Leung Wai Ming, The Administrator of the Estate of Tsang Kam Oi, Deceased v. Massmutual Asia Ltd
Read the full judgment text of DCCJ 3172/2014 on BabelCite. This District Court judgment was delivered on 30 September 2016.
1. The defendant applies to strike out the plaintiff’s action under Order 18, rule 19 of the Rules of District Court, Cap 336H on the grounds that it discloses no reasonable cause of action, is scandalous, frivolous or vexatious or is otherwise an abuse of the process of the court.
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DCCJ 3172/2014 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 3172 OF 2014 --------------------
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-------------------- DECISION -------------------- Introduction 1.The defendant applies to strike out the plaintiff’s action under Order 18, rule 19 of the Rules of District Court, Cap 336H on the grounds that it discloses no reasonable cause of action, is scandalous, frivolous or vexatious or is otherwise an abuse of the process of the court. 2.This is an insurance dispute. In gist, Madam Tsang purchased from the defendant insurance company a life insurance policy which had a number of supplemental benefits. A number of years later, the “ownership” of the policy was transferred from Madam Tsang to her son Mr Leung. Mr Leung later surrendered the policy and received the cash value of the policy. Madam Tsang died shortly thereafter. A claim was made after Madam Tsang’s death in respect of one of the supplemental benefits to the policy, namely critical illness benefit. The defendant refused to pay and Mr Leung therefore brought this action on behalf of the estate of Madam Tsang. 3.In this striking out application, the initial core issue formulated by the defendant was very simple: How could any claim be made in respect of the policy when the same had already been surrendered and cash value paid? 4.However, when the summons was heard, the defendant raised a more fundamental challenge to the plaintiff’s claim, which was that after the transfer of ownership of the policy from Madam Tsang to Mr Leung, Madam Tsang ceased to have any privity of contract with the defendant. In the circumstances, the estate of Madam Tsang has no locus to sue under the policy. 5.This locus issue has theresince taken the center stage in this application and has generated rounds of submissions from both sides. Background 6.The relevant background of the case may be stated as follows. 7.On 10 December 2002, Madam Tsang took out an insurance policy (“Policy”) with the defendant. As listed in the policy schedule, the Policy consisted of a basic life insurance plan and a number of supplementary benefits. Madam Tsang was stated to be the “owner” as well as the “insured” in the Policy. 8.One of such supplemental benefits was an amount of HK$200,000 for critical illness. The defendant as insurer agreed to pay the benefit if Madam Tsang as the insured was “first diagnosed” to be suffering from any of the illness defined as “critical illness” under the relevant terms. 9.On 14 May 2004, upon Madam Tsang’s application and with Mr Leung’s consent, the “owner” of the Policy was changed from Madam Tsang to Mr Leung. 10.On 30 May 2011, because of financial difficulty, Mr Leung as the owner requested to surrender the Policy to the defendant in order to obtain the cash value of the Policy. By a letter dated 2 June 2011, the defendant accepted the surrender and issued a cheque in the sum of $16,635.54, payable to Mr Leung, representing the cash value of the Policy. 11.On 26 July 2011, Madam Tsang attended the Accident and Emergency Department of Pamela Youde Nethersole Eastern Hospital and was immediately admitted into the Intensive Care Unit for specialist treatment. It was suspected that she had colonic carcinoma with possible lung and liver metastasis. Unfortunately, her condition deteriorated and she passed away 5 days later on 31 July 2011. The causes of death as stated in her death certificate are liver abscess, bronchopneumonia, septicaemia, Klegsiellan infection and caecal adenocarcinoma. 12.On 27 October 2011, Mr Leung lodged a claim to the defendant for the critical illness benefit. By a letter to Mr Leung dated 25 November 2011, the defendant refused to pay the critical illness benefit because, inter alia, the Policy had already been surrendered on 30 May 2011. 13.On 28 February 2012, Mr Leung was granted the Letters of Administration to administer Madam Tsang’s estate. 14.Mr Leung then sought expert opinion from Professor Yuen Man Fung of Hepatology and Gastroenterology of the Department of Medicine of the University of Hong Kong as to whether Madam Tsang was “suffering” from colon cancer prior to 30 May 2011, the date when the Policy was cancelled. 15.By a report dated 21 July 2014, Professor Yuen opined that it is “very likely, although not absolutely” that colon cancer was present on or before 30 May 2011 (ie around 2 months before Madam Tsang’s death), because a colon cancer with the relevant dimension would be expected to have existed for more than 2 months before Madam’s Tsang’s death in July 2011. 16.Mr Leung therefore commenced the present action, as administrator of Madam Tsang’s estate, against the defendant on 19 August 2014 to claim the critical illness benefit under the Policy. The parties’ cases 17.When the summons came before me on 17 December 2015, Mr Brian Wong, counsel for the defendant made three points in support of the defendant’s application, namely:－
