The Court of Appeal in China Ping An Insurance (Hong Kong) Company Limited v. Tsang Fung Yin Josephine and Mohammad Taj (CACV 179/2012) found that the terms and conditions in a third party motor insurance policy had been incorporated into the interim contract of insurance covering the time of accident (the cover note), notwithstanding the formal policy had not been delivered to the insured. In this case, Tsang was held to have breached her contractual duty to notify the insurer of the accident pursuant to the terms of the Policy.
The decision reaffirms the legal position that where the terms and conditions contained in the formal insurance policy are expressly referred to in the cover note and the wording is sufficiently clear, the insured would be bound by the terms and conditions contained in the formal policy even though the formal policy has not yet been delivered.
In this case, Tsang (the first defendant) (the "Insured") was the registered owner of a private car. Mohammad Taj (the second defendant) (the “Insured driver”) was the authorised driver of the car. China Ping An Insurance was the motor insurer of the private car (the "Insurer").
On 1 June 2006, the Insured submitted the insurance proposal form to take out third party motor insurance for the car. In the proposal form, the Insured signed on declarations as follows:
"(5) I/We hereby agree that this Proposal and Declaration shall be incorporated in and taken as the basis of the proposed contract between me/us and the Company; and (6) I/We agree to accept a policy in the Company’s usual insurance policy form this class of insurance."
On the same day the Insurer issued a Cover Note to the Insured which stated that:
"Tsang Fung Yin Josephine having proposed for insurance in respect of the Motor Vehicle … and having paid the sum of … the risk is hereby held covered in terms of the Company's usual form of THIRD PARTY ONLY Policy applicable thereto for a period of 30 days … ." (the "interim contract of insurance").
The Insurer issued a formal policy on 4 July 2006 and delivered it to the Insured on 22 July 2006. On 12 July 2006 (i.e., before the delivery of the Policy), the Insured driver was involved in a traffic accident. He was prosecuted and convicted of careless driving. The Insurer repudiated policy liability on the ground that the Insured had failed to give notice of the accident pursuant to the terms of the policy. The insurer settled two personal injury claims on a without prejudice basis and sought recovery against the Insured and the Insured driver for the damages and costs paid in respect of those claims.
The Court of Appeal Decision
The Insurer's recovery action was dismissed by a Master of the Court of First Instance upon the Insured's application for an order of dismissal on the basis that the notification requirement under the terms of the Policy formed no part of the interim contract of insurance on the date of the accident. However, this decision was successfully appealed by the Insurer to the Judge in Chambers. The Judge held that on true and proper construction of the cover note, all the terms and conditions in the Insurer's third party motor insurance policy, including the notification requirement were incorporated into this interim insurance contract.
The Insured appealed to the Court of Appeal. The Court of Appeal rejected the Insured's submission that the wording in the cover note merely defined the scope of the risk covered and held that they were sufficient to incorporate the standard policy terms into the interim insurance contract as the Insured had declared in the proposal form that she agreed to accept a policy in the Insurer's usual policy terms for motor insurance. It was contended by the Insured that exclusory condition in the formal policy should not be applicable until the policy was delivered to the Insured for her to acquire knowledge of its contents. However, the Court of Appeal held that the Insured should have had every opportunity to find out about the policy before she submitted the proposal form and accepted the cover note.
- Where the terms and conditions of a motor policy are expressly referred to in the cover note and the wording is sufficiently clear, those terms and conditions would be regarded as being incorporated into the cover note, and the insured would be bound by those terms and conditions, notwithstanding that the formal policy has not been delivered.
- Insurers may need to review the wording of their cover notes and proposal forms to consider whether the wording is sufficiently clear to ensure the proper incorporation of the terms and conditions of the policy.