Tai Ping v. Tugu

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DMC/INS/07/01
Tai Ping Insurance Co. Ltd. v. Tugu Insurance Co. Ltd
Hong Kong: Court of First Instance: Stone J: [2001]HKC 401: April 2001
INSURANCE: DOUBLE INSURANCE: WHETHER DOUBLE INSURANCE EXISTED: THE FOUR TESTS FOR DOUBLE INSURANCE: BASIS OF CONTRIBUTION: MAXIMUM LIABILITY BASIS: INDEPENDENT LIABILITY BASIS: EFFECT OF UNDER-INSURANCE: WHETHER UNDER-INSURANCE EXISTED
Counsel for Tai Ping: Mr A.T. Reyes, instructed by Messrs Ince & Co
Counsel for Tugu Insurance: Mr. Nicholas Pirie, instructed by Messrs Munro Claypole and Reeves

DMC Classification: Developed

Summary
In this case, Tai Ping Insurance Co. sought from Tugu and its coinsurer, a contribution to the claim that it had paid to its insured for the loss of a consignment of mink skins in an armed robbery that had occurred during road transit. The court found that the requirements of double insurance were satisfied and apportioned the claim between the insurers equally, on the basis of the ‘independent liability’ formula, in preference to the ‘maximum liability’ formula under which the insurer whose policy had the higher limit of liability would have paid 73% of the claim. This is believed to be the first reported case in which double insurance was held to arise even when the relevant policies were issued to different insureds

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Facts
A consignment of mink skins, belonging to a firm called Europe Fur, was stolen by armed robbers whilst in transit by road in Hong Kong to Europe Fur from the premises of a firm of skin processors, Claveyson Fur. The consignment was in Claveyson’s possession at the time of the loss. Europe Fur were insured against the loss of the furs under an inland transit policy issued by Tai Ping on their standard Marine Cargo Policy form. Tai Ping duly paid the claim for HK$1,492,500. The limit of liability under this policy was HK$1,500,000. Claveyson were also insured against such a loss, under a policy issued jointly by Tugu Insurance Co. and General Accident, in the proportions 70/30. This policy had a limit of liability of HK$4,000,000, with provision for reinstatement on payment by Claveyson of an additional premium. Five other consignments were stolen in the same incident, the losses amounting in total to just under HK$8,000,000,

Tai Ping, having paid Europe Fur, sought contribution from Tugu on the grounds of double insurance. Tugu denied responsibility on the basis of an agreement made by Europe Fur with Claveyson by which Europe Fur undertook responsibility for insuring the skins against theft whilst they were in Claveyson’s possession, in particular in respect of the transit risk. Tugu were unaware of this agreement. In the alternative, Tugu argued that, as the total value of all consignments stolen in this incident was nearly HK$8,000,000 there was approximately 50% under-insurance, on the basis of which Tugu’s contribution should be half of what it otherwise would have been.

Judgment
The judge held that the insurances were not affected by the collateral agreement made between Europe Fur and Claveyson and that the four relevant conditions for double insurance had been met in this case, namely:

1 both the Tai Ping and the Tugu policies covered the loss of the goods by theft/robbery;

2 both policies covered the same interest, in that the Claveyson policy covered not just its own liabilities as bailee to Europe Fur, but also Europe Fur’s interest as bailor;

3 both policies were in force at the time of the loss;

4 both policies were legally enforceable.

As regards the basis of contribution, the judge rejected the under-insurance argument as innovative (there being no relevant authority in support of it), complicated and potentially inequitable. He noted also the Reinstatement provisions of the Tugu policy by virtue of which he found that "the HK$4,000,000 is never exhausted" – the consequence being that under-insurance could not arise in such circumstances.

Based on the jurisprudence and the academic texts, the judge had to choose between the ‘maximum liability and the so-called ‘independent liability’ bases of contribution. Under the first, liability would be apportioned according to the maximum amount of coverage provided by the respective policies. On this basis, Tugu would contribute on the basis of the formula; 4,000,000/5,500,000 x 1,492,000 = 1,085,455.

On the independent liability basis, each insurer would contribute on the basis of what it would have been liable for, had the claim been made against it alone. On this basis, Tai Ping and Tugu would contribute in equal shares to the settlement made with Europe Fur, namely HK$746,250. The judge found that this approach "produces a fairer, and on these particular facts, a more appropriate level of contribution" and gave judgment accordingly.

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