CHAN MEI CHI v. ING LIFE INSURANCE CO (BERMUDA) LTD

DCCJ 4160/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIALADMINISTRATIVE REGION

CIVIL ACTION NO. DCCJ 4160 OF 2003

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JUDGMENT

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Introduction

1.  This is a claim by the Plaintiff as the beneficiarydesignated by the deceased in accordance with the terms of a master insurance policy. The master insurance policy was in the nature of a group insurance policy taken out by the deceased’s employer, Inex Cyberworks & Systems Limited ("Inex") from the Defendant insurance company for the benefit of its full-time employees.

2.  The deceased joined Inex in about August 2000 as a casual messenger, working about 25 hours per month as and when he was called upon to provide his services. His employment was regularised with effect from 22 January 2001 when he was appointed as a messenger at a monthly salary of $2,000. Under the terms of his appointment as stipulated in Inex's letter dated 19 January 2001, he was eligible for all Inex fringe benefits, including mandatory provident fund and life insurance schemes, subject to the terms and conditions of those schemes. His working hours were from 9:00 am to 12:45 pm on Monday through Friday and he may not undertake outside employment, whether with or without remuneration, unless he had the prior approval of Inex. On 22 January 2001, Inex submitted the insurance plan enrolment form in respect of the deceased to the Defendant. On the basis of the information therein, the Defendant calculated the premium payable and Inex duly paid the premium in respect of the deceased. On 2 April 2001, the deceased designated his daughter, the Plaintiff in this action, as the person to whom the deceased's benefits under the insurance policy was to be paid in the event of his death. The deceased died on 23 June 2001 of heart disease. By a letter dated 24 August 2001, the Defendant repudiated its liability to pay the full benefit of $300,000 to the Plaintiff in accordance with the terms of the master insurance policy on the ground that the deceased was not a full-time employee of Inex. The Defendant's defences are (1) that the Plaintiff, not being a party to the master insurance policy has no right to sue, (2) that the deceased was not eligible to be a member of the insurance scheme as not being a full time employee of Inex who had completed three months probation and (3) that the master insurance policy was void or unenforceable as being vitiated by the misrepresentation as to the deceased's employment status.

Privity of contract and the Plaintiff's right to sue

3.  Mr Tam seeks to establish the Plaintiff's right to sue by arguing that the deceased being the assured was a party to the contract of insurance and as the policy was expressed to be for the benefit of the deceased's child, the policy is one to which section 13(1) of the Married Persons Status Ordinance (Cap 182) applies. Hence, Mr Tam submits that a statutory trust was created under section 13(2) making the Plaintiff the trustee of the benefit payable under the master insurance policy and as the trustee, the Plaintiff is entitled to sue under Order 15 rule 14 of the Rules of the High Court. The short answer to Mr Tam's submission is that even if there was privity of contract between the deceased and the Defendant, there was no privity between the Plaintiff and the Defendant. Mr Tam has also failed to show how the Plaintiff could have lawfully become the trustee of the policy. Thus the Plaintiff in her capacity as the beneficiary under the policy but not as trustee of the policy and not being the personal representative of the deceased's estate has no right to enforce the policy. This would be sufficient to dispose of the action. But I shall consider fully the arguments of both parties, which is relevant for the purpose of determining the issue of costs. It is also hoped that this will assist the parties in the future settlement of the claim.

4.  Mr Khaw, on behalf of the Defendant, submits that in the case of group insurance policy effected by an employer for the benefits of his employees, as in the present case, the contractual relationship regarding the master insurance policy is between the employer and the insurance company only and that an employee covered under the policy does not have any right to enforce any term of the policy. As the policy was taken out by Inex for the deceased's benefit and not taken out by the deceased for the benefit of his wife or children, section 13 is inapplicable. He referred to Vandepitte v Preferred Accident Insurance Corporation of NewYork [1933] AC 70; Green v Russell [1959]2 QB 226, Haskell v total Food Systems Ltd [1997] ACWSJ Lexis 155074 and Sales v Mutual Life Assurance Company of Canada, [1999]Alta DJ 429in support of his proposition.

