The insurance market in China has continued its stable development in 2018.
The State Council's cabinet reshuffle plan has been passed and adopted by the first session of the 13th National People's Congress, which ended on 20 March 2018. The reshuffle plan aims to make the government better structured, more efficient and service-oriented. After merging, restructuring, creating and dissolving, there are 26 ministries and commissions.
The China Banking and Insurance Regulatory Commission (CBIRC) is one of the new entities, formed to replace the China Banking Regulatory Commission and the China Insurance Regulatory Commission (CIRC).
On 8 April 2018, the CBIRC was formally unveiled in Beijing, marking the official launch of the new regulatory authority's operation. The insurance-related regulation will be issued by the CBIRC in future instead of the CIRC.
The CBIRC issued Notice of Expediting Taking Measures to Open up Banking and Insurance Sectors on 27 April 2018. According to this Notice, China will implement further reform measures for insurance sectors, and the key policy priorities are summarised below.
- To make it easier for foreign insurance companies to invest in China: the total foreign equity holding limits in the life insurance companies will be lifted to 51 per cent. And the foreign equity holding limit will be removed three years later.
- To make it easier for the foreign insurance companies to set up new presences in China: to remove the nationwide requirement for a foreign insurance company to have a representative office in China for two years before being eligible to set up a foreign invested insurance company in China.
- To broaden the business scope of foreign-funded companies: to allow the qualified foreign investors to operate insurance agency and loss adjustment business.
CBIRC also announced that various regulations will be issued to ensure that the above reforms are implemented.
On the same date of issuing the above Notice, the CBRIC also issued the Notice of Relaxing Restrictions on the Business Scope of Foreign-funded Insurance Brokers, which provides that all foreign-invested insurance brokers in China who have acquired the insurance brokers business permit issued by the CIRC will be able to conduct the same business activities as the domestic brokers companies in China.
The CBRIC further issued the Notice of Permitting Foreign Investors to Operate Insurance Agency Business in China and Notice of Permitting Foreign Investors to Operate Insurance Loss Adjustment Business in China on 19 June 2018. The two Notices allow the establishment of the foreign-funded insurance agency and loss adjustment companies in China.
Apart from the above measures to open up China's insurance market, the CIRC has also issued Provisions on the Supervision and Administration of Insurance Brokers, Provisions on the Supervision and Administration of Insurance Loss Adjusters on 1 February 2018, and the CBIRC issued Basic Rules for Insurance Loss Adjustment to regulate the domestic insurance brokers and loss adjustment operations on 2 May 2018. A series of measures show the country's determination to deepen the reform of insurance market for the purpose of establishing an open, improved and legal environment.
II THE LEGAL FRAMEWORK
i Sources of insurance law and regulation
China is a civil law country. The main sources of insurance law and regulation are: (1) statutory laws and regulations issued by the Standing Committee of the National People's Congress; (2) the Interpretations, Replies and Regulations issued by the Supreme People's Court; (3) the Regulations and Replies issued by the CBRIC; and (4) the Regulations and Provisions, etc., issued by the other governments and authorities.
The important and generally applicable insurance laws and regulations are set out below:
- the Insurance Law (2015 Amendment);
- the Interpretation I, II, III and IV on Several Issues concerning the Application of the Insurance Law (2009, 2013, 2015, 2018);
- the General Provisions of the Civil Law (Effective on 1 October 2017);
- the General Principles of the Civil Law (2009 Amendment);
- the Contract Law (1999); and
- the Civil Procedure Law (2017 Amendment).
With regard to marine insurance, the Chinese Maritime Code (1992), the Special Maritime Procedure Law (1999) and Provisions on Several Issues about the Trial of Cases Concerning Marine Insurance Disputes, as special laws and regulations governing the marine insurance disputes, shall apply as priority. If there are no provisions in these special laws and regulations, then the above general provisions of the Insurance Law and other laws and regulations apply.
The basic and fundamental law, the General Provisions of the Civil Law (the General Provisions), has been issued and took effect on 1 October 2017. As the General Principles also cover the stipulations in respect of contracts, proprietary rights, and other property and intellectual rights, etc., that have not totally been reflected in the General Provisions and will be absorbed in other chapters of the China Civil Code, the General Principles are still effective and binding in the aspects that are not covered by the General Provisions.
