THE TAI PING INSURANCE CO. LTD. v. TUGU INSURANCE CO. LTD. AND ANOTHER

HCCL121/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.121 OF 1998

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J U D G M E N T

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1. This is a dispute involving three insurance companies. It is a case about double insurance and the right to contribution.

2. The facts are in short compass. They have been essentially agreed. No viva voce evidence has been led, and in lieu thereof, the court has had the advantage of extensive and interesting submissions from counsel.

THE FACTS

3. The matter arises thus. On 4 November 1996, 5,965 pieces of mink skins ("the goods") belonging to a company known as Europe Fur were stolen by armed robbers around Man Kam To, while the goods were in transit from the Dongguan factory of one Claveyson Fur Processing Ltd ("Claveyson") to Europe Fur's Hong Kong premises. The goods had been entrusted by Europe Fur to Claveyson for processing and dressing.

4. By a Marine Cargo Policy No.95TPM200057 ("the Tai Ping Policy") dated 18 December 1995, the plaintiff herein, Tai Ping Insurance Co., agreed to insure Europe Fur Co. Ltd against loss damage liability or expense as provided in the Tai Ping Policy.

5. Mr Reyes has taken me in some detail through the terms of this policy, which contain a number of standard clauses, in particular the Overland Transportation Risks (All Risks) - Truck Clause, the Institute Marine Policy General Provisions (Cargo) Clause and the Institute Location Clause, but in the circumstances of this case nothing of particular import turns on these terms.

6. Suffice to say that armed robbery was a risk duly covered, and pursuant to the Tai Ping Policy, which had a maximum liability thereunder of HK$1.5 million, the plaintiff duly indemnified Europe Fur in the sum of HK$1,492,500 for the loss of the goods. There is no dispute that this sum was paid and received.

7. However, another policy covering the same risk is said by the plaintiff to have been in play. This was a Goods in Transit Policy No.N034384/95/TUGU, which I shall call the Tugu / General Accident Policy dated 23 November 1995, whereby the 1st and 2nd defendants agreed to insure Claveyson against loss, destruction or damage to property in transit within the territorial limits as defined in that policy. This policy had a maximum limit of HK$4 million and, as will shortly become apparent, has been the subject of a number of claims thereunder.

8. In any event, the gravamen of this case is that the plaintiff contends that the goods were covered by double insurance, namely, insurance under both the Tai Ping and the Tugu / General Accident Policies. Consequently, the plaintiff claims contribution from the defendants against the sum of $1,492,500 paid by Tai Ping to Europe Fur.

LIABILITY

9. I deal first - and briefly - with the issue of liability. On the pleadings, at least, the defendants deny liability on a number of disparate grounds, ranging from reliance on specific terms of the Tai Ping Policy (the broad effect of which is said to have rendered Tai Ping 'off cover') to an estoppel, albeit apart from the fact of the settlement of the claim itself it is not easy to divine the existence of such equitable doctrine, and in particular any representation which might give rise thereto.

10. In terms of liability, Mr Pirie for the defendants contented himself with pressing two particular points. Let me deal with them in turn.

11. First, he said that there was no double insurance in this case because of the existence of a separate agreement between Europe Fur and Claveyson to the effect that Europe Fur would be responsible for insuring the goods against theft while in Claveyson's possession, and particularly in terms of the risk on transit.

12. The presence of such an agreement had in fact been the subject of such oral evidence as Mr Pirie originally had been minded to call in this case, but Mr Reyes' concession, for the purposes of argument, that he was willing to assume its existence obviated the necessity for oral evidence on the point.

13. For his part, Mr Reyes asserted that whatever private arrangements may or may not have been entered into between the respective assured is and was nothing to the point in the present context, submitting that such uncommunicated intention between Europe Fur and Claveyson cannot be used to construe the scope of the Tugu / General Accident Policy. In this context Mr Reyes quoted the observations of Lord Reid in Hepburn v. Tomlinson (Hauliers) Ltd, [1966] AC 451 at 469 to the effect that :-

"... it is a fundamental principle that the construction of a contract cannot be governed or affected by the intention or belief of one of the parties not communicated to the other: and for very good reason. It would be most unfair if one party were to find his apparent rights under the contract altered by reason of some state of mind of the other party of which he was not and could not be aware."

14. I agree with and accept Mr Reyes' argument. There is no doubt that the provisions of the Tugu / General Accident Policy - which defines the property covered as "Fur / Mink Skin / Garment, Leather ... and alike belonging to the Insured or being held in trust or on commission" - covered the skins belonging to Europe Fur, and I fail to see how this primary obligation can be said to be qualified by any separate collateral agreement not involving the insurers. So this defence fails.