18.On the other hand, Mr Allen Lam, counsel for the plaintiff, argued that Mr Leung did not have any “insurable interest” in the Policy. As a result, despite the change of ownership, Madam Tsang continued to be a party to the Policy. This is because according to Mr Lam, “the Policy continues to be a contract between the Insurer and the Insured, as it always was”. Further, Mr Lam argued that there was no requirement either for the first diagnosis or the claim to be made during the currency of the Policy. Mr Lam also argued that when Mr Leung surrendered the Policy, he only surrendered his own personal rights, but not the rights of Madam Tsang. The Issues 19.In summary, the issues in this application are therefore as follows:-
Legal Principles 20.The legal principles are not in dispute. It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule. There should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out. One must be careful not to drive a plaintiff from the judgment seat nor should the court decide difficult points of law. Plain is not the same as simple and obvious is not the same as short and if on a careful reading of the Statement of Claim however complicated, it can be seen that there is no cause of action, a court can, and probably will, order it to be struck out: see paragraph 18/19/4 White Book 2016. Issue 1: Locus The parties’ initial submissions 21.There is no dispute that when the Policy was purchased, Madam Tsang and the defendant were the contracting parties. However, what about the position after the change of ownership of the Policy from Madam Tsang to Mr Leung? 22.The Basic Provisions of the Policy provide, inter alia, as follows:-
23.Mr Wong argues that as the Policy is “a legal contract between you (ie the owner) and us (ie the defendant)”, from the date of the change of ownership of the Policy, Madam Tsang has ceased to be a party to the contract because she is no longer the owner. Since then, only Mr Leung, as the new owner, can sue under the Policy. The present action is therefore bound to fail because Madam Tsang’s estate has no locus to enforce the Policy. 24.On the other hand, Mr Lam argues that Madam Tsang continued to be a contracting party after the change of ownership. His argument is as follows. A person insured under a contract of insurance is required to possess an insurable interest. In this case, the insurable interest was in Madam Tsang and Mr Leung did not have any insurable interest. Despite the change of ownership of the Policy, Madam Tsang remained to be the insured. The Policy continued to be a contract between the insurer and the insured, as it always was. 25.In reply, Mr Wong argues that the plaintiff’s response on locus in raising “insurable interest” is clearly out of place as it does not address the defendant’s contention that since the change of ownership, the Policy has become a contract between Mr Leung (the new owner) and the defendant. Hence, although Madam Tsang remained to be the insured, she ceased to be a party to the Policy and the defendant does not need to answer to her in the performance of the Policy. 26.Further, Mr Wong notes that it is not the plaintiff’s case that the Policy was void because of the absence of insurable interest. 27.As can be seen from the above summary of the parties’ submissions, the change of ownership of the Policy was of pivotal importance in this case. However, despite the parties’ respective contentions, there appears to be little analysis on the precise legal nature of a change of ownership in the context of insurance law. Therefore, at the hearing, I asked the parties to assist me on the meaning and legal effect of a change of ownership of an insurance policy. In particular, I asked whether such a change of ownership is in fact analogous to a novation of contract under normal contractual principles. 28.Mr Lam submitted that despite his research, he could not locate any discussion on the concept of ownership of insurance policy. In any event, he contended that the change of ownership in the present case did not amount to a novation. Instead, he argued that Mr Leung only acquired certain rights after the change of ownership, but that did not make him a contracting party to the Policy. 29.After some further discussions, I decided to request the parties to do further research and then file written submissions on the matter. In particular, I requested the parties to look into the following issues:-
