CHEUNG KWAN WAH v. CHINA PING AN INSURANCE (HONG KONG) CO LTD

DCCJ 3682/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3682 OF 2011

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DECISION

Introduction

1. This is the Plaintiff’s application for summary judgment against the Defendant in the sum of $678,600.

2. The Plaintiff, an owner of a Porsche car with vehicle no. XX711 (“Car”), completed and signed a motor vehicle insurance proposal form dated 22 January 2010 (“Proposal Form”) for a comprehensive insurance with the Defendant, an insurer. The Proposal Form (which I will go into further details later) was accepted by the Defendant and a private car insurance policy was duly issued.

3. The Car was later damaged in an accident, as a result of which the Plaintiff incurred $678,600 in repairing the Car.

4. However, when he submitted a motor vehicle insurance claim form with the Defendant, the Defendant avoided the policy on the ground of material non-disclosure of the following information in the Proposal Form :

(1)The Plaintiff was disqualified in 2003 and 2005 respectively pursuant to disqualification orders issued under section 8, Road Traffic (Driving-offence Points) Ordinance, Cap 375 (“Disqualification Records”); and

(2)The Plaintiff had received 3 fixed penalty tickets (2 in 2008 and 1 in 2009) for the offence of speeding (by more than 15 km/h but not more than 30 km/hr) (“Fixed Penalty Records”).

5. The Plaintiff does not agree that the Disqualification and Fixed Penalty Records are material information, and even assuming they were, the Plaintiff says that the Defendant effectively waived the Plaintiff’s duty to disclose them in the light of the questions asked in the Proposal Form.

6. The issues before me are thus:

(1)  Is there a triable issue or arguable defence as to whether the Disqualification and the Fixed Penalty Records are material information?

(2)  Is there a triable issue or arguable defence as to whether, if these Records were material, the Defendant had waived the duty to disclose?

(3)  Is there a triable issue or arguable defence on quantum?

Proposal Form 

7. The Proposal Form completed by the Plaintiff is a standard form of the Defendant.  In the middle part of the Proposal Form, the Plaintiff was required to answer 5 questions by ticking against the “yes” or “no” boxes. Relevant to this application is question 3 (”Question 3”) which reads:

“3. Have you or any person who to your knowledge may drive the Motor Vehicle been convicted of any of the following driving offences during the last 3 years: Speeding, careless driving, dangerous driving, or driving whilst under the influence of alcohol?” (italics added)

8. The Plaintiff ticked against “no” to this question.

9. Towards the bottom of the Proposal Form, there is the “declaration” section, in which the Plaintiff declared, in so far as it is relevant to this application, that:

“(2) The Motor Vehicle will not be driven by any person who to [the Plaintiff’s] knowledge does not hold a full valid driving licence or has been disqualified from holding such driving licence. (“Declaration (2)”)

(3)  The particulars given in the Proposal Form are true and nothing materially affecting the insurance risk has been concealed by [the Plaintiff] (“Declaration (3)”).” (italics added)

10. At the bottom of the Proposal Form, there is a section called “Important Notices”, which states, inter alia, that:

“(1) Failure to supply the answers in this Proposal Form or inform the Company of all material information about your insurance may render the insurance policy invalid.” (“Important Note (1)”)

Applicable Legal Principles for Order 14

11. The applicable legal principles of an Order 14 application are well-known and need no further elaboration at length. Put in a nutshell, the court is not required to determine, at this stage, if a defendant’s version of events is to be believed or to assess if his defence would succeed at trial. The court is only required to consider, at this stage, if what the defendant says is believable and whether the defendant has shown that there are triable issues in this case. Unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, Order 14 ought not to be granted.

12. Reference can be made to Hong Kong Civil Procedure 2012, Vol. 1, para 14/4/8 & 14/4/9; Re Safe Rich Industries Limited, CACV 81/1994; Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225; and Schindler Lifts (Hong Kong) Ltd. v. Ocean Joy Investments Ltd. [2003] 1 HKC 438.

13. On the other hand, when a court is satisfied not only that there is no defence but no fairly arguable point to be argued on behalf of the defendant, it is his duty to give judgment for the plaintiff, as the policy of order 14 is to prevent delay in cases where there is no defence. See: Hong Kong Civil Procedure 2012, Vol. 1, para 14/4/8

Issues (1) : Whether Triable Issue or Arguable Defence on Materiality

The arguments

14. As a starting point, there cannot be any dispute that neither the Disqualification Records nor the Fixed Penalty Records were specifically asked for in the questions set out in the Proposal Form.