One of the important changes in the General Provisions that will affect the insurance disputes is the time limit. According to the General Provisions, the time limit for civil claims is three years, unless otherwise provided in law. This three-year time limit counts from the date when the person knows or should have known that his or her rights had been infringed and who has infringed upon his or her rights. The time limit in the General Provisions has been prolonged from the two-year time limit stipulated in the General Principles.
Because of the different time limit regimes in the General Provisions and General Principles, and in order to clarify which time limit shall be applied for disputes arising before the General Provisions took effect, the Supreme People's Court issued the Interpretation on Several Issues in respect of Application of the Time Limit Regime in the General Provisions of the Civil Law on 18 July 2018 to provide guidance in this respect.
If the time limit for civil claims only commences running after the General Provisions were implemented (i.e., 1 October 2017), the three-year time limit shall apply for such claims. If the time limit for civil claims already commenced running but had not expired on 1 October 2017, the three-year time limit shall apply. However, if the two-year time limit provided in the General Principles already expired on 1 October 2017, then the Courts shall not apply the three-year time limit.
Further, the Supreme Court has issued the Interpretation IV on Several Issues concerning the Application of the Insurance Law on 31 July 2018 (Interpretation IV). The Interpretation IV took effect on 1 September 2018. It gives further guidelines on the issues in respect of transfer of the subject matter insured, the rights and obligations of the parties to the insurance contract, the subrogated claims and liability insurance. The relevant provisions in the particular sections will be discussed below.
ii Insurable risk
According to the Insurance Law, the term 'insurance' means the commercial insurance activities where an insurance applicant pays insurance premium to an insurer under an insurance contract, and the insurer pays indemnity for the property loss caused by the occurrence of a potential incident specified in the insurance contract or pays insurance benefits when the insured dies, becomes disabled or sick or reaches a specified age, time period or any other condition specified in the contract.
The insurable risk, therefore, should be potential and an incidental accident that is not inevitable or has already occurred.
The Chinese Maritime Code defines 'the covered perils' as any maritime perils agreed upon between the insurer and the insured, including perils that occur in inland rivers or on land that is related to a maritime adventure.
Apart from the above, the Chinese law and regulation do not specifically stipulate the 'insurable risk' or clarify which risks can and cannot be insured.
The insurable risk is usually numerated in the insurance contract or policy and agreed upon by the parties to the insurance contract. Different types of insurance may cover different insurable risks. Only when the loss of or damage to the subject matter insured is caused by such insurable risk set out in the insurance contract or policy, then the insurer shall assume liability.
To define or confirm the insurable risk, it would also be necessary to understand which risk is not covered. In respect of the marine insurance, the Chinese Maritime Code stipulates the specific circumstances under which the insurer shall not assume liability.
Article 243 of the Chinese Maritime Code provides that unless otherwise agreed in the insurance contract, the insurer shall not be liable for the loss of or damage to the cargo insured arising from any of the following causes:
- delay in the voyage or in delivery of cargo or change of market price;
- fair wear and tear, inherent vice or nature of the cargo; and
- improper packing.
Article 244 of the Chinese Maritime Code further provides that unless otherwise agreed in the insurance contract, the insurer shall not be liable for the loss of or damage to the insured ship arising from any of the following causes:
- unseaworthiness of the ship at the time of the commencement of the voyage, unless where under a time policy the insured has no knowledge thereof; and
- wear and tear or corrosion of the ship.
The provisions of this Article shall apply mutatis mutandis to the insurance of freight.
iii Fora and dispute resolution mechanisms
To confirm which court has jurisdiction over an insurance dispute, both hierarchical jurisdiction and territorial jurisdiction shall be applied.
The hierarchical jurisdiction in China has four levels: (1) the primary courts, (2) the intermediate courts, (3) the higher courts and (4) the Supreme People's Court. All four levels of courts may hear the first instance civil cases (including the insurance disputes), subject to the claim amount involved, whether it is foreign-related and the influence of the case in the area or country.
To clarify the jurisdiction of the intermediate courts and higher courts, the Supreme People's Court issued the Notice on Adjusting the Standards for the Jurisdiction of the Higher Courts and Intermediate Courts over the First Instance Civil and Commercial Cases (2015).
The Supreme People's Court has also issued various replies each year in response to the applications submitted by various higher courts in respect of adjustment of jurisdiction of the primary courts and intermediate courts in their respective jurisdictions.