The parties’ further submissions 30.It appears that both sides have changed their stances in respect of the nature of a change of ownership in their further written submissions. 31.Mr Lam now argues that the change of ownership was indeed a novation of contract and its effect was to create a new policy between Mr Leung and the defendant. The change of stance is perhaps not difficult to understand because Mr Lam further argues that since Mr Leung did not have any insurable interest at the time of the change of ownership, the new policy between Mr Leung and the defendant, which purported to replace the original Policy between Madam Tsang and the defendant, was void. As a result, the original Policy remained on foot and was therefore not affected by the subsequent purported surrender by Mr Leung. 32.On the other hand, in his further written submissions, Mr Wong no longer argues that Mr Leung had replaced Madam Tsang as a contracting party when the ownership of the Policy was transferred. Instead, he now argues that the change of ownership had amounted to either a “modification” of the Policy or an assignment of specific rights in the Policy from Madam Tsang to Mr Leung. He therefore says that there was no novation or creation of a new contract between Mr Leung and the defendant. Analysis 33.At this stage, I do not need to decide which side’s submissions are correct. The only issue before me is whether the plaintiff’s claim discloses an arguable cause of action. 34.In respect of insurable interest, there is no dispute that a person who intends to take out an insurance policy with the insurer must possess insurable interest in the subject matter to be insured. Section 64B of the Insurance Companies Ordinance, Cap 41 provides that:-
35.It is also not in dispute that Mr Leung, as the son of Madam Tsang, did not have any insurable interest in the Policy. This is because the common law rule is that parents do not have interest in the life of their children, nor the children in the life of his parents. 36.The rule is explained in Colinvaux’s Law of Insurance in Hong Kong 2009 at paragraph 16.015 as follows:-
See also MacGillivray on Insurance Law, 2012, 12th Edition, at paragraph 1-092. 37.Mr Wong however highlights the fact that the test as to insurable interest only bites at the time when a policy is entered. Therefore, insurable interest needs only to exist at the inception of the policy, it would not be relevant if an interest cease to exist after the policy has come to effect: see paragraph A-0437 Colinvaux & Merkin’s Insurance Contract Law April 2015 update and paragraph 1-065 Macgillivray on Insurance Law 13th edition at page 32. 38.In the present case, Mr Leung did not have any insurable interest in Madam Tsang’s life at the time when the ownership of the Policy was transferred from Madam Tsang to Mr Leung (and also at any other time). If the change of ownership was indeed a novation of contract, it does not appear to be in serious dispute that the purported new policy between Mr Leung and the defendant would arguably be void for lack of insurable interest. In such case, it would also appear to be arguable that the original Policy between Madam Tsang and the defendant was not extinguished or replaced, but had continued to exist thereafter. The important consequence of this possibility is that Mr Leung would not then have the right to surrender the Policy. And if the Policy had not been validly surrendered, the diagnosis of Madam Tsang’s critical illness might well have fallen within the currency of the Policy. 39.As a result, Mr Wong is constrained to argue that the change of ownership did not result in the making of a new contract. Instead, there was only a “modification” to the existing Policy. He argues that a modification or extension of contract of insurance must be distinguished from a renewal or the making of a new contract. A change to an existing contract of insurance, which does not substantially alter the nature of the bargain affecting both sides, is a modification or extension to a contract. The existing contract does not come to an end but continues as modified or extended by the change to which the parties have agreed. A renewal, by contrast, is a new contract altogether. The original contract comes to an end at the time of the renewal and is replaced by a new contract. 40.Mr Wong relies on paragraph 15-083 Chitty on Contracts Hong Kong Specific Contracts 4th edition which states as follows:-
