In Hong Kong, if any employee suffers personal injury as a result of an accident sustained in the course of their work, the employer is liable to pay compensation.
To ensure that employers are able to pay such compensation, it is a mandatory requirement for them to take out an employees' compensation insurance policy. Pursuant to Section 43(1) of the Employees' Compensation Ordinance (ECO), if there is an effective policy in place, the insurer must then make a compensation payment on behalf of the employer.
This obligation on the insurer in respect of the employee is almost unfettered, but the situation with the employer is not the same. Despite the mandatory requirement, a number of court cases have shown insurers refusing to indemnify employers, even if there is an employees' compensation policy in effect. The major reasons for such situations tend to be ignorance of the terms of the policy or failure to comply with them. In other words, the employer may not be fully covered by the policy and end up having to pay compensation to the employee from company funds. The 1993 case of Euro-America Insurance Limited vs Wong Wing Tak trading as Loi Kee Marine Store is a good example of this.
Mr Wong was the sole proprietor of a waste paper and materials packing business. He took out an employees' compensation insurance policy with the help of an insurance broker, Mr Chan. In November 1991, one of Mr Wong's employees injured his hand while working on a packing machine. The same day, Mr Wong informed Mr Chan of the accident by phone and, the following day, received verbal assurances that the latter would personally notify the insurer of the accident, take responsibility for dealing with the matter, and complete all the necessary forms.
Unfortunately, the insurer received no verbal or written notification of the accident until about 15 months later. When that happened, they wrote to Mr Wong via their solicitors to repudiate liability under the policy on the grounds that he was in breach of the condition requiring that immediate written notice be given. Furthermore, the insurance company also reserved the right to seek indemnity from Mr Wong.
The policy contained a number of standard clauses of the type common within the insurance industry. For example, Clause 2 provided that "every notice of communication to be given or made under this policy shall be delivered in writing to the Company". Also, Clause 4 stated that "in the event of any occurrence which may give rise to a claim under this policy the Insured shall as soon as possible give notice thereof to the Company". Besides that, Clause 12 said, in essence, that the fulfilment of Clause 4 was a condition precedent to the liability of the insurer.
One of the arguments put forward by Mr Wong was that, since Mr Chan was an agent of the insurer, immediate notice of accident had been given to the insurer in the person of Mr Chan.
The Court examined the terms of the policy and noted that the purpose of the immediate written notice clause was to enable the insurer to investigate accidents and claims at the earliest possible opportunity. In rejecting Mr Wong's argument about notifying Mr Chan, the Court highlighted the difference between an insurance broker and an insurance agent. Basically, the former represents the interests of the party insured, while the latter is an agent of the insurer. Even if notice of an accident is given to an insurance agent, it must comply with the terms of the policy and be in writing.
In Mr Wong's case, the Court made a declaration that the insurer was entitled to repudiate liability under the ECO. Mr Wong therefore had to pay compensation to the injured employee from his own pocket. Even if the insurance company had initially paid out to the injured employee, they would have had the right to seek indemnity from the employer under this ruling.
|Q&A on insurance policies for employees' compensation|
|Q1 ||What sanctions might there be against an employer who has failed to take out insurance to compensate employees?|
|A1 ||Pursuant to Section 40(2) of the ECO, an employer who contravenes the statutory requirement to take out an insurance policy commits an offence and is liable upon conviction to a fine of HK$100,000 and two years' imprisonment. |
|Q2 ||In view of Wong's case, what practical steps should an employer take?|
|A2 ||An employer should first ensure there is a valid employees' compensation insurance policy and must be familiar with its terms and the steps to take if an accident occurs. The employer should also know who sold the policy and, no matter whether it was an insurance agent or a broker, should directly notify the insurer in writing of any accident. The insurer should also be informed of any claim or intended claim by the injured employee. Proper records and copies should be kept of all documentation relating to the case. |