LAI CHUI KAR POA HELEN v. AMERICAN INTERNATIONAL ASSURANCE CO (BERMUDA) LTD

Headnote

Application for policy of life insurance - non-disclosure of material facts by the insured - test to apply is what would influence the mind of a prudent insurer - Lambert v. Co-operative Insurance Society Ltd. (1975) 2 Lloyd's Rep. 485 followed - upon the evidence the defendants were entitled to avoid liability.

Mr. J. Kwong (Poon & Sum) for Plaintiff.

Mr. E. Chan (T.S. Tong & Co.) for Defendant.

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J U D G M E N T

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1. The plaintiff is the widow of Lai Ying Yam Raymond (the deceased) who died on the 12th September 1982 aged 44. She is the beneficiary named in a policy of life insurance issued to the deceased by the defendants on the 12th August 1981 in the sum of US$100,000. Liability for payment was repudiated by the defendants on the 1st December 1982 on the grounds of material non-disclosure and misrepresentation.

2. The deceased was medically examined on the 13th July 1981 by Dr. Y. T. Wong a private practitioner on behalf of the defendants. Dr. Wong conducted a physical examination, and recorded the answers to a number of questions asked by him about the deceased's medical history in accordance with a standard form used by the defendants. The deceased signed the statement and acknowledged that his answers were full, complete and true. It is not in dispute that both the application form signed by the deceased and the statement to the medical examiner form part of the contract of insurance upon which the defendants relied when they decided to issue the policy.

3. The questions require a yes or no answer to be given, but if the answer to a question is yes a column is provided for the doctor to include details of diagnoses, dates, duration and names and addresses of all attending physicians and medical facilities.

4. By their amended defense the defendants allege that untrue statements were made by the deceased to questions 4(e) and 5(a). These questions and answers read:-

A form of authority was given by the deceased for disclosure to the defendants of his medical records by any physician or other body with knowledge of his health and medical history.

5. Dr. Wong testified that the deceased informed him at the examination that he had not experienced any problems since he suffered from acute hepatitis in 1969 and that he was in good health. He said that the majority of patients who suffer acute hepatitis make a full recovery, but a small number have long term problems which can result in cancer of the liver. From the answers to the questions he formed the opinion that the deceased had inflammation of the liver ten years previously from which he had recovered and inferred that there had been no recurrence and that he had not seen a doctor about the same condition again. He was not told that the deceased had undergone any tests for liver disease during the relevant period.

6. Following the examination Dr. Wong made a report to the defendants in which he stated that he was not aware of any unfavourable features that were likely to affect the deceased's longevity, but recommended that a chest X-ray be taken and also an E.C.G. test be made. These tests were subsequently carried out and were evidently satisfactory.

7. The deceased's death certificate described the cause of death as chronic hepatitis.

8. Enquiries were made by the defendants after the death of the deceased from the deceased's doctor Dr. Moe which revealed that after the deceased suffered from acute hepatitis in 1969 he was placed under close observation and liver tests were done every two years.

Alpha-fetoprotein tests were positive which suggested that either liver damage was recuperating with eventual recovery or would progress to cirrhosis or malignaney in later years. In 1978 a sonogram of the liver was conducted which showed no evidence of cirrhosis or space occupying lesion of the liver. C. T. scanning in 1979 produced a similar result.

9. Five alpha-fetoprotein tests were conducted between 1980 and 1982 of which three were positive and two negative. In his statement to the defendants Dr. Moe said that the deceased had been suffering from chronic persistent hepatitis for eight years before he died. The immediate cause of death was attributed to carcinoma of the liver from which he believed that the deceased had been suffering for a few months.

10. It is clear from the evidence of Dr. Moe which I accept that the deceased had been informed by him on many occasions that complications could lead to cirrhosis or cancer of the liver. The deceased had also received the records of the tests that had been done. However, Dr. Moe agreed that a negative or positive result produced by the tests was not conclusive of liver disease which he said could only be established by a liver biopsy.

11. According to Dr. Wong alpha-fetoprotein tests and C. T. scanning are very sophisticated tests done for a specific purpose. A patient in his opinion would know the reason why the tests were carried out. Although the results of the sonogram test in 1978 and the C. T. scanning in 1979 were not positive Dr. Wong did not on this evidence rule out the chance of liver disease, but knowledge of the positive results of the alpha fetoprotein tests would have alerted him to the possibility of liver cancer.