15. Ms Lee, Counsel for the Defendant, submits that despite the above observation, the Plaintiff has the duty to disclose these Records because they are material information to the Defendant’s consideration on the Plaintiff’s application for the policy. And since these Records are material information, the duty to disclose exists independently of the Proposal Form (See: McGee, The Modern Law of Insurance (3^rd ed) at para 5.5 and Bond v Commercial Union Assurance Co Ltd (1930) 36 Lloyd’s List Law Rep 107).

16. Further, Ms Lee argues that Declaration (3) and Important Note (1) of the Proposal Form serve as the “blanket” provisions which cover the Disqualification and Fixed Penalty Records that are material but not expressly asked for under the Proposal Form.

17. She adds that if there is any dispute on the materiality nature of these Records, this is a question of fact to be decided by a tribunal of facts in the trial.

18. Specifically on the Disqualification Records, Ms Lee submits that the relevant part of Declaration (2) (ie “person who has been disqualified from holding such driving licence”) should not be narrowly read to only mean “a disqualification which was in force at the time of driving” (as suggested by the Plaintiff). It can also be construed to mean someone who has been disqualified from holding a driving licence in the past, because there is no time frame stipulated in Declaration (2). The construction should thus be left to the trial judge.

19. Mr Yu, Counsel for the Plaintiff, does not agree. He argues that although the question of materiality is a question of fact, this court needs not leave this question to the trial judge for 2 reasons.

20. First, this claim is a simple insurance claim in which no further witness or expert evidence should be required. It concerns simple construction of the Proposal Form, suitable and capable to be dealt with by way of this summary procedure.

21. Secondly, there is really no need for this court to decide on the materiality nature of the Disqualification and Fixed Penalty Records because the ultimate issue of this case is one of waiver by the Defendant on the Plaintiff’s duty to disclose.

Construction of Proposal Form

22. Counsel for both sides agree, and in fact the affirmation evidence before me also shows, that the factual matrix of this case is not disputed. The facts are simple and straight forward. What remains to be resolved, whether on the materiality or waiver argument, hinges solely on the construction of the Proposal Form.

23. Given the non-fact-sensitive nature of this case, I cannot possibly think of what further major or relevant evidence that can be or needs to be called in the hearing proper in order to determine the construction of the Proposal Form. Nor am I persuaded that expert evidence needs to be called for in this case to assist the court in deciding on the question of materiality. 

24. It has certainly not been shown whether and if so how additional documents or evidence would assist this construction exercise.

25. Therefore, while fully aware of the extraordinary nature of an Order 14 application, I agree with Mr Yu that due to the simple and non-fact-sensitive nature of this case, the question of materiality and construction of Proposal Form is capable to be determined upon consideration of only the affidavit evidence and submissions from both sides.  

The Test of Materiality

26. The test of materiality of undisclosed information is laid down by the Privy Council in Mutual Life Insurance Co of New York v Ontario Metal Products Co Ltd [1925] AC 344 at 351-352 :

“…it is a question of fact in each case whether, if the matters concealed or misrepresented had been truly disclosed, they would, on fair consideration of the evidence, have influenced a reasonable insurer to decline the risk or to have stipulated for a higher premium.”

Disqualification Records

27. Applying this test to the Disqualification Records, I have no hesitation in concluding that on the affidavit evidence before me, the Defendant did not regard any traffic contraventions that took place more than 3 years prior to the date of the Proposal Form as material. I base my view on the following facts:

(1)Where a time frame was set in any given specific questions asked by the Defendant in the Proposal Form, it was confined to a period of 3 years prior to the date of the Proposal Form. Reference can be made to question 2 (which asks about any traffic accidents during the last 3 years) and Question 3 (which asks about conviction of speeding, careless driving etc during the last 3 years).

(2)In this hearing, the Defendant took issue of the Fixed Penalty Records which took place in 2008 and 2009 only (which are within 3 years prior to the date of the Proposal Form); while a fixed penalty payment in 2006 (outside the 3-year time frame) was not dealt with at all.

28. The affidavit evidence of the Defendant shows that it regards “3 year prior to the date of the Proposal Form” as a relevant factor in considering the scope of duty of disclosure. It is clear to me that any traffic contravention outside the 3-year limit is not regarded as material in the eyes of the Defendant.

