In January 2007 ten of Hong Kong’s major hotels and developers under the New World Development flag (the Claimants) filed a claim against six insurers (Ace, AXA, Falcon, Liberty International, Tugu and XL) (the Defendants) for a total of HK$300 million (approximately US$40 million) (of which HK$150 million had already been paid) based on two identical insurance policies taken out in 2002 (the Insurance Policies). Clause 14.5 of the Insurance Policies provided that the policy “extended to insure actual loss sustained by the Insured, resulting from a Reduction in Revenue and increase in Cost of Working as a result of… closure by a competent authority due to … notifiable human infectious disease occurring within 25 miles of the Premises“.
The Claimants submitted that insurance cover for losses during the outbreak of SARS should date either from 13 February 2003, the date when the Hospital Authority first notified the Department of Health of confirmed cases of SARS in China, or, if not then, from 21 February 2003 when the first infected person arrived in Hong Kong and checked into the Metropole Hotel, the place at which the first case of SARS in Hong Kong originated. The Defendants’ position was that insurance cover (under the Insurance Policies) for losses during the outbreak of SARS should date from 27 March 2003 when it became mandatory to report SARS pursuant to the Quarantine and Prevention of Diseases Ordinance (Cap 141).
Mr Justice Anselmor Reyes, agreeing with the argument of the Defendants, held that “notifiable” within the Insurance Policies must be contractually certain and, therefore, denotes a legal or mandatory requirement to notify. As such, he found that the Claimants were not covered under the Insurance Policies until after 27 March 2003. The judge gave the Claimants a general liberty to appeal the decision, although it is not clear at the time of writing whether the Claimants intend to do so.
This judgment in respect of the starting date of SARS in Hong Kong will result in a difference of tens of millions of Hong Kong dollars to the claim of the Claimants. The decision clearly illustrates the importance that a judge will place on contractual certainty when interpreting an insurance policy. Insurers must, therefore, take care to avoid ambiguous terms when drafting their insurance policies.