12. Dr. Wong said that if he had been aware that the deceased had underdone tests within three years prior to the examination he would not have made a favourable recommendation in his report, but would have advised the defendants to obtain further information from Dr. Moe and to arrange for further tests be done.

13. There is no doubt that the defendants would have declined to issue the policy if they had been informed of the deceased's liver condition and details of the various tests.

14. An insurance contract is a contract uberrimae fidei. The duty of an insured involves the disclosure of material facts and a duty not to make fraudulent claims. The duty of disclousre of course only includes those facts which are known to the insured, and not the other party.

15. Where non-disclosure is alleged the onus of proof is upon the defendants to prove on a balance of probabilities that the facts not disclosed were material, that they were within the knowledge of the insured and that they were not communicated to them.

16. In their submissions both Mr. Kwong for the plaintiff and Mr. Chan who represented the defendants referred to Joel v. Law Union and Crown Insurance Company [1908] 2 K. B. 863 where Fletcher Moulton L. J. adverted to the insured's duty of disclosure, but did not draw a real distinction between the test of a reasonable man and that of a prudent insurer. However, the law was explained beyond peradventure in Lambert v. Co-operative Insurance Society Ltd. (1975) 2 Lloyd's Rep. 485 where the English Court of Appeal considered a long line of authorities, and held that the proper test to decide what was material was that which would influence the mind of a prudent insurer.

17. Mr. Kwong conceded that the facts about which the defendants complain of non-disclosure were material, but submits that full disclosure was made.

18. The issue to be determined in this case is therefore essentially one of fact. Were the facts within the deceased's knowledge and if so did he disclose them to Dr. Wong who was acting for the defendants. Mr. Kwong cast doubt upon the evidence of Dr. Wong by suggesting that he did not record everything that was said by the deceased in answer to the questions he asked at the examination. In particular he compared the answer given by another assured Chan Bing Chiu to question 4(e) relating to an ulcer where the answer recorded by Dr. Wong was '7 years ago duodenal ulcer treated and recovered', to the answer of the deceased with regard to acute hepatitis which makes no reference to treatment or recovery. Mr. Kwong further contended that the questions or some of them would of necessity have required some explanation before an answer could be given, but that no evidence was given by Dr. Wong on this aspect.

19. The effect of answers to questions put by a medical examiner was considered in Joel v. Law Union and Crown Insurance Company. However, in that case although the doctor was available to give evidence he was not called so that the Court did not know exactly what questions were asked or what explanations were given. In the instant case the examination took place well over three years ago with the result that Dr. Wong cannot be expected to remember. the exact details of what was said especially as he has interviewed many other applicants since that time. However, all the questions are couched in language that can be, readily understood by a layman. The words used for the questions, relative to the issue of non-disclosure "any disease of the liver"and "blood study" could not be plainer.

20. The deceased was a director of his company, and it can be assumed that he was a man of intelligence. He disclosed that he had suffered from eczema three weeks before the examination and had had a chest X-ray three months before, but failed to disclose any information with regard to the many tests performed to determine whether he had a disease of the liver. The likelihood of any misunderstanding arising during the examination was highly improbable.

21. In the absence of a record made by Dr. Wong on the statement that the deceased had recovered from acute hepatitis in 1969 it was suggested that there could be a recurrence at any time. Nevertheless this is contrary to the medical evidence that it is a disuse which is normally of short duration. Not only is it a most unlikely occurrence, but it is in direct conflict with the evidence that the deceased was suffering from chronic persistent hepatitis for 8 years prior to his death. I therefore reject this submission.

22. Dr. Wong was an honest and impartial witness whose evidence I accept. I am quite satisfied that as a result of the physical examination and from the answers to the questions he formed the opinion that the deceased had made a full recovery from the acute hepatitis from which he suffered in 1969 and as a result he was able to submit a favourable report to the defendants.

23. Apart from the direct evidence of Dr. Moe which was not seriously challenged the irresistible inference from the evidence as a whole is to the effect that the deceased must have had full knowledge of his condition and that this was the reason for the various tests. I therefore find that he had full knowledge of the material facts which were not disclosed to the defendants. 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.

24. Upon the evidence the defendants were entitled to avoid liability under the policy for non-disclosure of material facts known to the deceased. Accordingly the plaintiff's claim must fail and judgment will be entered for the defendants.