (as he then was) said at pp 601H-602A that when an insured has signed a declaration that answers given are true to his best knowledge and belief, the sole obligation on an assured is one of honesty, which requires the assured does not wilfully shut his eyes to the truth.  Here, as I have found, Mr Wong acted dishonestly when he, despite his full knowledge of the Undisclosed Matters, chose deliberately not to mention them at all.  He had breached the warranty, which effectively brings an end to the Policy.

Conclusion

37.  For the above reasons, I dismiss the plaintiff’s claim and enter judgment for the defendant on its counterclaim, declaring that it is entitled to rescind the Policy.

38.  Counsel have already agreed that costs should follow the event.  So I will order the plaintiff to pay the defendant the costs of the entire action, including all costs reserved, to be taxed if not agreed. I would also add that the costs recoverable by the defendant should include the reimbursement of the witness expenses assessed at HK$2,000 paid to Dr Tung, who was subpoenaed to give evidence.