15. The second distinct point relied upon in argument is one of the manifestations of what may conveniently be called the 'other interests' head. I put it this way because this point traversed both the liability and quantum issues. For present purposes Mr Pirie put it thus. He says that since the Tugu / General Accident Policy in fact covered other property - and indeed it is accepted that not only the skins belonging to Europe Fur were stolen in this robbery, but also skins / furs belonging to five other companies - that this fact thereby precluded or prevented double insurance from arising.

16. Mr Reyes met this contention by referring the court to Colinvaux 's Law of Insurance, 7th Ed., 1997 at paragraph 8-38 where the editors, in considering the pre-requisites to the right of contribution, observe that the same interests must be covered by both policies, and that "... it does not matter if other interests are covered by one of the policies, provided one interest covered by both is identical". The editors of MacGillivray on Insurance Law, 9th Ed., 1997 at paragraph 23-3, make a like observation.

17. Accordingly, I am unable to see that there is anything in this point either. Nor can I discern anything in the case of Lonsdale & Thompson Ltd v. Black Arrow Group Plc, [1993] 3 All ER 648 (Deputy Judge Jonathan Sumption QC) which in any sense qualifies or derogates from the observations in Hepburn v. Tomlinson, op.cit.

18. In short, I am satisfied that there is here a case of double insurance in that the four relevant conditions are met, namely :-

(1) both policies cover the loss of the goods by theft / robbery;

(2) both policies cover the same interest, in that as bailee of Europe Fur's property, Claveyson took out a policy covering not just its own liabilities as bailee to Europe Fur, but also covering Europe Fur's interest as bailor;

(3) both policies were in force at the time of the loss; and

(4) both the Tai Ping and Tugu / General Accident Policies were legally enforceable.

19. It follows, therefore, that I find under the liability head that the plaintiff is able successfully to claim contribution against the defendants. The more difficult question, however, is how much?

QUANTUM

20. In broad terms, there are two generally accepted methods for the calculation of contribution, methods reflected both in the academic texts and leading authorities such as Commercial Union v. Hayden, [1977] QB 804. These are the 'maximum liability basis', wherein each insurer bears that proportion of the loss which the sum for which he is liable under a policy bears to the aggregate of the sums insured under the policies, so called "maximum liability" because it always takes account of the maximum of the two insurers' liabilities; and the 'independent liability basis' where it is asked what each insurer would have been liable for, and contributions are assessed according to the proportions that each such figure bears to the total of the same figures.

21. The parties helpfully have agreed the relevant figures should either of these two methods be applied by the court in this particular instance, so that under the maximum liability approach the defendants' contribution would be $1,085,454.54 (4 million ÷ 5.5 million x 1,492,500), whilst under the independent liability approach the sum would be $746,250 (50% of 1,492,500), given that the plaintiff was liable for the sum of $1,492,500 and the defendants would have been liable for the like amount under the Tugu / General Accident Policy - or, to put it another way, "wherever the loss is smaller than the lesser of the sums insured, the insurers will bear it equally" : see, for a helpful exposition, Birds, Modern Insurance Law, 4th Ed., 1999 at pages 318-319.

22. As matters stand, Mr Reyes, perhaps not unsurprisingly, seeks recovery under the "maximum liability" approach, which would mean that the two defendants between them would bear some $1.085 million in contribution out of the principal sum already paid out of $1.492 million.

23. Mr Pirie, however, opts for neither approach, if and in so far as liability be decided against his clients. He suggested a third way, which for convenience of reference has been described in argument as the "other interests" approach. This approach is both ingenious and diverting, albeit it finds no provenance in the academic texts or the authorities. In broad terms, it appears to come down to this. Had a Europe Fur claim been entertained under the Tugu / General Accident Policy (which it would not, said Mr Pirie, given his objections on liability) Europe Fur in any event would have been met with reliance upon the "ratable proportion" provision within Clause 4 of the Policy Conditions, which reads :-

"If at the time of the happening of any loss destruction or damage covered by this Policy there shall be any other insurance covering the same risk whether effected by the insured or not then the Company shall not be liable to pay more than their rateable proportion of the loss destruction or damage."

24. The application of the clause produces (or would have produced) the figure derived from application of the independent liability basis, namely, HK$746,250, but the story does not end there. In turn, said Mr Pirie, account must and should be taken of the 'other interests' the subject of this policy. In this case, five other companies had had their goods stolen also. However, the maximum limit of liability under the Tugu / General Accident Policy was $4 million, yet the value of this particular loss involving the property of all six companies was considerably more, and in fact amounted to slightly less than HK$8 million. Thus, said Mr Pirie, looking at the situation in the round there had been manifest underinsurance in this case of roughly in the order of 50% (a figure which, for the sake of the present argument, Mr Reyes agrees) so that, at best, the contribution payable by his clients could only be the sum of HK$746,250 divided by two, which amounts to HK$373,125 - which is the figure agreed by both counsel to be applicable should this approach be adopted.

