LEUNG YUET PING v. MANULIFE (INTERNATIONAL) LTD

HCA 2380/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2380 OF 2006

----------------------

----------------------

--------------------------

J U D G M E N T

------------------------

Introduction

1.  On 28 June 2004 Mr Ying Chun Hon, now deceased and who I will refer to as “the deceased” took out a life insurance policy for $1 million.  He was born on 21 August 1934 and so was aged 69 years and 10 months when the policy was taken out.  He died of colon cancer on 9 November 2005 aged 71 years and 2 months.  His widow, who is the Plaintiff, applied to the Defendant which issued the policy for payment out to her of its proceeds, she being the deceased’s named beneficiary.

2.  Having investigated the matter the Defendant, a well-known and substantial insurer, has refused to pay out on the policy relying on the fact that the deceased had failed to inform it in his application form of a visit to his family doctor on 7 June 2004, just three weeks before the issuing of the policy, following an episode of shortness of breath and palpitations of the heart which had woken him from his sleep early in the morning.  His doctor, Dr Max Chan, advised him to consult a cardiologist.  Dr Chan was about to recommend one to him but this did not become necessary because the deceased told him that he already knew one, a Dr Kau, who was also known to Dr Chan.  In the event the episode of shortness of breath and palpitations did not return, or at least there is no evidence that he suffered a further episode, and the deceased never went to see a cardiologist.  Sadly, he was diagnosed with colon cancer in June 2005 from which he died on 9 November 2005.  The medical cause of death was given as colon cancer and the death certificate also referred to coronary heart disease but plainly the deceased had died of his cancer.  The reference to coronary heart disease is referred to by the Defendant as proof of the presence of such a condition which is something the deceased had failed to disclose to it in June 2004 when he applied for the policy of insurance.

3.  The Plaintiff’s case is that this episode of shortness of breath and palpitations was an isolated matter which did not repeat itself so that there would have been no need to report it in the proposal form and that, in any event, he was examined by the Defendant’s own doctor, as a matter of policy and procedure, which it does for all applicants over the age of 65, and this examination revealed that there was nothing wrong with the deceased’s health.

The evidence

4.  Evidentially, this is a very straightforward matter and the medical evidence is uncomplicated.  The evidence on both sides was called within a day and speeches were concluded within the morning of the second day.  I only propose to refer to the evidence that is relevant for the purpose of arriving at a conclusion in this matter.

5.  The Plaintiff has told me that this policy was one suggested to her and the deceased by a Mr Law an insurance agent.  She and her family had been in the habit of buying insurance policies but they had not previously purchased a life insurance policy.  The deceased had come to Hong Kong from the Mainland in about 1958 with limited education but he had been able to find employment with a bank.  His restricted education had held him back somewhat and he missed out on big promotions in the course of his career.  Nevertheless, he remained a loyal employee retiring in 1987 at the age of 53.  She described him as a person of sober habits who exercised daily after he had retired.

6.  After he had been medically examined by the Defendant’s doctor, the deceased had told her that the doctor had pronounced him to be healthy.  It is right to say that the examination showed no abnormality as a result of which his proposal for insurance was accepted by the Defendant who, no doubt as a result of his relatively advanced age, exacted a relatively high premium of over $6,800 a month which the deceased continued to pay until his death.

7.  The medical evidence can be taken shortly.  The Plaintiff’s expert in cardiology Dr Chris Wong says that given this apparently isolated incident of shortness of breath and palpitations, of which Dr Max Chan discovered no symptom in his examination of the deceased 2 days after the event, he would have advised the deceased to adopt a “wait and see” attitude, which despite Dr Max Chan’s advice to see a cardiologist, the deceased adopted for himself by apparently doing nothing about it.  There is no evidence of any recurrence and so Dr Wong considers that his advice would have been appropriate.  He has explained that shortness of breath and palpitations can be caused by a variety of non-cardiac conditions and where this was the first such event a “wait and see” approach would have been completely justified.

8.  Dr Chiu disagrees. He is the Defendant’s cardiologist. In this case the patient was 69, by which time some cardiac condition would be expected and in such circumstances after an episode like this, the prudent thing to do would be to go and see a specialist cardiologist who is best placed to suggest what tests might reasonably be performed to determine the reason for these two symptoms.  Dr Chiu and Mr Wong agree that an ECG and chest X-ray might not yield an accurate result in the sense that these are gross tests which could well fail to detect a cardiac deficiency.  Both have spoken of more effective examinations ranging from treadmill stress tests whilst attached to an ECG machine and ecocardiography or even an angiogram which is an invasive procedure carrying an element of risk.  The appropriate test to take and in which order would be something for a heart specialist to decide having examined the patient and discussed the matter with him.

