Kevin Bowers Adrian Sargent November 17 2015 Does insurance law adequately protect consumers in sharing economy? The Uber example Howse Williams 何韋律師行 | Insurance - Hong Kong Kevin Bowers, Adrian Sargent Insurance FactsExclusion clausesDuty of utmost good faithWaiverLack of recourseCommentOn August 11 2015 the Hong Kong police conducted a sting operation and raid on the Hong Kong corporate office of US international transportation network company Uber Technologies Inc. Five Uber employees were arrested and the police confiscated computers and documents during the raid.FactsSince 2009, the San Francisco company responsible for its eponymous car hailing app has expanded its car hire services to over 58 countries. Operating in Hong Kong since June 2014, Uber has attempted to transform the private transportation industry to equal fanfare and disapproval from various groups. Despite the mixed opinions on Uber, what compelled the raid on August 11?The police's actions appear to be based on Uber's potential breach of:Section 52(3) of the Road Traffic Ordinance (Cap 374) relating to illegal carriage of passengers in a motor vehicle for reward; andSection 4(1) of the Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap 272) relating to carriage of valid third-party insurance policies in motor vehicles.Uber has stated that it "ensures that all rides are covered by insurance". However, it is unclear in what context this reference was made. Uber likely has a fleet insurance policy covering third-party liability for passengers and other road users. Thus, the crux of the issue is the licensing of Uber cars under the Road Traffic Ordinance. A key question is whether Uber discharged its duty to disclose that its vehicles were potentially licensed incorrectly or not at all in accordance with the Road Traffic Ordinance. This update examines an insurer's options should this be the case.Exclusion clausesThe most obvious option for an insurer would be to rely on any exclusion clauses that reject liability where an insured has committed an illegal act.However, in this case it is unclear whether Uber breached the Road Traffic Ordinance. Therefore, the insured's disclosure requirements should be considered.Duty of utmost good faithUber, as an insured, owes a duty of utmost good faith to its insurer – in particular:a duty to avoid making misrepresentations; andan extended duty to disclose all material facts which are (or should be) known by it and which are material to the policy's formation.This duty places a heavy burden on the insured for the purposes of balancing the inequality of information between the insurer and the insured.(1)To exercise its right to avoid a policy due to the insured's non-disclosure,(2) the insurer must prove that the undisclosed facts were material and that the non-disclosure induced it to enter into the contract.'Materiality' refers to information "which would influence the mind of a prudent insurer in deciding whether to accept the risk or fix the premium"(3) – that is, sufficient disclosure "to call the attention of the insurer to the relevant facts" in order to enable the insurer to request further information, if so required.(4)'Inducement' means that the insurer must show that, "but for" the non-disclosure, it "would not have entered into the contract on those terms".(5) However, the insured need not show that this was the sole effective cause.Therefore, assuming that the licensing issue was not disclosed, it would appear difficult for Uber to argue that this was immaterial and did not induce the insurer to enter into the policy.WaiverThat said, if Uber and the insurer had any prior discussions or correspondence about the licensing of vehicles, Uber could potentially claim that any information disclosed to the insurer concerning the licensing issue would amount to a waiver on the part of the insurer. As set out in Sea Glory Maritime Co v Al Sagr National Insurance Co (The Nancy),(6) the relevant test is as follows:"even if the initial presentation was unfair, waiver might arise if the information disclosed was such as to prompt a reasonably careful insurer to make further inquiries… [If] they omit to do so, they waive disclosure of the material facts and matters which such an inquiry would have revealed."As outlined above, the law clearly imposes a strict duty on the insured; however, this duty can be highly qualified.Lack of recourseAssuming that Uber breached its duty and any third-party liability policy is consequentially avoided, injured Uber passengers may be left with limited recourse to claim compensation.It will be interesting to observe the outcome of the pending US federal class action O'Connor v Uber Techs, Inc,(7) which will determine whether US Uber drivers are independent contractors or Uber employees.If the Hong Kong courts view Uber drivers as independent contractors, injured Uber passengers will have no claim against Uber. The only recourse would be against – potentially financially limited – Uber drivers themselves or reliance on the Hong Kong Motor Insurers Bureau's compensation scheme for victims of uninsured drivers.CommentWhile consumers enjoy unprecedented convenience from the sharing economy and the services provided by companies such as Uber, the additional risks incurred should not be underestimated. From an insurance law perspective, the above analysis illustrates the uncertainties of the law (eg, the scope of its regulation) when applied to novel situations.If Uber is prosecuted in the courts, this case will likely become a seminal authority reflecting the courts' attitude towards this emerging form of economy.For further information on this topic please contact Kevin Bowers or Adrian Sargent at Howse Williams Bowers by telephone (+852 2803 3648) or email ([email protected] or [email protected]). The Howse Williams Bowers website can be accessed at www.hwbhk.com.Endnotes(1) Rozanes v Bowen  32 Ll LR 98.(2) Morrison v Universal Marine Insurance Company [1872-73] LR 8 Ex 197; Manifest Shipping Co Ltd v Uni-Polaris Ins Co Ltd (The Star Sea)  UKHK 1.(3) MacKinnon LJ in Zurich Insurance Co v Morrison  1 All ER 529.(4) Assicurazioni Generali SpA v Arab Insurance Group (BSC)  Lloyd's Rep IR 131.(5) Ibid.(6)  EWHC 2116.(7) C13-3826 EMC.