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.

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 prevalent 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 and tribunal 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; or
• the 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 CRTP

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 continues to pursue claims against directors and officers in listed companies in relation to insider dealing and false trading at the MMT. 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. That said, the introduction of outcome-related fee structures for arbitration proceedings may open the door to new ways for claimants to mitigate costs risks. See 9.1 Developments Affecting Insurance Coverage and Insurance Litigation.

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.

Aviation

According to the Airport Authority of Hong Kong, for the fiscal year ended 31 March 2023, Hong Kong International Airport handled 12.4 million passengers and 161,160 flights, which were seven times and 11.5% more than the previous year, respectively. With most if not all travel restrictions in relation to the pandemic being lifted, it is likely that the number of aviation claims will steadily return to pre-pandemic levels.

Construction

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 continue to be prevalent, as criminals take advantage of security loopholes and miscommunications arising out of hybrid working arrangements. As cyber threats become a bigger issue in Hong Kong, it is likely that claims on cyber insurance will continue to grow in the near future. See also 8.2 Data Protection Laws.

Political Risk and Trade Credit

Most industries have been negatively impacted by COVID-19, and the effects persist despite the global pandemic being over. Insured losses arise from:

• increased government intervention; and
• rising insolvencies in businesses with insufficient capital to withstand 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. The recent Russo-Ukrainian conflicts have also raised concerns with regards to potential future escalations of political tensions on a global basis.

Trade credit insurers are also expecting an uptick in claims activity. Trade credit insurance policies cover the risk of private buyer default or insolvency. Given that the global economy remains lukewarm in growth, and with recent inflation and interest rate surges, it is expected that the shutting of service and manufacturing operations as an aftermath of pandemic will prolong the rise in insolvencies and, in turn, claims under trade credit insurance policies.

Business Interruption (BI)

The pandemic and the recent natural disasters in Hong Kong (see 8.1 Impact of ESG on Underwriting and Litigating Insurance Risks) have resulted in insurers facing claims under their BI wording. The former came as a shock to many insurers who did not intend their policy to respond to this kind of pandemic. Understandably, most insurers have reviewed their policies 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.

Construction

As COP28 approaches, there has been a significant increase in zero carbon target pledges which will see fruition via green construction projects utilising green materials. In recent years, 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 directors and officers 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. See also 9.1 Developments Affecting Insurance Coverage and Insurance Litigation.

Property Damage

Climate change also continued to dominate 2022 and 2023. Hurricane Ian, in September 2022, was the first Category 5 hurricane, the most severe under the Saffir-Simpson Hurricane Wind Scale, in the Atlantic Ocean since 2019. The total damage was at an estimate of USD112.9 billion, making Hurricane Ian the third-costliest hurricane in recorded history.

Closer to home, Hong Kong was hit by Super Typhoon Saola in early September 2023, followed by a rainstorm one week later with the highest rainfall rate ever recorded in Hong Kong. While the amount of direct economic loss arising out of such events is still being ascertained, such loss will likely be significant.

The PDPO

The privacy law regime in Hong Kong is governed by the Personal Data (Privacy) Ordinance (Cap. 486 of the Laws of Hong Kong) (PDPO). Currently, data users only need to notify affected individuals and the Privacy Commissioner for Personal Data (Commissioner) of a personal data breach on a voluntary basis. The Commissioner can issue enforcement notices regarding breaches under the PDPO and prosecute in limited circumstances.

Earlier this year, the Commissioner indicated that there will be substantive amendments to the PDPO to the effect that data users will be required to make mandatory data breach notifications and to formulate a data retention policy. The Commissioner will also be empowered to impose administrative fines with regards breaches of the PDPO. There may also be new direct regulations targeted at data processors.

Separately, there is a surging trend in cyber attacks globally. According to the Hong Kong Computer Emergency Response Team Co-ordination Centre, as at 2022, the number of cyber security incidents has risen by 9% since 2021.

The GDPR

Ever since its implementation in 2018, the General Data Protection Regulation (GDPR) continues to have significant impact on the use of personal data among multinational corporations. In September 2023, TikTok was fined EUR345 million by the Irish Data Protection Commission for its mishandling of children’s data. With personal data becoming a more prominent contemporary issue, it is likely that transnational litigation in relation to data breach and misuse of personal data will continue to thrive.

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. In August 2021, the working group commissioned 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.

Outcome-Related Fee Structures for Arbitration

On 30 June 2022, the Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Ordinance 2022 (ORFSA Ordinance) was gazetted, with some parts of the legislation being effected on the same day. Subsequently, the ORFSA Ordinance came into full operation as part of the Arbitration Ordinance on 16 December 2022, along with the Arbitration (Outcome Related Fee Structure for Arbitration) Rules (Cap. 609D of the Laws of Hong Kong) (ORFSA Rules).

Generally speaking, the ORFSA Ordinance and the ORFSA Rules establish a legal framework in Hong Kong on the use of a broad range of outcome-related fee structures (ORFSs), including conditional fee agreements, damages-based agreements and hybrid damages-based agreements in arbitration proceedings taking place in and outside of Hong Kong. These changes may have an impact on claims handling and defence, as well as how parties approach insurance coverage disputes, which are often resolved by way of arbitration.

ESG Framework Under the Listing Rules of the HKEx

On 14 April 2023, the HKEx issued a consultation paper (Consultation Paper on Enhancement of Climate-related Disclosures Under the Environmental, Social and Governance Framework) soliciting input on plans to enhance climate-related disclosures within the ESG framework under the Listing Rules of the HKEx. The HKEx proposes the mandatory inclusion of climate-related disclosures in all issuers’ ESG reports and the introduction of new climate-related disclosures aligned with the International Sustainability Standards Board Climate Standard. These initiatives align with the commitment to mandate the Task Force on Climate-related Financial Disclosures-aligned disclosures by 2025, as announced by the Hong Kong Green and Sustainable Finance Cross-Agency Steering Group. Recognising issuer readiness and concerns, the HKEx also suggests interim provisions for specific disclosures during the first two reporting years beginning 1 January 2024. The proposed climate-related disclosure requirements encompass governance, strategy, risk management, metrics, targets and remuneration. The consultation ended on 14 July 2023.

Protection of Personal Data

See 8.2 Data Protection Laws.