In respect of the territorial jurisdiction, the basic principle for general civil cases is that the courts at the place where the defendant is domiciled shall have jurisdiction. For the insurance disputes, in addition to the courts at the place where the defendant is domiciled, the courts at the place where the subject matter insured is located also have the jurisdiction.
The Interpretation on the Application of the Civil Procedure Law (2015) issued by the Supreme People's Court further provides that: (1) for the disputes arising from the property insurance contract, if the subject matter insured is a transportation vehicle or the cargo in transit, the courts at the place where the transportation vehicle is registered, the place of destination, and the place where the insurance accident occurs shall have jurisdiction; and (2) for the disputes arising from the personal insurance contract, the courts at the place where the insured is domiciled shall have jurisdiction. These provisions provide more choices of jurisdiction and convenience for the insured.
In respect of the subrogated claim against the third party, the jurisdiction shall be ascertained on the basis of the legal relationship between the insured and the third party in accordance with the Interpretation IV on Several Issues concerning the Application of the Insurance Law.
Most of the insurance disputes are resolved through litigation or arbitration in China. The insurance contract or policy usually agrees that any disputes shall be negotiated first between the parties. If no settlement is reached, then either party could start legal action or commence arbitration proceedings.
The Supreme People's Court and the CIRC jointly issued Opinions on Comprehensively Advancing the Building of the Mechanism Linking Litigation with Mediation for Insurance Disputes, which was implemented on 4 November 2016. This aims to build and improve a diversified insurance dispute settlement mechanism, provide the parties with more alternative dispute settlement channels and establish the regime linking litigation with mediation.
Before the case is formally registered by the court, the court will usually persuade the parties to mediate. If mediation fails, then the court may proceed with litigation. However, mediation shall be subject to the agreement by the parties, if the parties do not agree to mediate, the court may still have to proceed with the formal litigation procedures.
III RECENT CASES
As discussed above, China has a civil law system and does not adopt the principle of binding case precedents. The fact that a court has arrived at a particular decision earlier has no or very little binding effect on another similar court or elsewhere. From experience, it is likely that the local Chinese courts will approach each claim on a case-by-case basis, and the eventual decision will be up to the discretion of the judges.
The Supreme People's Court may issue the guiding cases that the other courts shall make reference to. But such guiding cases are limited and cannot cover all the unclear provisions or disputed issues.
If there are no guiding cases issued by the Supreme People's Court, cases reported or published by the other courts in different jurisdictions may also be helpful to understand how the basic principle, law and regulations are comprehended and implemented in different areas and what the main disputes and issues in the judicial practices are.
i The applicable time limit
The time limit for the claims arising from the disputes between the insurer and the insured
As discussed above, the General Provisions provide a three-year time limit for general civil claims, which replaces the two-year time limit under the General Principles.
The Insurance Law has its own provisions in respect of the time limit. According to Article 26 of the Insurance Law, except for life insurance, the time limit for an insured or beneficiary to commence legal proceedings against the insurer is two years, counting from the date when the insured or beneficiary knows or should have known the occurrence of the insured incident.
The time limit for an insured or beneficiary in a life insurance contract to commence legal proceedings is five years, counting from the date when the insured or beneficiary knows or should have known the occurrence of the insured incident.
In respect of the marine insurance, Article 264 of the Chinese Maritime Code provides that 'The time limit for claims with regard to marine insurance contract is 2 years, counting from the day on which the peril insured against occurred.'
It is obvious from the above stipulations that there is conflict between the general law, the General Provisions and the special laws, the Insurance Law and the Chinese Maritime Code in respect of the time limit.
No further interpretations or regulations have been issued to resolve the above conflict or clarify how to apply the time limits in different laws to date. The Tribunal No. 1 of the Beijing Higher Court issued the Reference Opinions in respect of Application of the Time Limit after the General Provisions were Implemented (the Reference Opinions) in December 2017.
The Insurance Law is a special law compared to the General Provisions in respect of the insurance disputes. The Chinese Maritime Code is a further special law compared to the Insurance Law in respect of the marine insurance disputes. In light of the principle that a special law is in priority over a basic or general law, the time limits in the Insurance Law and Chinese Maritime Code seem to be applicable for insurance and marine insurance claims respectively.
However, according to the Reference Opinions, if the special law also provides a two-year time limit that has the same characteristics as the two-year time limit provided in the General Principles, then such two-year time limit in the special law shall be replaced by the three-year time limit in the General Provisions.
