Insurance Litigation 2021

Last Updated October 01, 2021

Hong Kong

Law and Practice


Kennedys established its Hong Kong office in 2000, and this has since grown to ten partners and more than 27 lawyers. The office is part of a growing network of over 2,300 people from 64 offices and associated offices across Asia Pacific, the UK and Europe, the United States and Bermuda, Canada, Latin America and the Middle East. Kennedys is a first-choice firm for large and complex insurance and reinsurance disputes in the market, in particular those with a multi-jurisdictional dimension. The firm excels in work that is high value, high profile, precedent-setting and important to the industry as a whole, and handles many of the market’s biggest and most significant insurance disputes. The team regularly advises on coverage and monitoring in respect of large-scale regulatory investigations and litigation against directors and officers, and financial institutions, supervising multiple defence teams and reporting to multiple stakeholders.

The Insurance Complaints Bureau (ICB) handles complaints from policyholders arising from personal insurance contracts of a monetary nature by way of mediation. 

Policyholders are not bound to refer their disputes or complaints to the ICB. If they choose to litigate or arbitrate their case instead, the ICB does not have jurisdiction unless and until those proceedings are resolved.

There is no specialist insurance court or civil litigation procedure for resolving insurance disputes. The Hong Kong International Arbitration Centre has no specialist rules for these disputes, although it provides a list of arbitrators, some of whom have specialist insurance knowledge.

There is no special process for insurance litigation; general civil procedure rules apply to insurance litigation.

Limitation periods are governed by the Limitation Ordinance (Cap. 347 of the Laws of Hong Kong). Under a liability policy, the insured generally has six years to issue proceedings against the insurer. The time starts to run from the date liability is established by a judgment, arbitral award or binding settlement. However, the parties can agree to a shorter or longer limitation period, and the courts generally enforce such an agreement.

Alternative dispute resolution (ADR) is prevalent and encouraged in Hong Kong. Arbitration is a popular form of ADR for insurance disputes. With the introduction of the Civil Justice Reforms in April 2009, there has been a greater focus on the early settlement of disputes, particularly through mediation. The most common ADR method used to settle insurance claims is, however, arbitration.

There are no specific provisions regulating the choice of forum, venue or applicable law clauses in insurance contracts. The usual common law principles apply, in that such clauses will be recognised, provided they are not considered by the courts to be unfair or unreasonable.

In the absence of a choice of forum, Hong Kong courts would consider the system of law with which the transaction has the closest and most real connection as the applicable law.

Foreign judgments may be enforced in Hong Kong pursuant to the following.

Statutory Registration Schemes

The Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319 of the Laws of Hong Kong) and Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597 of the Laws of Hong Kong) provide statutory registration schemes that facilitate reciprocal recognition and enforcement of foreign and Mainland China judgments respectively.

Common Law

Other foreign judgments may be enforced by way of common law action. In a common law action for enforcement of a foreign judgment, the judgment creditor has to prove that the foreign judgment is a final judgment conclusive upon the merits of the claim. Such a judgment must be for a fixed sum and must also be delivered by a “competent” court as determined by private international law rules.

Hong Kong courts follow the previous decisions of courts of the same or a higher level. For example, judgments of the Hong Kong Court of Final Appeal (CFA) are binding upon the High Court as the CFA is a higher level court than the High Court.

Judgments of the UK Privy Council delivered before 1 July 1997 in cases on appeal from the Hong Kong courts have, to the extent they are consistent with the Basic Law, the same status as judgments of the CFA.

In addition, case law from other common law jurisdictions, including England and Wales, Australia and New Zealand, is frequently referred to in insurance disputes in Hong Kong, even though Hong Kong courts are not bound by them.

Arbitration clauses in insurance and reinsurance agreements are generally enforceable by the parties, provided that the obligation to arbitrate is expressed in unqualified and mandatory terms. 

The New York Convention extends to Hong Kong by reason of Mainland China being a party to the New York Convention. Arbitral awards made in jurisdictions that are signatories to the New York Convention can therefore be enforced in Hong Kong in the same manner as a judgment, upon a successful court application.

Meanwhile, the Arrangement Concerning Mutual Enforcement of Arbitral Awards that has been entered into between Mainland China and Hong Kong sets out the framework for enforcement of arbitral awards of Mainland China in Hong Kong.

The Arbitration Ordinance (Cap. 609 of the Laws of Hong Kong) governs the enforcement in Mainland China of arbitral awards made in jurisdictions that are signatories to the New York Convention, as well as awards in jurisdictions that are non-signatories to the New York Convention.