25. In support of his argument under this head, Mr Pirie has helpfully produced a detailed schedule, with details of the six customers, the property stolen and estimates of the respective losses, in three cases the existence of separate cover, and the losses so adjusted and in fact paid out. In addition, there also appears to be one potential claimant under the Tugu / General Accident Policy who has not yet made a claim.

26. This document provides a useful bird's eye view of the situation under the Tugu / General Accident Policy, and also indicates that at present under this policy, Tugu / General Accident (which share the policy liabilities on a 70:30 basis) thus far have paid out the sum of $3,334,989.60 in terms of claims arising from this incident, against the maximum liability under this policy of $4 million.

27. What the detail in this document also achieves is to highlight the large number of variables arising in this area when it is sought to move outside the accepted 'maximum liability basis' or the 'independent liability basis' in the context of assessment of contribution. For my own part, given the existence of these variables (for example, if account now is to be taken of underinsurance by other interests, should like account be taken of overinsurance, or, perhaps, the existence of collateral cover?), in my view the innovative course now sought to be charted by Mr Pirie is redolent with reefs and shoals, and may well amount to a recipe for potential inequity in the context of a contribution exercise whose very basis lies in the application of equitable principles. As Professor Birds (op.cit., at page 318) put it, whether the question of contribution arises generally or as the result of a rateable proportion clause, the issue of the contribution of different insurers "can be a very complex question", and even on the assumption of there being only two insurers involved "there has been a noticeable lack of case-law on this question, and the ratios to be applied may depend as much on the practices of insurers as much as on binding legal authority" with "real problems" arising "when the sums insured by each insurer are not the same or where the polices in question have different ranges so that it is difficult properly to compare the sums insured ...".

28. I have no difficulty, therefore, in rejecting Mr Pirie's novel approach and, as I have indicated, I am equally against him in his thesis that the existence of other claims obviates the possibility for contribution. Nor do I think, in this case, that there is anything in the distinction between property and liability insurance, albeit I tend to agree with Mr Reyes that the policies are each policies of property insurance. I further accept Mr Reyes' submission that in assessing the relevance of the other claims on the $4 million limit and contribution, regard must be had to the Tugu / General Accident Policy as a whole, and in particular Memorandum E thereof, namely, the Automatic Reinstatement of Amount Clause, and, further, the fact that in terms of the Tugu / General Accident Policy, the $4 million limit is never exhausted. So that, once reached, it is automatically reinstated, subject to an obligation on Claveyson's part to pay additional premium; indeed, I note that Condition 8 provides for the reconciliation of premia as against values of property despatched during each period of insurance.

29. Ultimately, therefore, having established the defendants' liability so to contribute, and having rejected Mr Pirie's alternative thesis, the court must now choose between the maximum liability basis and the independent basis. In this regard, Mr Reyes correctly divined my own preference, which is strongly for the independent liability basis, an approach which in my view produces a fairer, and on these particular facts, a more appropriate level of contribution.

30. I have concluded, therefore, that the plaintiff is to succeed in its claim in this action against the defendants, and that it is to have judgment in the sum of HK$746,250. Whether this judgment be expressed thus, or alternatively, given the 70:30 liability ratio in the Tugu / General Accident Policy, in terms of individual judgments against the 1st and 2nd defendants in the respective sums of HK$522,375 and HK$223,875, is a matter upon which now I will hear from counsel, together with the question of costs and any other matter arising from this brief extemporary judgment.

[Submissions from counsel]

31. Both counsel agree that the appropriate course is to order separate judgment sums against the 1st and 2nd defendants. Accordingly, I order that there is to be judgment in favour of the plaintiff against the 1st defendant in the sum of HK$522,375, and that there is to be judgment against the 2nd defendant in the sum of HK$223,875.

32. As to costs, Mr Reyes asks for the costs of this action, as to which Mr Pirie properly feels that he cannot resist. Accordingly, the plaintiff is to have the costs of this action against the 1st and 2nd defendants.

33. With regard to interest, I order that the respective judgment sums should attract interest at the rate of 1% over HK dollar prime rate from the date of the writ herein, that is, 3 November 1997, to the date of judgment herein, that is 27 April 2001, and thereafter at the judgment rate from time to time prevailing until payment.

34. I thank counsel for their assistance.