In Hua Tyan Development Ltd v Zurich Insurance Company Ltd and Another [2013] HKCU 1858, the Hong Kong Court of Appeal considered whether the plaintiff (Insured) had breached a warranty relating to the deadweight tonnage (DWT) of the vessel concerned, the breach of which would entitle the first defendant (Insurer) to avoid the relevant insurance policy. On this point, the Court considered whether insurers are deemed to have constructive knowledge of information available on the internet in respect of an insured property.

BACKGROUND

The Insured was a trader in timber who shipped round logs from South East Asia to China. It engaged the second defendant (Broker) to obtain insurance coverage from the Insurer in respect of shipments of the timber. The vessel in question, MV Ho Feng No 7 (Ho Feng 7), had a DWT of 8,860.13. On 11 January 2008, the Insured, through the Broker, took out a cargo insurance policy with the Insurer in respect of 1,894 round logs worth US$1.5 million (Cargo) to be shipped on board Ho Feng 7 (Policy). Ho Feng 7 sank during the voyage and the Cargo was totally lost.

The Insurer refused to pay, claiming that the Policy was discharged because the Insured had breached a condition of the Policy, namely, “WARRANTED DWT NOT LESS THAN 10,000” (DWT Warranty). The Insured sued the Insurer under the Policy, and alternatively, the Broker for negligence, breach of duty and breach of contract.

COURT OF FIRST INSTANCE DECISION

At first instance, the Honourable Mr Justice Chung gave judgment for the Insured against the Insurer for the insured amount and found alternatively for the Insured against the Broker. He held that as a matter of construction of the Policy, the DWT Warranty did not apply because it was inconsistent with the purpose of the Policy which was to effect coverage of the Cargo carried on Ho Feng 7. He found that the Insured had not breached its duty of disclosure because the Insurer (being in the marine insurance business and knowing Ho Feng 7 was the vessel shipping the Cargo) should have ready and easy access to the particulars pertaining to Ho Feng 7 (i.e. that the DWT of Ho Feng 7 was 8,860.13, being less than 10,000).

COURT OF APPEAL DECISION

The Insurer appealed against the First Instance Judgment which the Court of Appeal duly overturned. It held that the coverage of the Cargo on board Ho Feng 7 and the DWT Warranty were not inconsistent because, under the terms of the Policy, the Insurer was to provide the coverage subject to the Insured giving the warranty that the DWT of Ho Feng 7 was not less than 10,000. In order to sustain the Insured’s case on inconsistency between the terms of the Policy and the real intention of the parties, the Court of Appeal considered that it has to be established that at the time of the issue of the Policy, both parties knew Ho Feng 7’s actual DWT was less than 10,000. On this point, the Court of Appeal held that the judge at First Instance did not make any finding that the Insurer had actual knowledge of Ho Feng 7’s DWT.

In determining whether the Insurer had presumed knowledge of Ho Feng 7’s DWT, the Court of Appeal considered that the Insurer is presumed to know matters of common notoriety or knowledge and matters which an insurer ought to know in the ordinary course of its business. In the context of what an insurer ought to know, the Court of Appeal cited Mr Justice Moore-Bick’s remarks in the case of Glencore International AG v Alpina Insurance Co Ltd [2004] 1 Lloyd’s Rep 111 that “the insurer is not deemed to know matters simply because it had the means of ascertaining them by appropriate enquiry”. The Court of Appeal held that while it may be said that the Insurer could have inquired about Ho Feng 7’s DWT, it is a different issue as to whether it should have so inquired. In order to establish that the Insurer should have inquired, the Court of Appeal held that the Insured should at least have adduced evidence from the marine insurance trade about its practice on inquiry rather than merely relying on the evidence that the information regarding Ho Feng 7’s DWT was available on the internet. Therefore, the Court of Appeal held that the Insurer did not have presumed knowledge of Ho Feng 7’s DWT (even though such information was easily available through the internet).

In view of the above findings, the Court of Appeal further held that the Insured had breached its duty of disclosure by failing to disclose Ho Feng 7’s DWT to the Insurer.

As the First Instance judge had already found against the Broker in the alternative, the Court of Appeal made an order against the Broker and held the Broker liable for the insured sum.

CONCLUSION

The insured is still required to observe the principle set out in section 18 of the Marine Insurance Ordinance (Cap.329) with regard to disclosure of every circumstance which is material to the risk.

The mere fact that certain information is available on the internet does not mean that the insurer would be imputed with knowledge of such information. Nonetheless, the court may accept evidence such as ordinary marine insurance trade practice if adduced by the insured to establish that an insurer has presumed knowledge of matters which are available from public resources or otherwise ascertainable by the insurer.