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Hong Kong – Contracts (Rights of Third Parties) Bill: Impact On Insurance Contracts.

26 August, 2013

 

Legal News & Analysis – Asia Pacific – Hong Kong – Insurance & Reinsurance

 

Under current legislation, only parties to a contract can enforce the rights in that contract. However, with the Contracts (Rights of Third Parties) Bill expected to become law later this year or in early 2014, third parties will be able to enforce provisions of contracts which are intended to confer a benefit on that third party where: (i) the contract expressly gives that third party the right to enforce the contract; or (ii) the contract purports to confer such a right and the parties intend for it to be enforceable by the third party, provided that the third party is identified either by name, as a member of specified class, or by a specific description.

 

The amendments would potentially have a major impact on insurance contracts, since insurance contracts often confer benefits on third parties. One key example is life assurance contracts, which provide for payments under the policy to be directed to a nominated third party. To enable enforcement by the third party, certain statutory exceptions to the rule of privity have developed to enable beneficiaries to assert their rights under such policies. The new Bill will mean that the relevant parties will not be required to rely on such exceptions. Concerns have been raised by the insurance industry that this will lead to increased liability for insurers, who could become subject to unanticipated claims from third parties. A further issue is that special contractual requirements relate to insurance contracts, such as the duty of utmost good faith and the requirements for full disclosure.

 

Seeking to address this problem, the Bill provides that the insurer will be able to use any defences which it would have been able to use had the insured himself made the relevant claim against the third party. One other alternative approach which insurers may adopt, and which has been commonly used in the insurance industry in the United Kingdom is to contract out of the provisions introduced by the Bill completely and continue to rely on the statutory exceptions currently in place.

 

 

For further information, please contact:

 
Alexis Roberts, Partner, Pinsent Masons
alexis.roberts@pinsentmasons.com
 
Insurance & Reinsurance Law Firms (Homegrown) in Hong Kong
 
 

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