Kevin Bowers July 31 2012 Insurers beware: a costly failure to report Howse Williams 何韋律師行 | Insurance - Hong Kong Kevin Bowers Insurance IntroductionFactsDecisionCommentIntroductionThe May 18 2012 District Court decision in Dah Sing Insurance Services Limited v Singh has confirmed that the breach of an insurer's reporting obligations breaches not only the insurer's statutory obligations under the Code of Practice for the Administration of Insurance Agents issued by the Hong Kong Federation of Insurers, but also the duty of care owed to the agent in negligence.FactsThe defendant, Mr Singh, was appointed as a technical representative (similar to an insurance agent but limited to selling certain types of insurance product) and senior district manager of the plaintiff, Dah Sing Bank, in January 2007. His appointment was terminated in August 2007.The bank claimed against Singh for repayment of his sign-on fee and the monthly allowances that had been paid to him between January 2007 and his suspension in February 2007.Singh agreed to pay back the sign-on fee, but not the monthly allowances. In addition, he counterclaimed for:unpaid monthly allowances;office allowances which he claimed were wrongly suspended; anddamages in negligence or breach of statutory duty for failure to notify the Insurance Agents Registration Board (IARB) that he was no longer an agent of the bank and failure to submit his continuing professional development (CPD) certificate to the Hong Kong Federation of Insurers, as a result of which he was de-registered for three months and thus unable to work.DecisionMonthly allowancesSince none of the four agreements between the bank and Singh (ie, the appointment agreement, remuneration agreement, offer letter and letter of understanding) referred to repayment of the monthly allowances, the court held that the bank was not entitled to repayment. However, the court also held that the monthly allowance was subject to quarterly review under the agreements. Despite Singh arguing that the review should be performed in the following quarter (ie, in June 2007), it was held that the review should have been performed in March 2007. The bank had correctly conducted the review in March 2007, but had stopped paying the allowance after February 2007. Singh was allowed monthly allowances until March 2007.Office allowancesOffice allowances were held to be not reimbursable but subject to review by the bank at the end of the quarter. Since the bank had never reviewed the office allowance, Singh was entitled to office allowances until the end of his employment in August 2007.Failure to report terminationPart C of the code of practice mandates that an insurer must notify the IARB within seven days of the termination of an agent's services. An insurer has an obligation under Section 67(4) of the Insurance Companies Ordinance (Cap 41) to comply with the code. Failure to do so is an offence liable to a fine of HK$100,000. Since there was no evidence that the bank had notified the IARB of the termination of Singh's appointment, it was held to be in breach of its statutory duty.The IARB periodically issues an agent movement record to insurance companies that lists the agents who have registered successfully and those whose registration has been cancelled. The bank's failure to check the movement record properly to confirm that Singh was not still registered as an agent with the bank was a failure of its duty of care to Singh and deemed negligent.Failure to report CPD pointsInsurers are responsible for dispatching and collecting declaration forms from their agents to report their CPD credit points so that the agent is considered a fit and proper person to act as an insurance agent under Part E of the code of practice.Singh had submitted his CPD certificate to his supervisor, who failed to submit them to the IARB. The bank argued that since Singh had not properly filled out a declaration form, he had failed to submit his CPD record. The court held that the bank has a duty to dispatch and collect declaration forms to report CPD credits. Since the bank had not given Singh a declaration form to fill out, the bank had breached its duty under Paragraph 6(c)(i) of the guidance note on compliance with requirements of the Continuing Professional Development Programme. The bank had also failed to notify Singh that he had not completed his declaration form. Thus, the bank had failed in its statutory duty and was in breach of its duty of care and guilty of negligence.CommentInsurers should note that the reporting obligations imposed on them – such as the termination of an agent's appointment or CPD points – rest solely with the insurer. Failure to observe these requirements constitutes a breach of the IARB code and will result in financial penalties.Insurers will also be liable in negligence to their agents for damages resulting from the breach of duty of care that they owe to an agent as a consequence of the breach of their statutory duties under the code. It is not a viable defence to argue that the obligation also rests upon the agent and that consequently, the insurer should not be held liable, although the agent has an obligation to mitigate his loss.Insurers should also bear in mind that there are different reporting obligations for each category of agents. The category of the agent is not determined by what is stated in the agreement. In this case, although Singh was appointed as a technical representative, the court held that for the purposes of the code, he was an insurance agent. An insurer's reporting obligations depend on the nature of the job of the particular person, not the position or job title of the appointment.For further information on this topic please contact Kevin Bowers at Howse Williams Bowers by telephone (+852 2803 3648), fax (+852 2803 3608), or email ([email protected]).