9.  Dr Chiu therefore agrees with the recommendation made by Dr Max Chan.  Dr Wong says that he probably would not have recommended a specialist at that stage.  If the symptoms returned only then would he have recommended further investigation by a cardiologist.

10.  In my view the evidence of Dr Chiu is to be preferred.  At the age of 69 a person is likely to have developed some cardiac illness, one of the symptoms of which is shortness of breath and palpitations.  Such symptoms merit further investigation on an urgent basis – urgent not meaning immediate or as an emergency measure – within a matter of days.

11.  As will become plain when I come to consider the law governing the requirements cast on an applicant for a policy of insurance, it is the duty of the applicant to give full and frank disclosure and answers to the questions in the proposal form to which I now turn, and which is the basis of the Defendant justification for refusing to pay out.

12.  The Defendant relies on a number of answers given by the deceased in the proposal (application) form, C17-20 dated 18 June 2004 and the medical examination form C22-25.  At C20 Part F come the health questions.  Question 59(b) asks whether within the past 60 days the applicant has consulted a doctor and been advised to have a diagnostic test or surgery that has not yet been performed.  The deceased ticked the “No” box.  Mr Bernard Man, who appears for the Defendant, draws attention to the fact that just 11 days before this the deceased had been recommended to see a cardiologist to investigate the cause of his breathlessness and palpitations, as a result of which this answer was not a correct one.  Turning to the Medical Examination Form, which was completed by the deceased in conjunction with the Defendant’s medical examiner Dr Shek, question 8 [C22] asks the question “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 inter alia …. palpitation …. shortness of breath ….,” for which the deceased ticked the “No” box and question 9 asks the same question inter alia about shortness of breath for which “No” has been ticked.

13.  Mr Man says that these answers, which were clearly incorrect, were almost certainly deliberately false in circumstances where, by now, 17 days previously the deceased had specifically consulted Dr Max Chan for shortness of breath and palpitations.

14.  In relation to these matters, Dr Shek, who examined him, detected no shortness of breath or heart murmur and gave the deceased as clean a bill of health as the form permitted him to do by ticking the “Average” box as descriptive of the deceased’s health, after which the policy was issued.

Discussion of the evidence

15.  Mr Fan, on the Plaintiff’s behalf, submits that it would have been reasonable for the deceased to leave his medical condition and assessment in the no doubt capable hands of the insurer’s doctor, Dr Shek, who is trained to weed out unsuitable candidates for life insurance.  The deceased had had no recurrence of his symptoms for which he had seen Dr Max Chan who had examined him and found good blood pressure and pulse rate, no murmurs and clear chest sounds and normal heart sounds which must have been the same conclusion that Dr Shek had arrived at.

16.  This having been said, Dr Chiu’s evidence, as is Dr Wong’s, is that the more basic cardiac investigations such as listening to the heart, blood pressure readings and ECG’s will frequently not be enough to detect a heart defect which may be in need of urgent treatment.  Mr Man’s point is that had the deceased informed the Defendant’s insurer by answering the questions truthfully it would have known of the episode of breathlessness and palpitations and of Dr Max Chan’s recommendation for the deceased to see a cardiologist.  By not telling it this, the Defendant’s staff and Dr Shek decided that no further investigations beyond the usual medical examination were necessary and on the basis of the answers and Dr Shek’s more basic examination the policy was issued.  From this review of the evidence it is now necessary to consider the relevant law.

The law

17.  The pleaded basis for the Defendant’s refusal to pay out under the policy is in the defence and counterclaim [A21-28] which relies on 4 representations, all of which are alleged to have been untrue.  Paragraph 12 to 28 [A23-28] sets out the case as follows :

“12.  Provision 3 of the Policy provides (inter alia) that the application for the Policy, any medical evidence form, any written statement and answer furnished as evidence of insurability and the Policy constitute the entire contract.

13.  It is an express term of the Application and hence the Policy, and each of the Plaintiff and the deceased duly declared, that :-

“I have read the above statements and answers.  They are complete and true to the best of my knowledge and belief and form part of the application and the basis of the policy to be issued.”

