In this case, insurers subrogated to the rights of Pacific Dunlop (Asia) claimed against Inchcape for the amount that they had paid under a ‘Top-Up1/Difference in Conditions’ (‘DIC’) policy by reason of the fact that the insurers under the primary policy had contested cover for the increased values on renewal and had settled on the basis of pre-renewal sums insured, on the grounds that Inchcape, the brokers in Hong Kong, had issued the renewal policy for increased values without their authority. The judge held that Inchcape had the requisite authority from the insurers to issue the primary policy on their behalf and that the claim therefore failed. On a subsidiary point, the judge attached no importance to the argument that, as the primary insurers were not licensed to carry on business in Hong Kong, the policy was illegal since it had been issued contrary to section 6 of the Hong Kong Insurance Companies Ordinance.
1. This Top-Up policy came into play only after recourse had first been made to local ‘under-lying’ insurance.
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DMC Category Rating: Confirmed
The plaintiffs Dunlop Asia and their subsidiary, Grosby China, insured certain factory premises in China, together with machinery, materials and stock in trade, to a cumulative value of US$9,300,000 under a policy of insurance issued on behalf of the People’s Insurance Company of China (‘PICC’), Shenzhen Branch, by the defendant brokers in Hong Kong. The policy was dated November 6 1992 and it succeeded an earlier policy (‘the September policy’) under which the insured value of the factory and its contents was stated as US$6,500,000. On November 25 1992, there was a fire at the factory, which caused extensive damage to the insured property. In answer to the claim that Dunlop Asia and Grosby lodged with them, the PICC denied that it had either been notified of or had confirmed the increased values stated in the policy of November 6. As a consequence, the claimants agreed, in December 1993, to accept a lesser settlement from the PICC in the amount of US$3,590,835, based upon the insured values in the September policy, which were in turn subject to averaging2. The claimants then claimed the shortfall from their ‘top-up’/DIC insurers and received from them the amount of US$1,922, 272. These insurers then claimed this amount from Inchcape under subrogation, on the grounds that, by issuing the November 1992 policy without the authority of the PICC, Inchcape had prejudiced the position of the Dunlop Asia interests.
At the time in question, the Shenzhen Branch of the PICC was not authorised to conduct insurance business in Hong Kong. It was consequently illegal, under section 6 of the Insurance Companies Ordinance, for Inchcape to issue PICC policies in Hong Kong. The claimants therefore argued that, by issuing a policy in these circumstances, Inchcape had exposed them to the risk of the insurers denying liability on the grounds that the policy was illegal.
2. ‘Averaging’ is the process by which an insurance claim is reduced pro-rata to the difference between the value of the property insured and its insured value under the policy, if the insured value is less than the true value. The process is designed to protect insurers from insureds under-declaring the value of insured property in order to reduce the premiums payable where the premium is a percentage of the insured value)
On the central issue in the case, the judge held that Inchcape had had full authority to issue policies of insurance on behalf of the PICC Shenzhen Branch, without having to notify the insurers or obtain their specific approval or confirmation prior to issuance. He accepted evidence from the Inchcape witnesses that there had been a long course of dealing to this effect, even though there was no written confirmation of the arrangements.
On the issue of illegality, the judge found "nothing in this argument…If and in so far as the Ordinance has any application to the present situation [an insurance policy covering non-Hong Kong risks issued by a non-Hong Kong insurance company], the point goes nowhere because section 6 of the Ordinance gives the plaintiffs as policy holder the option, as against the insurer, to treat the policy as valid or void". Here the claimants had clearly treated the policy as valid and enforceable. Furthermore, in their negotiations with the claimants, the PICC had never sought to avoid liability on the basis that the policy was illegal.
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