Arbitration is a significant form of insurance dispute resolution in Hong Kong across all lines of insurance, but particularly where the amount in dispute is significant, given the need for the parties to fund arbitration fees.

The drafting of the Arbitration Ordinance (Cap. 609 of the Laws of Hong Kong) was largely based on the UNCITRAL Model Law. It includes a number of additional provisions that supplement or modify the UNCITRAL Model Law, including provisions on confidentiality.

Generally, arbitration proceedings in Hong Kong are private and confidential, unless the parties agree otherwise.

While an arbitral award is generally final and binding, it may be challenged if the court is satisfied that the conditions set out in Schedule 2 to the Arbitration Ordinance have been met. The court also has the power to set aside an arbitral award on procedural or public policy grounds under Section 81 of the Arbitration Ordinance. 

A duty of utmost good faith is specifically incorporated into marine insurance contracts (Section 17, Marine Insurance Ordinance (Cap. 329 of the Laws of Hong Kong)) and also applies to all other Hong Kong insurance contracts. This duty means that the insured must disclose to the insurer all facts of which the insured is aware (and of which the insurer is not aware or deemed to be aware) which may affect the insurer’s decision to enter into the insurance contract or the terms on which it is prepared to do so. It also means the insured:

  • must not make misrepresentations before entering into the insurance contract (English legal misrepresentation principles apply); and
  • must avoid material non-disclosure. 

Breach of this duty allows the insurer to avoid the policy (provided it establishes inducement to enter into that policy by a material false statement). While in many jurisdictions the availability of this draconian measure has been removed or amended by legislation, in Hong Kong, there has been no such legislative reform and it is still possible for an insurer to avoid the policy. 

The insurer owes the same duty to the insured (although under the scope of that duty, it is harder to define what is material to the insured).

Other terms implied into an insurance contract are:

  • the insured must have an insurable interest;
  • the existence and identification of the subject matter of the insurance; and
  • the insurer’s subrogation rights.

An insurer cannot exclude or limit its liability for the actions of its appointed insurance agent in the agent’s dealings in respect of the issuance of an insurance contract and insurance business relating to that contract (Section 68(2) of the Insurance Ordinance (Cap. 41 of the Laws of Hong Kong)).

See 4.1 Implied Terms.

While not necessarily a feature available under Hong Kong law, there has been an increase in the number of claims by policyholders for entity cover under Hong Kong policies in respect of actions commenced by shareholders, who dispute the adequacy of a merger’s share price, under either Delaware law or Cayman Islands law, for the appraisal of the fair value of their shares sold by merger. 

There have also been a number of directors’ and officers’ liability (D&O) insurance coverage disputes in Hong Kong in this regard. However, unlike in the US, these cases are mostly arbitrated and the arbitral awards, and the rationale behind them, do not reach the public domain. 

The principal dispute resolution methods used to settle insurance and reinsurance claims are arbitration and litigation.

See 1.1 Statutory and Procedural Regime with respect to the ICB.

The position is otherwise no different where the law views the insured party as a consumer.

Under common law, where a person (the insured) is insured against liabilities to a third party, that third party cannot claim directly against the insured’s liability insurer. If the insured is insolvent, the insurance proceeds will form part of the insured’s assets and the third party will have to prove that they are an unsecured creditor in that insolvency.

However, the Third Parties (Rights Against Insurers) Ordinance (Cap. 273 of the Laws of Hong Kong) allows a third party to claim directly against the insured’s liability insurer, by transferring the insured’s rights against the insurer to, and vesting them in, the third party if:

  • the insured is an individual who has become bankrupt; orthe insured is a company that has had a winding-up order made against it, or its members have passed a resolution for a voluntary winding-up (unless for the purposes of reconstruction or amalgamation), a receiver or manager has been appointed to take control of its property or a debenture holder has taken possession of its property as subject to a floating charge; and
  • before or after the bankruptcy or insolvency event in question, the insured has incurred a liability to the third party.


The Contracts (Rights of Third Parties) Ordinance (Cap. 623 of the Laws of Hong Kong) (CRTP) provides that if a term of a contract expressly, or under proper construction, purportedly grants benefits to a third party expressly identified in the contract, the third party can enforce the terms of the contract against the parties to the contract, provided the parties have not expressly excluded the application of the legislative scheme. 

The CRTP applies to an insurance contract, but an insurer can expressly exclude the application of the CRTP. If an insurer does not expressly exclude the application of the CRTP, however, a third party that is granted a benefit under that policy can, despite not being a party to the policy, directly enforce the term of the policy granting that benefit against the insurer. The insurer is entitled to raise the same defences and claim the same set-off rights which would have been available to it had the insured brought the action seeking to enforce that term of the policy.

