The Court of Final Appeal recently handed down a decision concerning the duty of care owed by insurance agents (who represent or work exclusively for an insurer, advising or arranging contracts of insurance) to their technical representatives (who provide advice to an insured or potential insured, or arrange contracts of insurance on behalf of insurance agents) in respect of compliance with the industry's reporting regulations. By unanimous decision, the court held that insurance agents do owe a duty of care towards their technical representatives in matters relating to their registration and reporting obligations within the regulatory framework, failing which a claim for damages may be actionable by the technical representatives.
Insurance agents and technical representatives are regulated by the Code of Practice for the Administration of Insurance Agents, which is issued by the Hong Kong Federation of Insurers (HKFI) and administered by the Insurance Agents Registration Board (IARB). The IARB also issues guidance notes on exercising its powers and fulfilling its responsibilities under the code. The code was devised to comply with Part X of the Insurance Companies Ordinance (Cap 41), to "put into place a scheme for the supervision and self regulation by the insurance industry of insurance agents and brokers".
Under Clause 19 of the code, an insurance agent can work for four insurers, provided that he or she has the consent of the principal for whom he or she acts as an insurance agent. Under Clause 33, a technical representative cannot act for more than one insurance agent at any given time. Additionally, a person cannot be appointed as a technical representative by an insurance agent unless the IARB has confirmed the registration in its sub-register of technical representatives upon the application of the insurance agent. When an appointment ceases, the insurance agent should inform the IARB within seven days, and the IARB should then remove the technical representative from the sub-register for that insurance agent. The code also requires technical representatives to complete continuing professional development (CPD). It is the responsibility of the insurance agent to collect evidence of compliance with the CPD requirements from its technical representatives and supply this to the IARB. A failure to provide evidence will result in the technical representative suffering a mandatory de-registration and being barred from registration for three months (thereby preventing him or her from working for any other insurance agent).
In Dah Sing Insurance Services Ltd v Gill Gurbux Singh ( HKCU 733) the appellant, Gill Gurbux Singh, was appointed a technical representative by the respondent, Dah Sing Insurance Services Limited, an insurance agent. In accordance with the appellant's employment contract (dated January 23 2007) his appointment could be terminated upon a month's notice. On August 23 2007, the respondent duly terminated the appellant's employment.
At first instance, the judge found that the respondent had breached a statutory duty by failing to inform the IARB of the cessation of the appellant's appointment, resulting in the appellant being unable to work as a technical representative. The judge also found that the respondent had breached a statutory duty by failing to report the appellant's CPD credits to the IARB, resulting in a three-month compulsory de-registration. The appellant was awarded damages under two heads:
- one month's loss of earnings for failing to inform the IARB of the appellant's cessation of appointment; and
- three months' income for the respondent failing to report the appellant's CPD credits.
On appeal, the judgment was reversed. The Court of Appeal held that there was no actionable breach of statutory duty and that the respondent did not owe the appellant any duty of care at common law. Notwithstanding the respondent's failure to report the cessation of the appellant's appointment, the court took a new point on appeal, namely that the appellant did not suffer any actual loss because he could work as an insurance agent (but not as a technical representative) for more than one insurer (for further details please see "No cause of action available for breach of insurer's reporting duties"). The appellant appealed to the Court of Final Appeal.
The Court of Final Appeal considered two grounds of appeal against the Court of Appeal's decision:
- Insurance agents owe a duty of care to their technical representatives to comply with the mandatory requirements in the insurance industry's code of practice and guidelines, failing which a claim for damages may arise.
- The Court of Appeal should have refused to accept or abide by the concession made by the appellant that, before the cessation of his appointment was reported, he could not work for another insurer.
Duty of care
The appellant submitted that the respondent owed a duty of care to comply with the requirement of the code to report the cessation of his appointment within seven days, in addition to reporting his CPD credits to the IARB.
The Court of Final Appeal approached the question of liability by applying the principle of assumption of responsibility on the respondent and considering whether, viewed objectively, the respondent could be said to have assumed the responsibility to report the cessation of the applicant's appointment or report his CPD credits to the IARB.
The code provides that the appointment of a technical representative cannot take effect before registration by the insurance agent with the IARB. Furthermore, a technical representative cannot work for another insurance agent if the IARB is not informed of the cessation of appointment. The Court of Final Appeal found that the respondent must have assumed the responsibility to comply with the requirements set out in the code and the guidance note. The respondent was in an analogous position of having special knowledge or special skill because of its role of responsibility under the code. The Court of Final Appeal thereby found that the respondent, as the insurance agent, had a role to perform under the code and the appellant had relied on the respondent to perform this role.
The Court of Final Appeal held that the respondent had a duty to report the cessation of appointment of the appellant to the IARB. The court also held that, given the foreseeability of loss to the appellant and its assigned role under the code, the respondent must have assumed the responsibility to report the appellant's CPD credits to the IARB and had failed to do so.
Insurance agent versus technical representative
The Court of Appeal had erroneously established that the applicant was an insurance agent, when in fact he was a technical representative according to his employment and appointment. As a result, the Court of Appeal had concluded that the appellant could be appointed as agent for another insurer under Clause 19 of the code and had therefore failed to establish any loss of income caused by the respondent's failure to report his termination of appointment to the IARB. It appeared to the Court of Final Appeal that the Court of Appeal was factually misled to believe that the applicant was an insurance agent, rather than a technical representative. The Court of Final Appeal clarified and confirmed that the respondent was not an insurance agent, but a technical representative, and that Clause 33 of the code – not Clause 19 – should apply. The Court of Final Appeal therefore held that the Court of Appeal should not have taken on that new point of appeal contrary to the clear evidence presented at trial.
Insurance agents should be fully aware of their responsibilities towards their technical representatives and the role that they play in the developing regulatory framework of the insurance industry in Hong Kong (particularly in light of the pending regulatory changes following the enactment of the new Insurance Companies (Amendment) Ordinance 2015). Dah Sing Insurance Ltd v Gill Gurbux Singh confirms that insurance agents assume the reporting requirements expected of them under the Code of Practice for the Administration of Insurance Agents and guidance note. Failure to adhere will be considered a breach of duty owed to their technical representatives and can result in damages being awarded to the innocent party. Insurance agents should be familiar with the reporting obligations imposed on them under the code and any related guidance notes, and be clear on their role and responsibilities towards their technical representatives within the industry's regulatory framework so as to avoid possible future breaches of duty.
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.