41.In this context, I think paragraph 15-084 is also relevant, which is as follows:-
42.As stated above, according to the Basic Provisions of the Policy (see above), the Policy is a legal contract between the “owner” and the defendant. As such, it appears that as a result of the transfer of ownership from Madam Tsang to Mr Leung, the party to the contract has also changed from Madam Tsang to Mr Leung. Indeed, it was Mr Wong’s initial argument that as a result of such a change, Madam Tsang has ceased to have privity and therefore her estate does not have any locus to sue in this case. 43.This is not a case which merely involves the alteration of contractual terms between the same parties. Instead, it involves the possible substitution of a contacting party. In such circumstances, I think it is arguable that the relevant change was not just a modification of the original contract, as contended by Mr Wong. 44.Mr Wong’s alternative argument is that the change of ownership of the Policy could amount to an assignment of rights to Mr Leung. 45.In this regard, it is convenient to note that the defendant has specific assignment forms for the purpose of effecting assignment, namely “Deed of Assignment A07” for the collateral assignment and “Deed of Assignment A08” for absolute assignment. However, the parties in this case did not use any of these forms. 46.Mr Wong seeks to meet the point by arguing that this is irrelevant because whether or not there was an assignment depends on whether there was compliance of section 9 of The Law Amendment and Reform (Consolidation) Ordinance, Cap 23 (“LARCO”), and not whether the prescribed forms were used. 47.Section 9 of LARCO provides that:-
48.Mr Wong argues that the process Madam Tsang took in requesting for the change of policy owner in favour of Mr Leung falls within the terms of section 9 and therefore could equally be considered as an effective assignment of specific rights in the Policy to Mr Leung. 49.However, with respect, whether a transaction could be an assignment is a somewhat different question from whether the same is indeed an assignment. The latter question would of course involve a detailed consideration of the factual matrix of the case. 50.At this stage, I think there are three points that militates against Mr Wong’s arguments. 51.First, it is noted that the right to assign and the right to change ownership are provided as separate and distinct rights under the Policy. The Policy Ownership Provisions provide, inter alia, that:-
52.Secondly, if the purpose of the change of ownership was just to effect the assignment of certain rights, there appears to be little reason, at least on the defendant’s part, for not using its own prescribed forms. In any event, no reason has been advanced in this application. 53.Thirdly, the Policy Ownership Provisions provide, inter alia, as follows:-
54.The required signing of the defendant’s written acknowledgement at the defendant’s head office does not appear to have happened in this case. 55.In the circumstances, whether the change of ownership amounted to a mere assignment of rights under the Policy is not a foregone conclusion. Finding that there is an arguable claim 56.In conclusion, through a slightly circuitous path, I find that the plaintiff has an arguable claim. It is arguable that the Policy between Madam Tsang and the defendant had not been validly surrendered by Mr Leung. This is because the purported transfer of ownership to Mr Leung might have been void in the first place. If that is the case, not only would Madam Tsang’s estate have locus to sue, but also the diagnosis of her critical illness might have fallen within the currency of the Policy. 57.Given my determinations of the above, it is not necessary for me to further consider the other issues set out above. However, in view of the fact that I have heard detailed submissions and in deference to counsel’s submission, I would express my view on the remaining issue briefly below. Issue 2: Effect of surrender of the Policy 58.The relevant termination clauses in the Policy are as follows:-
59.Mr Wong therefore argues that on 30 May 2011, Mr Leung had exercised his right as the policy owner to bring the Policy, including the critical benefit, to an end. Mr Wong also notes that it was clearly stated in Request for Policy Surrender that:-