Many types of insurance policies (eg, third-party liability motor insurance policies) confer benefits on third parties,so insurers will often expressly exclude the application of the CRTP.

A contract of insurance in Hong Kong is based on the principle of utmost good faith. A duty of good faith is imposed on both parties to an insurance contract; however, these good faith duties are significantly more onerous for the insured than they are for the insurer. See 4.1 Implied Terms.

There are no actionable damages in Hong Kong for breach of an insurer’s duty of good faith, including acting in bad faith; however, depending on the circumstances of that breach, an insured may be entitled to remedies for deceit or misrepresentation.

An insurer is not liable for any loss or damages for paying claims late under Hong Kong law. However, the Insurance Authority may take regulatory action if it receives complaints indicating perpetual late payment of claims by an insurer.

An insured is bound by representations made by its broker within the scope of the broker’s authority.

There are four types of authority recognised at law:

  • actual authority;
  • usual authority;
  • apparent authority or agency by estoppel, which arises if the broker exceeds its actual or usual authority, but the insured has made a representation to the relevant third party to the effect that the broker has the authority to perform the act concerned; and
  • authority gained from custom or trade usage.

Delegated underwriting or claims handling authority arrangements are used but are not common in Hong Kong. While disputes do arise out of such arrangements, they seldom reach the public domain in Hong Kong as they are generally resolved by the parties themselves. 

Insurers’ rights and duties in respect of funding the defence of insureds depend upon the wording of the relevant insurance policy. Liability insurance policies generally include provisions for reimbursing the costs of defending or settling a claim made against the insured. Such liability insurance includes compulsory liability insurance under Hong Kong law, eg, road traffic liabilities under the Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap. 272 of the Laws of Hong Kong) and employers’ liability under the Employees’ Compensation Ordinance (Cap. 282 of the Laws of Hong Kong). Other liability insurance includes employment practices' liability insurance and product liability insurance.

D&O insurance continues to be an area with relatively significant defence costs exposure. In Hong Kong, companies are permitted to purchase D&O insurance for their directors and officers. In fact, for listed companies, the Listing Rules of the Stock Exchange of Hong Kong (HKEx) expressly provide that a listed company should arrange appropriate insurance cover in respect of legal actions against its directors. Companies are also allowed to indemnify their directors and officers provided that they do so within the ambit of Sections 468 and 469 of the Companies Ordinance (Cap. 622 of the Laws of Hong Kong), which set out the types of indemnities that are valid and permissible. Hong Kong has seen its fair share of large regulatory actions involving directors and officers.

  • In 2014, after lengthy and expensive investigations by the Securities and Futures Commission (SFC), the SFC commenced proceedings against CITIC Limited and its former directors for over HKD800 million in compensation to investors. The SFC alleged that CITIC and its five directors engaged in market misconduct involving disclosure of false and misleading information about CITIC’s financial position. In 2017, the Market Misconduct Tribunal (MMT) cleared the company and its directors of misconduct.
  • In 2018, Qunxing Paper Holdings Company Limited and its former chairman and his son were ordered to compensate investors who subscribed for Qunxing shares in its IPO or who purchased them in the secondary market between 2007 and 2011. The court found that they had disclosed false or misleading information in Qunxing’s IPO prospectus in 2007 and in announcements, by materially overstating its turnover and understating its bank borrowings. The defendants were ordered to pay HKD1.42 billion.
  • In 2019, after extensive investigations by the SFC and the Independent Commission Against Corruption, a number of former senior executives of Convoy Financial Holdings Limited were charged with conspiracy to defraud the HKEx and its directors and shareholders.
  • To date, the SFC has commenced multiple sets of proceedings in the MMT for late disclosure of inside information. Of those that have proceeded to trial or settlement, the SFC has been successful on almost all occasions in obtaining sanctions, including the imposition of significant monetary fines against companies and directors. The MMT has the power to impose fines of up to HKD8 million against companies and directors, although the highest fine imposed to date has not been as significant.

Hong Kong continues to be less litigious than other common law jurisdictions or the USA.

In particular, there is currently no mechanism for shareholders to bring class action claims, although the SFC can act like a lead plaintiff to pursue companies and directors for compensation on behalf of shareholders for market misconduct. The SFC would fund the litigation.

Litigation funding is also only allowed in respect of arbitrations and insolvency proceedings. See, however, 9.1 Developments Affecting Insurance Coverage and Insurance Litigation.