“(1) I have read and fully understand …… the above questions; (2) the answers in this application together with this declaration …… are complete and true to my knowledge and form the basis of the policy to be issued; …… (5) I am obliged to supply the information required under Part A to G of this application which is a condition precedent for me to apply for the policy …… (6) information under Part A to F together with any subsequent alterations or supplements of it are collected to enable [the Defendant] to carry on insurance business and may be used by [the Defendant] for the purpose of approving and underwriting this application, administering and reinsuring my policy and adjudicating any insurance or related claims thereof.”

14.  In the premises, the truth of the statements and answers in the Application is a condition precedent to the liability of the Defendant under the Policy.

15.  On or about 24 June 2004, the deceased attended upon Dr. Shek Man Wing for a medical examination, following which the deceased signed on a Medical Examination Form dated 24 June 2004 (“Examination Form”).

16.  It was an express term of the Examination Form and hence the Policy, and the deceased duly declared, that :-

“I, the proposed life insured, 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 ……”

17.  In the premises, the truth of the statements and answers in the Examination Form is a condition precedent to the liability of the Defendant under the Policy.

18.  The Defendant will refer to the Policy, the Application and the Examination Form for their full terms and effect at the trial of this action.

19.  In order to induce the Defendant to issue the Policy, the Plaintiff and/or the deceased made, inter alia, the following representations to the Defendant in the Application :-

(1)   within the twelve months immediately preceding 18 June 2004 the deceased had not been treated by any physician or medical practitioner for any suspected heart attack (“1st Representation”); and

(2)   within the sixty days immediately preceding 18 June 2004 the deceased had not consulted and been advised by a physician or medical practitioner to have a diagnostic test or surgery that had not yet been performed (“2nd Representation”).

20.  Further or alternatively, in order to induce the Defendant to issue the Policy, the deceased made, inter alia, the following representations to the Defendant in the Examination Form :-

(1)   reckoning from 24 June 2004, the deceased last consulted Dr. Chan Chi Ching (“Dr. Chan”) half a year ago for treatment of flu (“3rd Representation”); and

(2)   so far as he knew he had never had and/or been treated for and/or been told he had any disease or disturbance of palpitation, shortness of breath, other disorder of the heart or respiratory disorder (“4^th Representation”).

21.  On 7 June 2004, the deceased consulted Dr. Chan for treatment of dispnoea (ie. difficult or laboured breathing, or shortness of breath) and palpitation (ie. abnormally rapid pulsation) which by then had lasted 2 days, and was advised by Dr. Chan to seek cardiologist advice.

22.  In the premises, each of the 1st Representation, the 2nd Representation, the 3rd Representation and the 4th Representation (collectively “Representations”) is untrue.

23.  Acting in reliance upon the Representations (and each of them) and not knowing that they were (or any of them was) untrue, the Defendant issued the Policy on 28 June 2004.

24.  By reason of the matters aforesaid and pursuant to the express terms of the Policy as respectively pleaded in paragraphs 13 and 16 hereof, the Defendant is not liable to the Plaintiff for the said sum of HK$l million or any part thereof or any damages.

25.  Further or alternatively, by reason of the matters aforesaid the condition precedent to the Defendant’s liability has not been satisfied and the Defendant is not liable to the Plaintiff for the said sum of HK$l million or any part thereof or any damages.

26.  Further or alternatively, by reason of the falsity or untruthfulness of the Representations or any of them as pleaded hereinabove, the Defendant is not liable to the Plaintiff for the said sum of HK$1 million or any part thereof or any damages.

27.  Further or alternatively, by reason of the falsity or untruthfulness of the Representations or any of them as pleaded hereinabove, the Defendant was entitled to rescind the Policy, which it did by a letter dated 27 March 2006 addressed and delivered to the Plaintiff.

28.  In the premises, the Plaintiff is not entitled to any of the reliefs claimed in this action.”

18.  Mr Man has helpfully addressed me on the law applicable to the issuing of policies of insurance with which Mr Fan agrees.  The deceased in his proposal had made a number of warranties, breach of which would entitle the insurer to repudiate liability.  I repeat here the relevant passage from Colinvaux’s Law of Insurance (8^th Edition 2006) para 7-01 to which Mr Man has made reference :

“In English law contractual terms are normally divided into three classes: (1) warranties, which are subsidiary or minor terms, the breach of which gives the innocent party a right to damages only; (2) conditions, which are major terms, the breach of which confers upon the innocent party, in addition to a right to damages, the further right to treat the contract as repudiated and to refuse to proffer or accept future performance; and (3) innominate terms, the significance depend upon the seriousness of the consequences of any breach.  Determining whether a contract term is a condition, warranty or an innominate stipulation is a matter of construing the contract, and the terminology used by the parties is not conclusive.

