Introduction

While it is compulsory for any user of a motor vehicle to purchase motor vehicle insurance under the Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap. 272) (“the Ordinance”), the policy may not always be in place to cover the liability liable to third parties in the unfortunate event of traffic accidents when one seeks to rely on the same. This article examines the decision of Zurich Insurance Company Ltd v Yeung Sing Hei (HCMP1143/2023, unrep., 25 Sep, 2023) (“the Decision”), where the Court was asked to decide on the insurer’s application to avoid the motor insurance policy purchased by the Defendant on the ground of material non-disclosure, and the key points to note when one wishes to lend a vehicle purchased by oneself to someone else.

Key provisions of the Ordinance

Under section 4(1) of the Ordinance, it is compulsory for any person using (and any person permitting others to use) a motor vehicle to take out a motor insurance policy with an authorized insurer covering the liability for bodily injury or death of any third party arising out of the use of the motor vehicle on a road.

Under section 10(1) of the Ordinance, the insurer has a duty to satisfy judgments obtained against persons insured in respect of third party risks, notwithstanding that the insurer may be entitled to avoid or cancel the policy.

However, under section 10(3) of the Ordinance, an insurer may obtain a declaration from the Court that the insurer is entitled to avoid the policy on the ground that the policy was obtained by non-disclosure of a material fact, or by a representation of fact which was false in some material particular. “Material” is defined under section 10(5) of the Ordinance to refer to matters of such a nature as to influence the judgment of a prudent insurer in determining whether he will take the risk, and, if so, at what premium and on what conditions. If the insurer successfully obtains a declaration under section 10(3) of the Ordinance, the insurer has no duty to satisfy judgments obtained against the insured in respect of third party risk.

Factual background of the case

The Defendant purchased two motor insurance policies (“the Policies”) from the Plaintiff in respect of a motor vehicle in which the Defendant is named as the only driver (“the Vehicle”). The Defendant provided other material information in the Policies, such as the years of driving experience, medical records, and numbers of motor car non-windscreen claims reported against him. All of this said information was provided on the basis that the Defendant, the owner of the Vehicle, was the only driver of the Vehicle.

While the second policy was in place, a traffic accident (“the Accident”) took place in Wong Tai Sin in which two individuals were injured by the Vehicle. It later transpired that at the material times of the Accident, the Vehicle was being driven by a Mr Wong, who was subsequently convicted of dangerous driving, and not the Defendant himself. Upon questioning by the police, the Defendant revealed that he agreed to purchase the Vehicle and become the registered owner of the same on behalf of a friend, a Mr Chan. He was not made known since when the said Mr Chan lent his Vehicle to Mr Wong. After the Accident, the Defendant submitted a motor insurance claim form, in which he identified Mr Wong as the driver concerned in the Accident. The Plaintiff applied to the Court for a declaration under section 10(3) of the Ordinance to avoid the Policies on the grounds of misrepresentation and/or material non-disclosure and commenced the current action thereafter.

The Court’s ruling

The Court gave judgment in favour of the Plaintiff and held that the Policies were obtained by non-disclosure of material facts, or by representations of fact which were false in some material particular. In particular, the Court highlighted the following material non-disclosure:

1.       The Defendant had misrepresented that he was the only regular or named driver of the Vehicle when he was in fact not the user of the Vehicle;

2.       The Defendant did not have keys to the Vehicle;

3.       The Defendant had become the registered owner of the Vehicle on behalf of another person; and

4.       The Defendant did not know who would ultimately be driving the Vehicle.

The Court held that the above facts were material for a prudent insurer’s consideration of an applicant’s risk profile and ultimately affected his decision to take on the risk of the motor vehicle insurance, and on what terms. The Court is satisfied that the Plaintiff would not have approved the Policies had it known that the Vehicle would be lent to other person independent of the Defendant, and for purposes unknown to the Defendant or the Plaintiff. Therefore, the Court made a declaration under section 10(3) of the Ordinance.

Key takeaways 

Lending your vehicle to someone may seem like a simple gesture, but the implications on insurance coverage are anything but simple. It is important to bear in mind that insurers needs information about the driver(s) of a vehicle to assess risk and determine appropriate premiums. To protect your insurance coverage and avoid potential personal liability for damages in the unfortunate event of traffic accidents, it is advisable not to lend your vehicle to others without informing your insurer and ensuring that the driver is properly covered under your policy.