29. The case of Mackay v London General Insurance Co Ltd (1935) 51 Lloyd’s List Law Rep 201 quoted by the Defendant cannot be of any assistance to the Defendant.

30. I should perhaps also address briefly to Ms Lee’s argument on the possible construction of Declaration (2). And with the greatest respect to Ms Lee, I am obliged to say that applying a reasonable man’s standard, Declaration (2) cannot possibly be construed to include driving disqualification in the past but had already expired.  I say so because:

(1)From a grammatical point of view, the adoption of the present perfect tense in the phrase of “has been disqualified” (as opposed to “had been disqualified”) must connote a description of status which is still in existence or true up to the present moment when the Car is driven. It is not capable of bearing any reference to driving disqualification that dated back to 2003 or 2005 but had already expired.

(2)The Chinese version of Declaration (2) which reads: “投保汽車將不會給予…被吊銷駕駛執照之人士駕駛” (as opposed to “曾經被吊銷”) speaks for itself. The lack of the words “曾經” means that Declaration (2) is not capable of including past but expired driving disqualification.

Fixed Penalty Records

31. I now turn to the Fixed Penalty Records which clearly falls within the 3-year limit.

32. It needs to be reiterated that the Defendant did not pose any specific question on the Fixed Penalty Records in the questions propound by it in the Proposal Form.

33. The Defendant’s claims manager alleged in his affirmation that the Fixed Penalty Records are material information in the Defendant’s consideration of the insurance application of the Plaintiff. Not only is this allegation self-serving in nature, but it is also merely a bare assertion without any or further particularity. I am not impressed that this allegation is believable. 

34. On the other hand, it should not be seriously disputed that the most obvious and substantial risk that a motor insurer will face is a personal injury or property damage claim of a third party in a traffic accident. But fixed penalty tickets on speeding are issued for minor speeding contraventions, which usually does not involve personal injury or property damage to a third party.

35. As such, the insurance risk to a motor insurer (such as the Defendant of our case) that may be imposed by any fixed penalty tickets on speeding is comparatively low. The risk is so low that the Defendant did not find it warranted to put a specific question on this aspect in the Proposal Form (comparison can be made to question 2 where the Plaintiff was specifically asked if he has been involved in any traffic accident during the past 3 years).

36. The above analysis leads me to the conclusion that if the Fixed Penalty Records were disclosed, it would not have influenced a reasonable insurer to decline the risk or to have stipulated for a higher premium. The Fixed Penalty Records are thus not material information that the Plaintiff is obliged to disclose to the Defendant independently of the Proposal Form.

My conclusion

37. Due to the matters set out above, I do not find that there is any arguable defence or triable issue raised by the Defendant on its defence or affidavit evidence in respect of the question of materiality.

Issue (2) : Whether Triable Issue or Arguable Defence on Waiver  

The arguments

38. Ms Lee is concise in her submission on waiver. In gist, she submits that disclosure is not waived merely because there is no question about it on the proposal form. She relies on McGee, The Modern Law of Insurance (3^rd ed) at paras 5.41 & 5.42 and cases such as Bond v Commercial Union Assurance Co Ltd (1930) 36 Lloyd’s List Law Rep 107; Taylor v Eagle Star Insurance Co Ltd (1940) 67 Lloyd’s List Law Rep 136.

39. Mr Yu, however, is adamant in saying that even assuming that the Disqualification and Fixed Penalty Records were material information, the Defendant had effectively waived the duty to disclose the Fixed Penalty Records in the light of the questions contained in the Proposal Form, in particular Question 3. 

40. He relies heavily on Hair v The Prudential Assurance Co Ltd [1983] 2 Lloyd’s Rep 667 and Mak Yuen Yuen v National Mutual Insurance Co (Bermuda) Ltd, DCCJ 7902/1990 (unreported, HH Judge Wesley Wong, 25 June 1992).

Any waiver?