60.On the other hand, Mr Lam argues that the surrender of the Policy did not affect Madam Leung’s right to receive the critical illness benefit. Instead, he argues that the said surrender of benefit under the Policy by Mr Leung relates and concerns only those rights of Mr Leung as beneficiary but not those of the insured, Madam Tsang. Mr Lam emphasizes that Madam Tsang did not sign the said Request for Policy Surrender. He argues that Mr Leung, as the owner and beneficiary under the Policy, has no right or power whatsoever to take away the insured’s said right and entitlement. 61.With respect, I do not agree with Mr Lam. If Mr Leung had validly become the policy owner in place of Madam Tsang, he would have the right to surrender the Policy. In doing so, Mr Leung did not need the consent or approval of Madam Tsang. In my view, if the transfer of ownership to Mr Leung was effective, his surrender of the Policy would have been a total and complete one which, according to the terms of the Policy, had the effect of terminating all coverage under the Policy including the Critical Illness Benefit. Issue 3: Whether diagnosis must be made prior to surrender 62.There is no dispute that Madam Tsang was suffering from colon cancer, which is a critical illness defined under the Policy, at the time of her death. From the report of Professor Yuen, there is evidence that Madam Tsang may be suffering from colon cancer at the date when the Policy was surrendered. The plaintiff says that this is good enough to trigger the payment provisions in the Policy. Effectively, the plaintiff says that as long as Madam Tsang “began to suffer” from colon cancer when the Policy was in force, it would be sufficient. 63.The Critical Illness Benefit Provisions provide, inter alia, that:-
64.Mr Wong argues that the meaning of the above provision is very simple, ie the insured must be “diagnosed” to be suffering from a critical illness while the supplemental benefit is still in force. In this case, as the diagnosis was only made after Mr Leung’s surrender of the Policy, it was simply too late. 65.Mr Wong also relies on the Chinese version of the provision which is as follows:-
66.The Chinese version again shows that the diagnosis has to be made, inter alia, when the supplemental benefit is in force. 67.On the other hand, Mr Lam argues that Madam Tsang’s right and entitlement under the critical illness benefit had already crystallised when she began to suffer from the critical illness. As a result, Mr Leung’s surrender of the Policy did not extinguish or affect the right and entitlement of Madam Tsang to receive the critical illness benefit. 68.In respect of the Chinese version of the Policy, Mr Lam relies on a term in the Policy which provides that:－
69.In my view, there is no inconsistency between the English version and the Chinese version. Instead, both versions clearly provide that the relevant diagnosis has to be made when the Policy is in force. Mr Wong’s contention that it would be enough for Madam Tsang to “begin to suffer” from any critical illness and the relevant diagnosis could be made after the termination of the Policy is in my view contrary to the plain meaning of the said provision. Issue 4: Whether claim must be made prior to surrender 70.The Notice of Claim provision in the Critical Illness Benefit Provisions provides that:-
71.Mr Wong argues that a claim has to be made when the Policy is in force. In the present case, the Policy was terminated on 30 May 2011. When Mr Leung lodged the claim form dated 27 October 2011, Mr Wong says that it was already too late as the Policy was no longer in force by then. 72.On the other hand, Mr Lam argues that the above-quoted provision does not support the defendant’s contention that the claim must be made while the Policy is still in force. Instead, all the above-quoted provision says is that a claim must be made within 3 months from the first diagnosis of any critical illness, no more no less. That had been done by Mr Leung on 27 October 2011. 73.I agree with Mr Lam. I think it is at least arguable that the above provision does not require a claim to be made when the Policy is in force. Instead, it only requires, inter alia, the claim to be made within 3 months of the first diagnosis of any critical illness. In the circumstances, as long as the first diagnosis is made during the currency of the Policy, the making of the claim itself could happen within 3 months thereafter even if by then the Policy has already come to an end. Conclusion 74.In conclusion, I find the plaintiff’s claim to be arguable and hence the defendant’s application is dismissed. Costs should follow the event and I order the defendant to pay the plaintiff’s costs forthwith, to be taxed if not agreed, with a certificate for counsel. 75.The parties have agreed that in the event that the defendant’s summons is dismissed, the parties will agree to expert directions as set out in the skeleton arguments of the plaintiff dated 13 November 2015. I will therefore make an order in terms. 76.Lastly, I thank counsel for their assistance.
Mr Allen Lam, instructed by Huen & Partners, assigned by the Director of Legal Aid, for the plaintiff Mr Brian Wong, instructed by Lau, Chan & Ko, for the defendant |