F. Motor Insurance

F. Motor Insurance

A.   Overview

Motor insurance is designed to provide cover for loss or damage to your motor vehicle and that of third parties, and bodily injury or death of third parties. The scope of cover under a motor insurance policy varies, e.g. it may insure you against your costs of repairing / replacing your car following an accident or it may insure against your liability to pay compensation to an injured person following a traffic accident. Insurance coverage varies according to the terms and conditions of an insurance policy.

The major types of motor insurance are summarized as follows:

1. Third party liabilities

Third party liability covers you against liabilities of property damage claims and/or personal injury claims by third parties. Under the Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap. 272) (“MVIO”), it is compulsory 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 your motor vehicle on a road. Please see section C “Compulsory Motor Insurance” below for further details. 

2. Damage or loss to your own motor vehicle

This type of insurance covers loss or damage to your own motor vehicle resulting from a traffic accident, fire, theft or other damage or loss howsoever caused. The insurance policy usually provides for an excess clause which sets out the initial amount of the claim that you need to pay before you are indemnified by the insurer under the policy.

3. Comprehensive cover

This is a composite cover which protect you against both liabilities of property damage claims and/or personal injury claims by third parties and damage or loss of your own motor vehicle. Generally speaking, premium for a comprehensive cover is higher than a mere third party liability cover or damage or loss to own motor vehicle.

Different types of motor insurance are offered by insurers.  You should choose the type of insurance that meets your needs.

B.   Common coverage issues

Insurance policies typically contain contractual provisions such as conditions and exclusions.  An insurance condition is an obligation on the insured to act in a particular way upon which the validity of the policy or of any claim may depend. An exclusion provision eliminates an insurer’s liability in certain circumstances by specifying the loss or damage that is not covered by a policy. Therefore, it is important that you carefully review your policy wording before purchase and comply with all conditions set forth in your policy. 

1. Limitation as to use of motor vehicle

A ‘limit as to use’ clause is commonly found in a motor insurance policy. The clause usually states insurance coverage under the policy is operative only when the motor vehicle is used for certain purposes, for example, social, domestic and pleasure purposes or for the insured’s business or profession. In these circumstances, the policy will not operate when the motor vehicle is used for other purposes (e.g. for hire or reward or racing).  Therefore, it is important that the use of the motor vehicle is in accordance with its permitted use in order to be eligible for claiming your loss or damage under the policy.

2. Authorized driver

In general, motor insurance policies cover the liability of the car owner and the driver(s) authorized or permitted by the owner to use the car. Hence, where the driver takes the car without authorization (e.g. by theft), the motor insurance policy would not cover the liability arising from the use or driving of the car by the unauthorized driver.  Further, no indemnity would be provided for the liability arising out of the use or driving of a car by any person not holding a valid driving licence.

Your driving history such as past claims history and traffic conviction records is one of the important matters for an insurer to evaluate risks and decide whether to accept the risks, set premium or other terms of the policy, for example, an excess clause for young and unexperienced driver (e.g. driver of age below 25 or holding a driving licence for less than 2 years).

3. Other conditions

It is a common condition in a motor insurance policy for the insured person to report to the insurer incident leading to the loss or damage within a specified period of time. If the car owner or the driver is prosecuted for an offence arising out of the use of the car, the car owner or the driver should report to the insurer the impending prosecution and also the progress of the case, and pass all relevant documents (e.g. summons, charge sheet, etc.) to the insurer in a timely manner and in accordance with the policy terms and conditions. Late reporting or failure to forward all relevant documents may be relied upon by the insurer as a ground to reject your claims. 

4. Exclusions

Like all other insurance policies, motor insurance policies contain exclusion clauses which exclude or exempt the insurer from paying your claims in certain circumstances. You should read through all the exclusions before you purchase a motor insurance policy so as to avoid your future claim from being denied. Below is a list of common exclusions of a motor insurance policy:

1. the car is used outside a specified territory / jurisdiction;
2. the owner or the driver fails to comply with the limitation as to use clause;
3. the car is used by an unauthorized driver;
4. the use of the car is by a driver under the influence of alcohol or drugs;
5. liability arises from war, nuclear disasters, strike, riot, civil commotion, terrorism or any other specified incident; and
6. the use of the car fails to comply with any laws or regulations relating to the carriage of dangerous goods.

C.   Compulsory Motor Insurance

1. Motor Vehicles Insurance (Third Party Risks) Ordinance (“MVIO”)

The scheme for compulsory motor insurance is prescribed under the MVIO. Section 4(1) of the MVIO obliges any person using (and any person permitting others to use) a motor vehicle on a road must be covered by an in-force motor insurance policy in relation to the use in respect of third party risks in compliance with the statutory requirements. The effect is to require all drivers to be protected by insurance against any potential third party (e.g. passengers, pedestrians, other car users etc.) of bodily injury or death in Hong Kong.

The scope of compulsory cover does not extend to the liability in respect of death or bodily injury arising out of and in the course of a person’s employment insured by other policy (e.g. risk insured under any statutory employees’ compensation insurance policy) or any contractual liability. 

The minimum amount of liability arising out of one event to be covered by a statutory motor insurance policy is prescribed under section 27 of the Motor Vehicles Insurance (Third Party Risks) Regulations (Cap. 272A) to be HK$100 million.