41. I should begin by referring to oft-cited passage in MacGillivray on Insurance Law (11^th ed), Thomson Reuters (2008) at para 17-019 on p443 which states that:

“It is more likely, however, that questions asked [in the proposal form] will limit the duty of disclosure, in that, if questions are asked on particular subjects and the answers to them are warranted, it may be inferred that the insurer has waived his right to information either on the same matters but outside the scope of the questions or on kindred to the subject-matter of the question. Thus, if an insurer asks “How many accidents have you had in the last three years?” it may well be implied that he does not want to know of accidents before that time, though these would still be material. If an insurer asks whether individual proposers have ever been declared bankrupt, he waives disclosure of the insolvency of companies of which they have been directors. Whether or not such waiver is present depends on a true construction of the proposal form, the test being, would a reasonable man reading a proposal form be justified in thinking that the insurer had restricted his right to receive all material information and consented to the omission of the particular information in issue?” (italics added)

42. The principle propound in the above passage is that where there is a question contained in a proposal form on a particular subjectmatter, such question would be taken as a waiver of disclosure of information which is kindred to that subject matter but not covered by that question.

43. Applying this principle to our case, it follows that by asking only for the conviction on speeding in Question 3, the Defendant effectively waived the Plaintiff’s duty to disclose the Fixed Penalty Records and Disqualification Records.

44. The learned authors of MacGillivray on Insurance Law have referred to the case of Hair v The Prudential Assurance Co Ltd (supra) (see para 17-021 on pp 444 to 445). This case, also quoted by Mr Yu in his submission, is in my view a direct authority on this point.

45. In that case, one of the issues is whether the non-disclosure of a closing order in respect of the insured’s property would entitle the insurer to avoid the policy. The English court found in favour of the insured and ruled that there were specific questions in the proposal form regarding state of repair and occupancy of the insured’s property and thus covering the risk concerned with the closing order. Woolf J read a statement of declaration in the proposal form not dissimilar from the one before me:

“I…warrant that all the information entered above is true and complete and that nothing materially affecting the risk has been concealed.”

46. The learned judge gave the following comment on the statement, which I humbly agree:

“…if it was intended that an assured should answer matters even though he is being questioned about them, I would expect a different form of statement from the one to which I have just made reference. I would have expected something to be said which clearly indicated to a proposer that, although they had not been asked any specific question about the matter, if there was something which was relevant to the risk which they knew of, but which was not covered by the questions, they should still deal with it, and leave a space for them to do so.” (italics added)

47. The above passage of Woolf J is cited with approval in Mak Yuen Yuen v National Mutual Insurance Co (Bermuda) Ltd (supra).

48. The 2 requirements of (i) clear indication to the insured and (ii) leaving a space for disclosing information in the proposal form as laid down by Woolf J are obviously lacking in the Defendant’s Proposal Form. As such, the Plaintiff was not bound to disclose the Disqualification Records or Fixed Penalty Records, even if they were material information, for they were outside the scope of the specific questions asked in the Proposal Form.

49. The cases of Bond v Commercial Union Assurance Co Ltd and Taylor v Eagle Star Insurance Co Ltd quoted by the Defendant is either silent on the wordings of the proposal form/declaration, or the question in the proposal form is not specific question on a particular topic (unlike Question 3 of the Proposal Form in our case). I do not find them directly relevant to our case.

My conclusion

50. Given the above analysis, I conclude that the Defendant fails to satisfy me that it has an arguable defence or raised any triable issue on waiver of duty to disclose.

Issue (3) : Whether Triable Issue or Arguable Defence on Quantum

51. It is pertinent to point out that both Counsel are silent in their submission on quantum.

52. The Defendant’s claim manager has made a bare assertion in his affirmation that the loss adjuster indicated that the reasonable repair costs of the Car should be $575,000. Yet no supporting proof such as a letter or the loss adjuster’s report is attached to the affirmation. I do not find this bare assertion believable.

53. The Plaintiff on the other hand has produced an invoice from the garage and a cheque to show that payment of $678,600 was made. I have no reason to doubt such evidence.

54. It is abundantly clear that there is no triable issue raised by the Defendant on quantum.

Conclusion

55. For the matters set out above, I am convicted to say that there is nothing in this action which would merit the very considerable time and costs involved in sending it to trial, for there is no fairly arguable defence to this relatively straight forward claim concerning the construction of a simple one-page Proposal Form.

56. I shall, despite Ms Lee’s eloquent and seductive submissions, grant summary judgment in favour of the Plaintiff in the sum of $678,600, with interest at judgment rate from the date of Writ until the date of this decision; and thereafter at judgment rate until full payment.

57. I shall also make a costs nisi that the Defendant do pay the Plaintiff’s costs of this action, including this application, with Counsel’s certificate, to be taxed if not agreed.

58. If no application is made to vary the above costs nisi, it shall become absolute within 14 days from the date of this decision.