THE NEW INDIA ASSURANCE CO LTD v. DEWI ESTATES LTD AND OTHERS

HCA 508/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 508 OF 2007

____________

BETWEEN

____________

______________

J U D G M E N T

______________

I. INTRODUCTION

1.  New India sues Dewi, Lau Kwok Kow and Raymond Wong for an indemnity in relation to employees’ compensation and damages paid by New India to Chan Chi Ming under an Insurance Policy. Dewi, Lau and Wong were the Insured under the Policy. Dewi applies to strike out New India’s claim against it as misconceived.

II. BACKGROUND

2.  Wong was the main contractor for plumbing works at Dewi’s premises. Lau was Wong’s sub-contractor. Lau employed Chan as a plumber. In March 2001 Chan was injured by an accident at the works. In February 2004 Chan sued Wong and Lau in consequence of his personal injuries. Chan alleged negligence, breach of statutory duty, breach of contract of employment and breach of an occupier’s duty of care. Dewi was not a party to those proceedings.

3.  New India is the assignee of the rights and obligations of the original Insurer under the Policy.

4.  In December 2003 New India alleged that various terms of the Policy had been breached. As a result of such breaches, New India denied any liability to indemnify Dewi, Lau or Wong against liability in respect of Chan’s accident.

5.  Nonetheless, exercising its right of subrogation, at some point in 2004 New India took over Lau and Wong’s defence in the proceedings initiated by Chan. Those proceedings ended with New India paying $900,000 in settlement of Chan’s claims.

6.  By the present action, New India claims an indemnity against Dewi, Lau and Wong in respect of the $900,000 settlement. New India further claims $355,816 paid to Chan pursuant to the Employees Compensation Ordinance (Cap.252) (ECO). Finally, New India claims reimbursement of its legal costs and related expenses. The latter costs and expenses amount to $564,231. New India’s total claim is therefore for a little over $1.8 million.

7.  New India says that it is entitled to an indemnity, because New India had no liability to make any payments under the Policy. New India contends that it had no such liability because of breaches by the Insured of conditions in the Policy.

8.  The Policy conditions upon which New India relies are as follows:-

“2.  The due observance and fulfilment of the Terms of this Policy in so far as they relate to anything to be done or not done by the Insured and the truth of the statements and answers in the proposal shall be conditions precedent to any liability to make any payment under this Policy.”

“5.  In the event of any occurrence which may give rise to a claim under this Policy the Insured shall as soon as possible give notice thereof to the Company with full particulars.  Every letter claim writ summons and process shall be notified or forwarded to the Company immediately on receipt.  Notice shall also be given to the Company immediately the Insured shall have knowledge of any impending prosecution inquest or fatal inquiry in connection with any such occurrence.”

“6.  No admission offer promise or payment shall be made by or on behalf of the Insured without the written Consent of the Company...”

“Endorsement W32.  This Policy does not indemnify the Insured in respect of any claim arising in connection with work at a height exceeding 30 feet above ground or floor level.”

9.  First, New India asserts that, by Endorsement W32, it is not liable since at the time of the accident Chan was working more than 30 feet above ground.

10.  Second, New India complains that it was not notified of Chan’s accident immediately. New India was only informed “almost 2 months after the said injury”. This New India says was in breach of clause 5 of the Policy.

11.  Similarly, New India complains that in 2001 Wong pleaded guilty at the Eastern Magistracy on a summons by the Labour Department in connection with the accident. New India contends that, in breach of clause 5 of the Policy, New India had not been informed at all about Wong’s prosecution. New India only learned about the prosecution and Wong’s guilty plea in 2003.

12.  Third, New India argues that Wong’s guilty plea was contrary to clause 6 of the Policy prohibiting an Insured from making an admission in relation to an accident without New India’s written consent.

13.  New India’s claim against Wong has been stayed to arbitration pursuant to an arbitration agreement in the Policy.

III. DISCUSSION

A. Endorsement W32

14.  Mr. Anthony Houghton SC (appearing for Dewi) argues that the claim in relation to Endorsement W32 is bound to fail.

15.  That is because Endorsement W32 is found in a section of the Policy entitled “ENDORSEMENTS/CLAUSES”. That section is introduced by the following words:-

“This Policy is subject, but only as specified in the Policy Schedule, to numbers of the endorsements/clauses described hereunder or attached hereto (if any).  Those endorsements and clauses contained hereunder but not set out immediately in the Policy Schedule shall not be applicable.”

16.  The Schedule to the Policy does not set out or specify Endorsement W32 as being applicable to the Policy. It follows (Mr. Houghton concludes) that Endorsement W32 does not apply.

17.  Mr. John Wright (appearing for New India) frankly concedes that he has no answer to Mr. Houghton’s argument in relation to Endorsement W32.

B. Late Notification

18.  This concerns Dewi’s alleged liability to indemnify New India as a result of late notification having been made by Lau of the accident and no notification having been made by Wong of his prosecution by the Labour Department.

19.  Mr. Wright argues that under ECO s. 43(1) New India was compelled to pay employees’ compensation as well as civil law damages to Chan, regardless of any breaches by the Insured of any conditions in the Policy. The Policy specifically states that where New India is so compelled by law, the Insured shall repay the relevant amount.