5.  In Green v Russell Ltd, an employer took out a personal accident group insurance policy for his employees. The insurance cover did not form part of the terms of their employment. One of the insured employees died in a fire which occurred on the employer's premises. The employee's mother brought an action against the employer and obtained damages agreed at £1,300 subject to the issue of whether a sum of £ 1,000 paid under the policy by the insurance company in respect of the death to the employee's solicitor and paid or about to be paid by them to the employee’s mother was a benefit arising out of the death which should be deducted from the damages. Under the terms of the policy, the employer was the insured while the employees were the insured persons and all money payable upon the occurrence of the riskinsured shall be paid to the employer. Romer LJ referred to the leading case of Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 and held at 240:

"In Dunlop Pneumatic Tyre v Selfridge & Co Ltd the appellants brought an action for breach of a contract made between the respondents and a third party which contained terms as to the re-sale of goods of the appellants’ manufacture. It was held that the contract was unenforceable at the suit of the appellants. ‘In thelaw of England,’ said Viscount Haldane LC, ‘certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam.’ So also in Vandepitte v Preferred Accident Insurance Corporation of New York Lord Wright, indelivering the judgment of the Judicial Committee, said that ‘nodoubt at common law no one can sue on a contract except those who are contracting parties and (if the contract is not under seal) from and between whom consideration proceeds’; and he cited the above passage from Lord Haldane's speech in the Dunlop Pneumatic Tyre Co case. Accordingly, on the authorities as they stand, it seems clear to methat Green had no right at common law to claim under the contract of insurance into which the company entered with Russell, and for which Green himself gave no consideration.”

These are very powerful dicta from the English Court of Appeal which have the support of authorities of the House of Lords and the Privy Council. The principle of law regarding privity of contract and consideration stated therein has stood the test of time and cannot now be doubted. However, there are certain features in the present case which distinguish it from Green v Russel. In the present case, the insurance cover formed part of the deceased's terms of employment with his employer and the benefit under the policy was payable to the deceased or beneficiary designated by the deceased. I shall come back to the significance of these distinguishing features.

6.  I do not think it necessary to refer to Vandepitte v Preferred Accident Insurance Corporation of New York. Itwas a House of Lords decision which repeated the above principles. It was a claim by a third party injured in a car accident against the insurer of the owner of the car. It was not a group policy by an employer for the benefit of his employees.

7.  Mr Khaw next referred to two Canadian decisions. In Haskell v total Food Systems Ltd, the employer failed to pay premium in respect of a group life policy for its employees. As a result the policy lapsed. The employee sued the employer and sought relief against forfeiture of the policy under section 98 of the Constitution of the Courts Act. It is not clear from the judgment the basis upon which the employer was sued by the employee. The Ontario Court held that the contracting parties in a group life policy are the employer and the insurer and there is no privity of contract between an employee insured under a group insurance policy and the insurer. No reason was given and no authorities were cited in support of the above proposition. Little reliance could be placed on this decision.

8.  The next Canadian case cited by Mr Khaw is Sales v Mutual Life Assurance company of Canada. In that case, the plaintiff was an employee of the TD Bank. He owed money to the bank under two mortgages. TD Bank had taken out a creditor's group insurance policy from the defendant to insure repayment of loans by its borrowers. The plaintiff became legally blind and left his employment with TD Bank. He sued the defendant for its failure to pay disability benefit under the policy to discharge the two mortgage loans he owed TD Bank. The court held that the insurance contract was between the defendant and TD Bank and there was no right of an individual person insured under a creditor's group insurance policy to enforce a benefit given to him under contract in his own name. This is a creditor's group insurance policy taken out by a bank to insure repayment of its money lent. The money payable under the policy is to be paid to the bank to cover defaults in repayment by the borrowers. The decision is entirely correct and in line with established principle of privity of contract. It is not a decision on group life policy taken out by an employer for the benefit of his employees and on this basis is clearly distinguishable from the present case.