Shareholder Derivative Actions or Petitions

There has been an increasing number of claims for unfair prejudice and derivative actions brought by shareholders who feel aggrieved by the management of a company. Sometimes these are purely shareholder driven, but other times, these are driven by the existence of a regulatory investigation against the company. These are often difficult to resolve out of court, because while the shareholders may feel aggrieved, the directors may not view themselves as having acted against, or contrary to, the interests of the company.

Employment Practices' Liability

Traditionally, in Hong Kong, this was not an area of much exposure for insurers. In recent times, however, there have been many more cases of alleged workplace discrimination. In the era of the "Me Too" movement, and the general heightened awareness among the Hong Kong public of their rights in relation to their employers, this trend shows no sign of slowing down.

Although publicly available statistical information is not available to show how and to what extent defence costs might have increased throughout recent years, the general perception is that litigation and regulatory claims are becoming more costly to defend for the following reasons:

  • lawyers and barristers want to increase their hourly rates as they gain year-on-year experience, which is not unreasonable; 
  • access to senior counsel with extensive regulatory experience is limited to a select few in the Hong Kong legal profession and those that have the experience command increasingly higher hourly rates;
  • in light of the increased Solicitors' Hourly Rates for Party and Party Taxations, law firms generally try to apply an hourly rate that is in line with such hourly rates and not below them; and
  • the scale of investigations by regulatory bodies has become larger and more extensive, involving voluminous documentation that requires review, and therefore requiring more manpower and fee-earning hours to be spent.

Under Hong Kong law, maintenance is “directed against wanton and officious intermeddling with the disputes of others in which the defendant has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse”, while champerty is “a form of maintenance, and occurs when the person maintaining another takes as his reward a portion of the property in dispute”.

Third-party funding of litigation and arbitration may now be common practice in a number of common law jurisdictions, but in Hong Kong, funding of litigation by a third party may constitute maintenance and champerty as criminal offences and torts, as a result of which, Hong Kong continues to maintain a conservative regime in respect of third-party funding. This is the case, even though third-party funding is allowed in arbitration and insolvency proceedings in Hong Kong.

Claimants in litigations in Hong Kong are therefore seldom, if ever, able to insure against costs risks in connection with their own claims.

An insurer can pursue, by way of subrogation and in the name of the insured, third parties that have caused loss to the insured. Under common law and equitable principles, the insured must be fully indemnified before the insurer can exercise its subrogation rights.

See 6.1 Right of Action to Recover Sums from Third Parties.


According to the Airport Authority of Hong Kong, during March 2021, Hong Kong International Airport handled 58,000 passengers and 10,620 flights, marking year-on-year decreases of 89.9% and 12.5%, respectively. The number of aviation claims has fallen sharply as a result of the reduced air traffic. The global demand to distribute vaccines has, however, given hope for a resurgence of air traffic in the near future.


COVID-19 has contributed to the hardening of the professional indemnity insurance market, and big contractors are finding it extremely difficult to purchase insurance on an “each and every” basis. As a result, there will likely be a rise in project-specific professional indemnity insurance.

Financial Lines

The COVID-19 pandemic not only exposed the vulnerabilities of a modern globalised world, but also amplified existing risks such as cyber-threats and rising insolvencies. The unexpected shift to home working has already led to an increase in fidelity claims, in part as a direct result of the weakening of internal controls.

Another direct result of COVID-19 has been an increase in insolvencies, despite the government assistance provided, with the bulk still probably yet to come.

Advancing technology continues to present both opportunities and challenges, and cyber-risks remain a concern for all businesses. Cybercrime and data breaches have risen during COVID-19, as criminals take advantage of the disruption and reduced security.

Political Risk and Trade Credit

Most industries have been negatively impacted by COVID-19, and the effects will be exacerbated the longer the pandemic persists. Insured losses arise from:

  • falling commodity prices;
  • increased government intervention; and
  • rising insolvencies in businesses with insufficient capital to withstand enforced shutdowns or supply chain disruptions. 

With respect to political risk insurance, claims could emerge under contract frustration policies in particular. Broadly speaking, contract frustration insurance covers the risk of default under contracts with sovereign entities and state-owned obligors. As well as non-payment and non-delivery by the obligor, it can cover risks such as licence cancellation, import and export embargo, and non-certification of invoices.

Trade credit insurers are also expecting an uptick in claims activity. Trade credit insurance policies cover the risk of private buyer default or insolvency. Despite aid packages for businesses announced by various governments around the world, it is expected that the shutting of service and manufacturing operations as a result of the pandemic will lead to a steep rise in insolvencies and, in turn, claims under trade credit insurance policies.

Business Interruption (BI)

The pandemic has resulted in many insurers facing claims under their BI wording. These claims came as a shock to many insurers who did not intend their policy to respond to this kind of pandemic. Understandably, insurers are reviewing their policies and it can be expected that they will either attempt to provide more restrictive cover to avoid liability for future pandemics, or charge higher premiums for the same cover.