20.  Mr. Houghton responds that, on its true construction, the Policy was one which insured Dewi, Lau and Wong on a composite (as opposed to a joint) basis. If that is right, it is Mr. Houghton’s submission that Dewi cannot be held accountable for defaults in notification by Lau or Wong.

21.  The difference between a joint and a composite policy is brought out in the following passage from Colinvaux and Merkin on Insurance Contract Law (Release 23 (January 2009)) (at para. A-0600):-

“Where two or more persons are insured under a single policy, it is important to determine -- for reasons discussed below – whether the policy is joint or composite.  The distinction, as far as English law is concerned, appears to be based on the nature of the interests of the assureds.  If the assureds share a common interest in the insured subject matter, for example where they are joint owners of property, the policy is joint.  By contrast, if the parties have different interests, as in the case of a landlord and tenant or a mortgagor and mortgagee, the policy is composite.  It is not clear whether a policy which is by its nature composite, in that it insures different interests, can be converted into a joint policy by express wording; the better view, that this is not possible, has the seeming support of the Court of Appeal [General Accident Fire and Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388 at 405 and 406, per Sir Wilfred Greene MR].  It has nevertheless been suggested at first instance that there is nothing to stop parties with different interest in an insured subject matter from insuring on a joint basis, although this is not achieved simply by describing the policy as made on joint interests, and it is necessary for the policy to provide for the consequences of joint coverage.  The prospects of an English court ruling that parties with different interests have insured on anything other than a composite basis would seem to be remote in the extreme as a result of the decision of Rix J in State of Netherlands v. Youell [[1997] 2 Lloyds Rep 440].  Here, the contractor was hired by an employer to build two submarines, and the building works were insured under a single insurance programme covering ‘the interests and liabilities of [the employer and the contractor] and also mutual liabilities’.  A claim was made by the employer in respect of cracking paint on the submarines: the insurers defended the claim by arguing that the defects were the result of wilful misconduct on the part of the contractor and that, as the policy was a joint policy, the inability of the contractor to make a claim necessarily defeated any claim by the employer.  Rix J held that, whatever the ultimate finding might be on wilful misconduct, the insurance was composite rather than joint.  This was so because, first, the policy referred to the separate interests of each party and, secondly, because each party had a separate insurable interest in the submarines.”

22.  Where a policy is composite, the misconduct of one insured, will not affect the entitlement to insurance of another insured. Only the entitlement to insurance of the person who has misconducted himself will be affected. This is because, even though there is only one policy document, the compositely insured persons are treated as if they had taken out separate policies covering their individual insurable interests. The interests may overlap, but they would still be distinct. See, for example, State of Netherlands at 445-454.

23.  Consider the Policy here. The Policy itself expressly identifies Dewi as having a separate and distinct insurable interest. Dewi is insured as “Principal” while Lau and Wong are insured as “Contractor”. Consequently, as a matter of construction, the Policy (at least as far as Dewi’s interest is concerned) is plainly a composite one.

24.  Insofar as Dewi is concerned, the Policy expressly excludes New India’s liability in respect of claims against Dewi by employees of Dewi’s contractors. This means that Dewi’s insurable interest cannot have been identical to those of Lau or Wong. Dewi’s insurable interest would be confined to its liability in respect of claims made by its own employees.

25.  Assume that New India is right that Lau’s conduct in only belatedly informing New India of Chan’s accident and Wong’s conduct in not informing New India of Wong’s prosecution at all, were breaches of conditions barring recovery under the Policy. Given the composite nature of the Policy, such breaches could not be a basis for New India denying insurance coverage to Dewi.

26.  Dewi has not been in default insofar as the terms of the Policy are relevant to Dewi. Chan was not Dewi’s employee, but the employee of a contractor (Lau). So there would have been no obligation on Dewi’s part to inform New India of Chan’s accident as potentially giving rise to a claim by Chan against Dewi for personal injury or employees’ compensation. Dewi was not insured under the Policy against such claims by Chan. The foregoing reasoning would apply, regardless of whether or not Dewi knew about the existence of the accident or about the Policy.

27.  By the same token, Dewi was not a party to Wong’s prosecution. Even if (say) Dewi knew from early on about the proceedings against Wong, there would have been no obligation on Dewi’s part to inform New India of the same. Dewi’s liability (if any) to Chan arising from any negligence or other wrong admitted by Wong was expressly excluded from the scope of the Policy.

28.  In those premises, it is difficult to see why Dewi should be required to indemnify New India in respect of any personal injury or employees’ compensation (and associated costs) paid out to Chan by New India. It seems to me that ECO s. 43(1) simply does not affect the above analysis in relation to Dewi.

C. Wong’s guilty plea

29.  Assume that the plea was made in breach of clause 6 of the Policy as New India asserts. Even then, because the Policy is composite, Wong’s alleged wrong could not have affected Dewi’s entitlement to insurance under the Policy. The guilty plea cannot be a basis for claiming an indemnity against Dewi. If Wong had done something wrong for which (on the strength of Wong’s admission) Chan could claim compensation against Dewi, such liability of Dewi to Chan would be outside the scope of the Policy.

IV. CONCLUSION

30.  New India’s claim against Dewi is not viable. It should be struck out and the action by New India against Dewi should be dismissed.