9.  Turning to the facts of the present case, Inex was the policy owner of the master insurance policy. An employee, whose life was insured, were described as a "member". The premium was paid by Inex and was determined by the Defendant with regard to the member's age. The benefit was payable to the member or in the event of his death to the member's designated beneficiary and not to the employer or for the employer's benefit for meeting its liability towards the deceased. Subject to an employee satisfying the eligibility conditions, the employee shall be automatically accepted as a member and the Defendant shall provide the insurance cover. The Defendant had no right to refuse to accept any employee on medical or other grounds. Under the terms of the employee's contract of employment with Inex, it was the employer's obligation to provide the insurance cover and pay premium. This is significant and distinguishes the present case from the authorities relied on by the Defendant. The employer paid the premium because it was obliged to do so under the terms of the employment contract. In other words, the employee earned the premium as part of his remuneration package which the employer paid to the insurance company. When all these facts are put together, the situation is as follows. The employee earned the premium as part of his remuneration package from his employer. When the employer submitted the enrolment form in respect of a qualified employee and paid the premium, he did so as the employee's agent. If the enrolment application was not rejected under the automatic acceptance procedure, a separate collateral contract of insurance under the framework of the master insurance policy was formed between the insurance company and the individual employee. The terms of this collateral contract were similar to those under the master insurance policy so far as they were applicable and subject to such modification as were necessary. Clearly, the employee was the insured under this collateral contract of insurance. This collateral contract was just a species of unilateral contract by which theinsurance company offered insurance cover to any qualified employee under the framework of the master insurance policy set up by the insurance company and the employer. The offer was accepted and a collateral contract made when the employer submitted the enrolment form on behalf of the employee. There must be privity of contract between the employee and the insurance company in respect of this collateral contract, but there is no privity between the Plaintiff as beneficiary under this collateral contract and the insurer. The Plaintiff, not being the administratrix of the estate of the deceased has no right to sue as a beneficiary under the collateral contract of insurance.

10.  The Plaintiff prays in aid Order 15 rule 14 of the Rules of the High Court and section 13 of the Married Persons Status Ordinance. Mr Tam submits that as the deceased designated the Plaintiff as the beneficiary under the policy, the policy was hence expressed to be for the benefit of or by its express terms purporting to confer a benefit upon the child of the insured and is one to which section 13 of the Married Persons Status Ordinance applies. The Defendant's argument that the section does not apply to the master insurance policy taken out by Inex for the benefit of its employees and not the deceased for the benefits of his wife and children is no answer to my finding of a collateral contract of insurance between the individual employee and the Defendant. However, what is most fatal to the Plaintiff's case is that she failed to show how as the designated beneficiary under the contract of insurance she could have become the trustee for herself of the benefit to be paid to her under the policy. Section 13 provides as follows:

“	(1)	This section applies to a policy of assurance or endowment expressed to be for the benefit of, or by its express terms purporting to confer a benefit upon, the wife, husband or child of the insured.
	(2)	The policy shall create a trust in favour of the objects therein named.
	(3)	The moneys payable under the policy shall not, so long as any part of the trust remains unperformed, form part of the estate of the insured or the subject to his or her debts.
	(4)	If it is proved that the policy was effected and the premiums paid with intent to defraud the creditors of the insured, they shall be entitled to receive, out of the moneys payable under the policy, a sum equal to the premium so paid.
	(5)	The insured may by the policy, or by any memorandum under his or her hand, appoint a trustee or trustees of the moneys payable under the policy, and from time to time appoint a new trustee or new trustees thereof, and may make provision for the appointment of a new trustee or new trustees thereof, and for the investment of the moneys payable under any such policy.
	(6)	In default of any such appointment of a trustee, such policy, immediately on its being effected, shall vest in the insured and his or her legal personal representatives, in trust for the purposes aforesaid.
	(7)	The receipt of a trustee or trustees duly appointed, or in default of any such appointment, or in default of notice to the insurer, the receipt of the legal personal representative of the insured, shall be a discharge to the insurer for the sum secured by the policy, or for the value thereof, in whole or in part.

11.  While section 13(2) creates a statutory trust in the beneficiary's favour in respect of the money payable under the insurance policy, the beneficiary does not as such become the trustee of the money payable under the policy. Rather, section 13(5) and 13(6) provide that the insured may appoint a trustee and in default of such appointment, the policy shall vest in the insured immediately or upon his death on his personal representative. The Plaintiff’s mother is the administratrix of the estate of the deceased but she was not joined as a party to these proceedings. There is no evidence of the appointment of the Plaintiff as trustee of the policy. In default of such appointment, the policy shall vest in the adminstratrix of the deceased's estate in accordance with section 13(6)  In the circumstances, the Plaintiff’s claim must fail. She cannot avail herself of Order 15 rule 14 of the Rules of the High Court.