Although it seems that the two-year time limit in the Insurance Law and Chinese Maritime Code is similar to the two-year time limit under the General Principles, it is still uncertain how the local courts would consider this issue and which time limit shall be applied for the claims arising from the disputes between the insurer and insured owing to lack of the formal law or regulation and interpretation made by the Supreme People's Court or relevant authorities. The Reference Opinions only give some reference on how to apply different time limits, but such reference has no binding effect on the courts in other jurisdictions, and the issues still need to be considered in each particular case and are subject to the discretion of the judges.
It may be prudent to suggest to adopt a two-year time limit for insurance and marine insurance disputes before judicial practices are certain and consolidated.
For life insurance, the five-year time limit in the Insurance Law is special and aimed to provide a better protection to the insured. It is very likely that the five-year time limit will be applied for the claims arising from the personal insurance instead of the three-year time limit in the General Provisions.
The time limit for the subrogated claims
The insurer's subrogated claim is based on the insured's cause of action against the third parties. The cause of action is either a tortious claim or a contractual claim. For the tortious claim, the time limit shall be three years under the General Provisions or ascertained according to the special laws (e.g., the Chinese Maritime Code). For the contractual claims, it would be necessary to confirm the type of the contract between the insured and the third party and whether there is any special law governing such type of contract.
ii The remedies available for insured and insurer
The remedies available for insured and insurer are reflected in different laws and regulations. We set out the main remedies below.
The remedies available for the insured
After the insurance contract is formed, the insurance applicant may rescind the contract except as otherwise provided in the law or agreed upon in the insurance contract. In principle, the insurance applicant may rescind the contract at any time.
However, in respect of a cargo transportation insurance contract or a voyage insurance contract for a means of transport, once the insurance liability commences, the insured cannot rescind the contract.
The remedies available for the insurer
The insurer cannot rescind the contract unless this is clearly provided in law. Some primary circumstances (excluding the life insurance) under which the insurer could rescind the contract or refuse to pay the insurance indemnity are set out below.
When the insured fails to perform the disclosure obligation, the insurer may rescind the contract. This will be discussed below in more detail.
When the insurance applicant, the insured or the beneficiary fails to notify the insurer intentionally or for gross negligence, which makes it difficult to determine the nature, cause, extent of damage, etc., of the insured incident, the insurer need not pay indemnity or insurance benefits for the undeterminable part, unless the insurer has known or should have known the incident in a timely manner through any other channel. This will be discussed below in more detail.
If the insured or beneficiary lies about the occurrence of an insured incident that has never actually occurred, and claims indemnity or insurance benefits against the insurer, the insurer shall have the right to rescind the insurance contract and not to return the insurance premium.
Where the insurance applicant or insured intentionally causes an insured incident, the insurer shall have the right to rescind the insurance contract, not to pay indemnity or insurance benefits, and not to refund the insurance premium.
Where, after the occurrence of an insured incident, the insurance applicant, insured or beneficiary fabricates the cause of incident or exaggerates the degree of damage by forging or altering the relevant certificates or materials or any other evidence, the insurer shall not be liable to pay indemnity or insurance benefits for the false part.
Where the degree of peril of the subject matter insured greatly increases during the term of validity of the contract, the insured shall notify the insurer in a timely manner as agreed upon in the contract, and the insurer may increase the insurance premium or rescind the contract as agreed upon in the contract.
iii Duty of disclosure
There are generally two types of duty of disclosure under Chinese law: (1) disclosure of all the material facts by the insured voluntarily, and (2) disclosure of only the facts that have been enquired by the insurer.
The Insurance Law has adopted (2), and according to Article 16 of the Insurance Law, where the insurer enquires about the subject matter insured or the insured when entering into the insurance contract, the insurance applicant shall truthfully disclose the information.
The Interpretation II on Several Issues concerning the Application of the Insurance Law issued by the Supreme People's Court further clarifies that the information that is known by the insurance applicant regarding the subject matter insured or the insured shall be the information that the insurance applicant 'shall truthfully disclose'.
If the insurance applicant fails to disclose the information (that is known to it) intentionally or as a consequence of gross negligence, and this affects the insurer's decision on whether to underwrite the insurance or raise the insurance premium, the insurer shall have the right to rescind the insurance contract.