2. Consequence of failing to take out a compulsory motor insurance

Section 4(2) of the MVIO criminalizes any person (including the car owner or the driver) for using or permitting other in using a motor vehicle on a road without the required compulsory insurance. The maximum penalty of contravening section 4(2) is a fine up to HK$10,000 and imprisonment for 12 months. Further, a person convicted of this offence would be disqualified from holding or obtaining a driving licence for such a period as the court may determine being not less than 12 months nor more than 3 years from the date of conviction.

3. Effect of compulsory motor insurance against exclusions / breach of policy condition

In general, if the circumstances of the incident giving rise to liability falls within the scope of an exclusion or the insured has committed a breach of any policy condition under a policy, the insurer is not obliged to provide any indemnity to the insured or is entitled to repudiate policy liability against the insured for breach of policy condition. 

Having said that, section 10(1) of the MVIO provides that, in respect of the liability statutorily required to be covered under the MVIO (i.e. third party liability of bodily injury or death), the insurer of a compulsory motor insurance is generally liable to pay compensation to the injured person or deceased for liability arising out of the use of the insured motor vehicle notwithstanding the policy can be or had been cancelled or avoided.

The purpose of section 10(1) of the MVIO intends to offer a general protection to the victims (or the dependents of the victims) of traffic accidents a direct right against the insurers under the relevant compulsory motor insurance policies for seeking compensation and damages subject to certain procedural requirements under section 10(2). The direct recourse against the insurer exists regardless of whether the insurer is entitled to repudiate policy liability against the car owner or the driver because of the operation of any exclusion or any breach of policy condition.  The insurer is nevertheless at liberty to seek contribution or indemnity against the default car owners or drivers pursuant to the provisions under the policy or other cause of action (if any).  For the avoidance of doubt, section 9(1) of the MVIO further provides that any policy condition providing no liability shall arise under a compulsory motor insurance policy shall be of no effect in connection with the claims under section 6(1)(b), i.e. the claim in respect of the third party liability of bodily injury or death arising out of the use of the insured motor vehicle on a road.

4. Effect of compulsory motor insurance against non-disclosure or misrepresentation of material facts

Although third parties’ direct right to seek compensation or damages against the insurer would not be affected by cancellation or avoidance of the motor insurance policy, such right may in certain circumstances cease. Under section 10(3) of the MVIO, an insurer may disclaim such right by obtaining a declaration that, apart from any provision contained in the relevant motor insurance policy, the insurer is entitled to avoid it on the ground that it was obtained by non-disclosure of a material fact, or by a representation of fact which was false in some material particular. 

The insurer must commence proceedings to obtain the declaration before or within 3 months after the third party’s action for compensation in respect of the liability of bodily injury or death. The insurer must also give notice to the relevant third party(ies) before or within 7 days after the commencement of the action initiated by the relevant third party(ies) specifying the non-disclosure or false representation.

Section 10(5) of the MVIO defines “material” as to the fact or information 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.

D.   Motor Insurers’ Bureau of Hong Kong

The protection under the statutory compulsory motor insurance regime does not cover the following three situations: (i) the driver fails to take out any compulsory motor insurance policy in contravention with the MVIO, (ii) the liability of bodily injury or death is caused by an untraced driver, and (iii) the inability to pay compensation by the car owner and the driver coupled with the insolvency of the insurer concerned.

In order to remedy the above situations, the Motor Insurers’ Bureau of Hong Kong (“MIBHK”) was established in 1980 to administer a non-statutory compensation scheme.  All authorized insurers writing motor vehicle third party risks insurance are required by the Insurance Authority to become a member of MIBHK. The finance of MIBHK is generally supported by the levy and contribution made by the insurer members charged on its motor policy premium. 

Under this non-statutory scheme, MIBHK has undertaken to provide indemnity to the third party victims of uninsured drivers for liability subject of compulsory insurance under the MVIO, or compensation on an ex gratia and discretionary basis for untraced driver cases.  Insolvency fund is also maintained by MIBHK to avoid victims of traffic accidents left not compensated due to insolvency of the insurer concerned. 

Given the locality of the scheme, the victim (or the dependent of the victim) should note that the judgment for liability of bodily injury or death must be obtained at first instance (or on appeal) in a court of competent jurisdiction in Hong Kong, but not any court in other jurisdiction.

E.   Purchasing a suitable motor insurance

Apart from the level of premium, a car owner should also consider the nature and scope of coverage, the intended use of the vehicle, the amount of excess, the potential discount of “no claim bonus” (i.e. the rebate or discount of premium for no record of claim at subsequent renewal), and the jurisdictional / territorial issue where the vehicle is intended to be driven.

The opening of Hong Kong-Zhuhai-Macao Bridge (“HZM Bridge”) since 2019 illustrates a jurisdictional / territorial issue for motor insurance. The HZM Bridge is a cross-boundary connection between Hong Kong, the Mainland and Macao and the three jurisdictions are governed by different laws and have different statutory motor insurance requirements.  Vehicles from Hong Kong using the HZM Bridge are required to comply with the laws of all these jurisdictions. You may refer to the Frequently-asked Questions on HZM Bridge and the leaflet titled “Tips for Buying Insurance” available at the Insurance Authority’s website for the details and tips to consider in purchasing suitable motor insurance policy(ies) for your car.