Eligibility

12.  The Defendant's alternative defence is that the deceased was not eligible to be a member of the insurance scheme under the master insurance policy as he was not a full-time employee who had completed three months probation in accordance with the "Eligibility Conditions" as defined in the master insurance policy which provided as follows:

“All full-time Employees who have completed a probationary period of three months and are actively at work on the day first eligible.”

The Statement of Conditions further stipulates:

“ ... eligibility should not be determined at the discretion of the individual or the employer.”

These are the only relevant provisions in the master insurance policy and related documents about eligibility. "Full-timeEmployee" is not defined in the master insurance policy and related documents but according to the Defendant's internal guideline an employee working less than 30 hours per week is not regarded as a "full-time employee."

13.  Mr Khaw submits that a "full-time employee" is one who works substantially the whole of his time for his employer. He referred me to section 11(7) of the Employees Compensation Ordinance in which full-time employment is defined for the purposes of computing the earning of a full-time employee in the concurrent employment of two employers as "employment not less than 40 hours during a minimum period of 5 days in any one week." He also referred me to Schedule 6 of the Taxation of Chargeable Gains Act 1992 in which "full-time working officer or employee" is defined as "any officer or employee who is required to devote substantially the whole of his time to the service of that company, or those companies taken together, in a managerial or technical capacity." I do not think these definitions helpful. These are statutorily defined meanings of words for the purpose of the particular statute and have little relevance for construction of words used in a contract.

14.  These words have to be construed in accordance with the established principles of construction of contract. These principles have been usefully summarised by Lord Hoffman in Investor's Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 897 at 912-913 as follows:

"	The principles may be summarised as follows.
	(1)	Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
	(2)	The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
	(3)	The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
	(4)	The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749.
	(5)	the ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that wedo not easily acceptthatpeople have made linguistic mistakes, particularly in formal documents. On the otherhand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said inAntaios Campania Naviera SA v Salen Rederierna AB [19851 A.C. 191, 201:
		‘	... if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business commonsense.’”

15.  Thus the meaning of the words "full-time employee" has to be ascertained from the policy and related documents themselves. It is that meaning which these documents would convey to a reasonable person having all the background knowledge which would reasonably have been available to Inex and the Defendant when they were negotiating the master insurance policy. The background or factual matrix includes practically anything which would have affected the way in which the language of the document would have been understood by a reasonable man but extrinsic evidence as to the parties' subjective intention or understanding of these words must be excluded. I therefore ignore both the evidence from the Defendant that according to its internal guideline an employee must work more than 30 hours a week to qualify as a full-time employee and also the letter from Inex that it considered the deceased a full-time employee. The most important factual matrix was that the policy was an employment benefit provided by an employer for its employees obviously for the purpose of motivating its employees and instilling in them a sense of belonging and loyalty for the betterment of the employer.

16.  Having set out the factual matrix, I now turn to the ordinary meaning of the words "full-time employee" as the parties are presumed to mean what they say in their documents. If that ordinary meaning makes sense in relation to the rest of the documents and the factual background, it shall be my duty to give effect to that meaning no matter how harsh the consequence may be to one of the parties. According to the Oxford Dictionary, "full-time" means "occupying or using all one's working time". But this definition begs the question as to what is one's working time. Eight hours is the norm for office workers, inclusive of one hour break for lunch. Nine hours is the norm for construction site workers with one hour lunch breach. Watchmen are known to work between eight to twelve hours. Sleep-in domestic helpers work fourteen hours. There is the further complication that some employees work for various numbers of days in the week. On a strict mathematical basis, a day helper working five days a week for six hours each day would be working less than half-time as compared with a sleep-in domestic helper. That could not be right. In my view, the term by itself is incapable of precise definition. One must turn to the factual matrix and the documents to ascertain its meaning.

