Most Read Contributor in Hong Kong, September 2016
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  5 HKC 117 unanimously held not.
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.
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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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
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