Insurance contract law: should there be reform in Hong Kong?

An insurance contract, unlike other contracts, is said to be a contract based upon the utmost good faith (uberrimae fidei). This special characteristic is said to be expressly recognised in a seminal judgment of Lord Mansfield in Carter v Boehm [1558-1774] All ER Rep 183. By being a contract of the utmost good faith, this means essentially that the parties to the contract are subject to a positive duty to volunteer information, the so-called ‘duty of disclosure’, in addition to a duty not to misrepresent. This doctrine of utmost good faith is so widely accepted that it became enshrined in ss 17-20 of the Marine Insurance Act 1906 (UK) (MIA), a verbatim copy of which can be found in the Marine Insurance Ordinance(Cap 329) of Hong Kong. As explained by Lord Mustill in Pan Atlantic Co Ltd v Pine Top Insurance Co Ltd [1994] 3 All ER 581 (HL), in relevant respects, the common law rules governing marine and non-marine insurance contracts are essentially the same. Even in a non-marine insurance case, reference can be made to the MIA. The position in Hong Kong is no different for there is no specific legislation dealing with nonmarine insurance contracts.

Throughout its over 100-year lifetime, the MIA has been a successful statute with no history of amendments; however, it has been perceived as creating unjust, especially a grave prejudice against the assureds: see, for example, Lambert v Co-operative Insurance Society Ltd [1975] 2 Lloyd’s Rep 485 (a non-marine insurance case). This has prompted the English Law Commission and the Scottish Law Commission to launch, in 2006, their joint efforts in a project on insurance law reform. They identified the law relating to the pre-contractual duty of disclosure and a duty not to misrepresent to be in urgent need of attention, especially with the primary aim to protect consumers. In December 2009, a report entitled 'Consumer Insurance Law: Pre-contract disclosure and Misrepresentation’ (Law Com No 319) (Scot Law Com No 219) was published with a proposed draft bill in Appendix A. On 16 May 2011, the draft bill was introduced to the House of Lords. It is likely that the draft bill will pass through the legislative process and come into force by the end of this year or early 2012. In turn, this raises a question of whether similar reform is needed in Hong Kong.

This article will provide a brief outline of the current legal position concerning the pre-contractual duty of disclosure and the duty not to misrepresent. A review of the major changes in the draft bill will be provided to determine whether the same should be followed in Hong Kong.