Hong Kong: Insurers Not Presumed To Know Facts Merely Because They Are Available On The Internet

Keywords: Zurich Insurance Company, liability, dead weight tonnage warranty, DWT

Should the insurer be presumed to have knowledge of matters that it could have discovered from public resources? The Court of Appeal in Hua Tyan Development Limited v. Zurich Insurance Company Limited [2012] 5 HKC 117 unanimously held not.

Background

Hua Tyan (the "Insured") is a timber trader who ships logs from Southeast Asia to China. It insured its vessel, MV Ho Feng No.7 (the "Vessel"), with Zurich Insurance Company Limited (the "Insurer"). The Vessel sank during a voyage in January 2008 and the Insured claimed under its policy. The Insurer denied liability on the basis that the Insured breached the Dead Weight Tonnage Warranty (the "Warranty") which warranted that the Vessel's Dead Weight Tonnage (DWT) is not less than 10,000 tons. The Vessel's DWT was in fact 8,960 tons and therefore breached the Warranty. The Insurer also argued that the Insured breached its duty of disclosure by failing to disclose the true DWT of the Vessel.

The First Instance Judgment

The First Instance Judgment (Chung J) held that the Warranty did not apply because it was inconsistent with the purpose of the policy, which was to provide coverage for the Vessel. Chung J also found that the Insured did not breach its duty of disclosure because the Insurer could have found out about the tonnage of the Vessel from the internet.

The Court of Appeal

The First Instance Judgment was overturned on appeal. The Court of Appeal found that on the face of the policy, there was no inconsistency between the Warranty and the coverage provided because the Insurer had agreed to cover the Vessel subject to the Warranty.

In order to establish that the Warranty was inconsistent with the policy, the Insured had to show that when the policy was issued, both the Insured and the Insurer knew the Vessel's true DWT, namely that it was less than 10,000 tons. An insurer is presumed to know matters of common notoriety and matters which it ought to know in the ordinary course of its business. The Court of Appeal held that just because the information was available on the internet and the Insurer could have made inquiries, it did not mean the Insurer should have made inquiries. The Insured must show there was some foundation for the Insurer to make such inquiries, for instance, that it was common practice for insurers to make such enquiries in the marine insurance industry.

The Insurer therefore did not have presumed knowledge of the Vessel's true DWT merely because the information was available on the internet. The Warranty was not inconsistent with the policy and the Insurer could rely on the Warranty to avoid liability.

Given the Insurer did not "know" the true DWT of the Vessel, the Insured also breached its duty of disclosure by failing to disclose this information.

The Insurer's appeal was allowed. As the Court of First Instance had found against the broker in the alternative, judgment was entered against the broker instead.

Takeaway

Merely because information is available on the internet or from public resources does not impose a duty on the insurer to make enquiries. The insured is still required to disclose such information if material to the risk. There must be some foundation, such as common industry practice, before the insurer is imputed knowledge of facts available on the internet or from public resources. This decision certainly gives insurers comfort that there is no duty to make enquiries merely because the information is available from public resources.

The decision is welcomed as it confirms the insured or its broker bears the responsibility of disclosing material facts, and the insurer cannot be expected to undertake further enquiries of matters that are known by the insured.

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