The concepts of condition and warranty in insurance law bear a rather different meaning.  An insurance condition is either an obligation on the assured to act in a particular way or a contingency - which may be outside the control of the assured - upon which the validity of the policy or of any claim may depend.  As the nature and types of insurance conditions vary so widely, the consequences of a breach are not uniform, and may range from the right to terminate the policy (a bare condition) or to refuse a claim (a condition precedent) down to a mere right to damages (a minor condition).  An insurance warranty is a pre-contractual promise by the assured that a given fact is true, or that a given fact will remain true, or that he will behave or refrain from behaving in a particular way.  The effect of a breach of warranty is to bring the risk to an end automatically as from the date of breach.”

19.  An important aspect of the breach of an insurance warranty is that the insurer is relieved from its insurance obligations independent of questions of materiality.  No “but for” test or considerations of that sort apply in these cases.  See Dawsons v Bonnin [1922] AC 413 per Viscount Cave at 433.

20.  The nature of an insurance contract being one of the utmost good faith, the Defendant was entitled to proceed on the basis that the deceased had given accurate answers to the questions on the proposal form and on the medical examination form, which I have already referred to, in respect of all material facts.

21.  What is material has been considered in a number of cases.  This will be a question of fact in each case.  All the insurer needs to show is that a prudent insurer (not the instant insurer) would have taken the information into account in coming to its decision as to whether to underwrite the risk and at what premium.  A fact could still be material although even if still disclosed, would actually not have led a prudent insurer to decline the risk or stipulate an increased premium.  All that needs to be shown is that the insurer will rightly take it into account in coming to his decision and that it has influenced his judgment.  The law in this regard has been very helpfully rehearsed by Judge Ng in Lam Charm Yung v AXA China Region Insurance Company (Bermuda) Limited [2007] HKLRD 770.

22.  Once there is evidence of non-disclosure of a material fact or that a misrepresentation has been made, the insurer needs to prove that he was induced by the non-disclosure or the misrepresentation to enter into an insurance contract on terms that he would not have accepted if all the material facts had been known to him.  All that needs to be shown is an effective inducement which need not have been the sole inducement.

23.  What the insurer is absolved from showing is that the non-disclosure was deliberate.  See Helen Lai v AIA 6074 of 1983 at page 6 [Jones J.] :

“Even if the deceased was under the mistaken impression that he did not have to disclose this information and he acted innocently this will not assist the plaintiff for the test is that of the reasonable prudent insurer not that of the reasonable assured.  An innocent misrepresentation is sufficient to vitiate the policy.”

Application of the facts to the law

24.  I am afraid that it is very clear that the deceased failed to answer the questions relating to his consultation with Dr Max Chan and the medical conditions which prompted him to visit Dr Chan on 7 June 2004.  The simple fact is that he should have revealed his consultation of 7 June, the recommendation to go and see a cardiologist and the episode of breathlessness and palpitations 2 days prior to seeing Dr Chan.  I am satisfied that by the time that he filled in the two forms on 18 and 24 June these incidents were very much in his mind.  He simply could not have overlooked them or forgotten about them so soon afterwards.  Had he furnished this information, this I have no doubt, would have set off a train of enquiry by the Defendant.  In all probability it would have carried out further tests to determine whether to take him on and if so to determine what effect the results of the further tests would have had on the premium that they were going to charge him.  Even putting it at its kindest for the deceased, that he did not consider the events of 5 June and the visit to Dr Max Chan on 7 June sufficiently significant to tell the Defendant about them, this was not for him to judge.  The matters were clearly material.  He should have revealed them.  Because he did not and should have done so, there can only be one answer to this action which is that the Defendant was perfectly entitled to refuse to pay out on the policy and that accordingly, the action must be dismissed and there must be judgment for the Defendant on the claim.  In these circumstances I propose to make no order on the counterclaim simply because such an order is unnecessary, the result and the relief sought under the counterclaim having been obtained by the dismissal of the claim itself.  The Defendant must also have its costs of the action to be taxed on a party and party basis if these cannot be agreed.  The order for costs will, in the usual way, be an order nisi.