17.  I now turn to the factual matrix. It must have been the employer's intention that the benefit was paid for the purpose of motivating those of its employees with whom the employer anticipated some long term relationship as opposed to someone who was employed on a casual come and go basis. It was the degree of permanence, regularity of and commitment to the employment rather than the number of hours worked which carried more weight in the mind of the employer. For the insurer, this was a group policy in which acceptance was automatic with no right of rejection on grounds of health or age. For the insurance provider, the greater the number of insured in the pool the less was its risk. Whether an employee worked 29 hours or 30 hours was a matter of no significance to the insurer. The insurer's risk was not increased if the number of hours worked was reduced.

18.  Under this factual matrix, the meaning of the words depends on the type of employment, the demand by the employer for the service of his employee, the terms of the employment including the degree of permanence, regularity of and commitment to the employment and most importantly the intention of the parties to the employment contract. The FirstSchedule of the Employment Ordinance gives some guidance on the minimum starting point for determining permanence. Under that schedule, an employee is deemed to have been in continuous employment in a period of four weeks if he has worked for at least 18 hours in each week. This is a definition for "continuous employment" or "continuous contract" and not for "full-time employee", but it is the statutory minimum in an employment relationship which entitles an employee to certain employment protection and benefits under the Ordinance. In my view, a continuous contract of employment must be the minimum starting point of a contract with the minimum degree of permanence. On the facts, under the employment contract, the deceased was required to work regularly from Monday to Friday. He had regular and fixed working hours from 9:00 am to 12:45 pm. Should either party wish to terminate the employment, he has to give seven days' notice to the other party. There was a sufficient degree of regularity of employment. The deceased may not undertake outside employment, whether paid or unpaid, unless with the approval of the employer. This indicated the employee's commitment to his employment. The contract of employment stated that the deceased was eligible for all fringe benefits, including the insurance cover. Taking all these considerations together, in my view, the employment contract satisfied the test of permanence, regularity and commitment and the parties to the employment contract intended the employment to be a full-time employment.

19.  The Defendant did not define what it meant by "full-time employee". It has an internal guideline of 30 hours which it deliberately chose to keep it internal to the company or secret to the policy owner. It is not something which is difficult to spell out in the policy or Statement of Conditions. It chose to keep it internal and secret. It cannot complain in the absence of a definition, a reasonable man placed in the factual matrix concludes that the parties meant something very different from what the Defendant meant. Applying the above test I am satisfied that the deceased's employment with Inex was a continuous and full-time employment within the meaning of the master insurance policy. The deceased satisfied the eligibility conditions for automatic acceptance to the scheme and had been so accepted by the Defendant. In the circumstances, the defence of non-eligibility and misrepresentation must fail.

Conclusion

20.  This is an unfortunate case. On my finding, the deceased was eligible for acceptance to the scheme provided by the master insurance policy. He duly designated the Plaintiff as the beneficiary to whom the benefits under the policy shall be paid in the event of his death. His employer ceased business and was de-registered from the Companies Registry. Otherwise the employer could have compelled the Defendant to honour its obligation or could have been joined to enforce the master insurance policy and there would be no question of privity. The Plaintiff could have taken advantage of the statutory trust under section 13 of the Married Persons Status Ordinance. She proceeded as the administratrix of the estate of the deceased until the first day of trial when she amended her statement of claim striking out her status as the adminsitratrix because the letters of administration were granted to her mother. The mother was not joined as a party to the litigation. As the benefit payable under thecollateral insurance policy is vested in the administatrix of the estate of the deceased as trustee and not vested in the Plaintiff, the Plaintiff has no right to sue. Her claim must be dismissed, though on a pure technicality.

21.  Inex paid all the premium due in respect of the deceased's insurance cover. Inex and the deceased complied with all the terms of the master insurance policy and the deceased duly designated the Plaintiff as the beneficiary to be paid the benefit under the policy. The Defendant accepted the deceased as a member of the insurance scheme. However, it relied on its own secret meaning of "full-time employee" and repudiated its liability to pay. The defences are technical and unmeritorious. It is unusual and, in my view, unprofessional and inequitable that a reputable insurance company as the Defendant should rely on such a technical defence and at a time when the holder of the master insurance policy was de-registered and was unable to sue for the benefit of the beneficiary designated by the deceased. To indicate the Court's disapproval of the Defendant's conduct, I consider it appropriate that the Defendant should be deprived of its costs, despite it was successful in its defence.

22.  Accordingly, I dismiss the Plaintiffs action with no order as to costs.