See 7.1 Type and Amount of Litigation.

See 7.1 Type and Amount of Litigation.

The most significant change in terms of appetite for risk is the reduction of appetite for:

  • professional indemnity insurance on an “each and every” basis;
  • cyber-risks (in particular, in respect of ransomware events); and
  • US securities class action risk exposure.

Casualty Coverage

Climate change litigation continues to develop, predominantly in the US, but is also beginning in other jurisdictions.

General liability insurers will be watching these developments with particular interest because the US claims to date, which seek multibillion-dollar compensation for the rising costs of climate change (including the cost of state actors making improvements to flood defences, employing additional firefighters to tackle wildfires, and upgrading of municipal drainage), have been presented as product liability claims – mainly against carbon majors – on the basis that petroleum is a “defective product”. The most recent claims also make allegations of nuisance and that the defendants deceived the public.

Some claims continue in Europe against utility companies and oil majors either for positive action tantamount to enforcement of climate change standards (France) or for damages claimed for flood prevention measures alleged to be necessary as a result of global warming (Germany).

This has already spawned the argument that the claims attract cover under the defendant energy companies’ general liability insurance. The number of climate change liability claims is only likely to increase over the coming decade, as climate science improves and extreme weather events become more frequent, resulting in potentially massive liabilities for the insurance sector and posing new challenges for the insurability of climate-related events.


As COP26 approaches, there has been a significant increase in zero carbon target pledges which will see fruition via green construction projects utilising green materials. Over the last year, there has been an increase in claims involving renewable energy, due to component vulnerability, defective design and lack of maintenance. To combat this, the industry is developing data-sharing processes, infrastructure and standards for all stakeholders. It is anticipated that this will also help to produce more realistic underwriting and contribute to the softening of the renewable insurance market. 

Financial Lines

A rise in climate change litigation against companies and their executives is expected. Consumers and shareholders are increasingly demanding “green” finance/action. Shareholder activists are now focusing on financial institutions who provide financial services to "carbon majors", ie, oil and gas companies. Prudent D&O will need to assess and manage a company’s activities from an environmental perspective. There has already been an increase in the US in the filing of claims seeking remediation from those companies which have allegedly contributed to climate change.

Property Damage

Climate change also continued to dominate 2020. A rare climatic event occurred in the Atlantic Ocean on 14 September 2020: five storm systems – hurricanes, storms and depressions – were brewing in the ocean at the same time for only the second time on record. The five active storms were Hurricane Paulette, Hurricane Sally, Tropical Storm Teddy, Tropical Storm Vicky and Tropical Depression Rene. The total damage was over USD35 billion.

Closer to home, according to the Hong Kong Federation of Insurers, the direct economic loss caused by SuperTyphoon Mangkhut in September 2018 is estimated at about HKD4.6 billion, which is about 3.8 times that of Super Typhoon Hato in 2017.

Class Action

In 2012, the Law Reform Commission of Hong Kong published a consultation paper proposing that a mechanism for class actions be adopted in Hong Kong. In 2017, the Department of Justice formed a working group to prepare for a consultation. On 31 December 2020, the working group announced its intention to commission a consultancy study on the potential impact of a class action regime, starting with the introduction of a pilot scheme restricted to consumer class actions only. It also started the process of inviting expressions of interest.

Outcome-Related Fee Structures for Arbitration

On 17 December 2020, the Law Reform Commission of Hong Kong published a consultation paper proposing that the law in Hong Kong should be amended to permit lawyers to use outcome-related fee structures (ORFSs) for arbitration taking place in and outside Hong Kong.  It also made recommendations on the operation of individual regimes relating to ORFSs. The consultation period ended on 16 March 2021, but the results of the consultation have not yet been published at the time of writing.


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Law and Practice


Kennedys established its Hong Kong office in 2000, and this has since grown to ten partners and more than 27 lawyers. The office is part of a growing network of over 2,300 people from 64 offices and associated offices across Asia Pacific, the UK and Europe, the United States and Bermuda, Canada, Latin America and the Middle East. Kennedys is a first-choice firm for large and complex insurance and reinsurance disputes in the market, in particular those with a multi-jurisdictional dimension. The firm excels in work that is high value, high profile, precedent-setting and important to the industry as a whole, and handles many of the market’s biggest and most significant insurance disputes. The team regularly advises on coverage and monitoring in respect of large-scale regulatory investigations and litigation against directors and officers, and financial institutions, supervising multiple defence teams and reporting to multiple stakeholders.

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