The right to rescind an insurance contract shall be annulled 30 days after the insurer knows the cause of rescission. Two years after an insurance contract is concluded, the insurer may not rescind the contract; and where an insured incident occurs, the insurer shall pay indemnity or insurance benefits.
Where the insurance applicant intentionally fails to disclose the information as requested by the insurer, the insurer shall not be liable for paying indemnity or insurance benefits for an insured incident that occurs before the contract is rescinded, and shall not refund the insurance premium.
Where the insurance applicant fails to disclose the information because of gross negligence, materially affecting the occurrence of an insured incident, the insurer shall not be liable for paying indemnity or insurance benefits for an insured incident that occurs before the contract is rescinded, but shall refund the insurance premium.
Where the insurer knows the truth that the insurance applicant fails to tell when they enter into an insurance contract, the insurer shall not rescind the contract; and if an insured incident occurs, the insurer shall pay indemnity or insurance benefits.
In the appeal case Disputes over Property Insurance Contract between Liberty Insurance Co Ltd and Chongqing Pingwei Vehicle Mould Group Co Ltd (2015 YuGaoFaMinZhongZi No. 00025), the Chongqing Higher Court issued appeal and final judgment in 2015. In this case, Pingwei was the buyer of two sets of gantry machines and entrusted Gaoshi Supply Chain to arrange insurance and transportation. Gaoshi Supply Chain then applied for insurance with Liberty Insurance and the cargo insured was described as 'Italy-imported two sets of gantry machine'. The cargo was damaged thereafter during the inland transportation. Liberty Insurance rejected the claim as the cargo is a precision machine that would not be covered under the insurance policy. Pingwei and Gaoshi Supply Chain failed to disclose such information to Liberty Insurance and they were entitled to rescind the insurance contract.
The Chongqing Higher Court considers that the definition and types of the precision machine are not clear. The insurer shall decide whether the cargo is a precision machine instead of the insurance applicant or insured. The information known to the insured does not necessarily mean that the insurance applicant also knows it. Based on Article 6 of The Interpretation II on Several Issues concerning the Application of the Insurance Law – 'The insurance applicant's obligation of disclosure is limited to the extent and content as enquired by the insurer. Where the parties are in dispute over the extent and content of enquiries, the insurer shall bear the burden of proof' – the Court considered that Gaoshi Supply Chain already performed the duty of disclosure.
In view of the above, the information disclosed by the insurance applicant will very much depend on the enquiries by the insurer. If the insurer considers which information is important, it needs to make clear explanations and enquiries with the insurance applicant, and if there is any dispute arising thereafter, the insurer also needs to prove it has already made such explanations and enquiries. Further, the insurance applicant is not necessarily the same as the insured. Some Chinese courts may consider the information known to the insured is not necessarily known to the insurance applicant and the duty to disclose is only on the insurance applicant. However, different courts may take different views in this regard and decisions may be different from case to case.
In respect of marine insurance, the Chinese Maritime Code adopts disclosure of all the material facts by the insured voluntarily. Before the marine insurance contract is concluded, the insured shall truthfully inform the insurer of the material facts that the insured has knowledge of or ought to have knowledge of in his or her ordinary business practice and that may have an impact on the insurer in deciding the premium or whether he or she agrees to insure or not. As to the facts that the insurer has known of or the insurer ought to have knowledge of in his or her ordinary business practice, the insured does not need to disclose these if they have not been enquired about by the insurer.
The consequence of failure to perform the duty of disclosure under the Chinese Maritime Code is similar to that in the Insurance Law.
The Chinese Maritime Code provides that if the insured fails to truthfully inform the insurer of the material facts owing to his or her intentional act, the insurer has the right to rescind the contract without refunding the premium. The insurer shall not be liable for any loss arising from the perils insured against before the contract is rescinded.
If, not as a result the insured's intentional act, the insured did not truthfully inform the insurer of the material facts, the insurer has the right to rescind the contract or demand a corresponding increase in the premium. If the contract is rescinded by the insurer, the insurer shall be liable for the loss arising from the perils insured against that occurred before the rescission of the contract, except where the material circumstances that were uninformed or wrongly informed of have an impact on the occurrence of such perils.
iv Notice of claims and consequence of late notice
Article 21 of the Insurance Law provides that after knowing the occurrence of an insured incident, the insurance applicant, insured or beneficiary shall notify the insurer in a timely manner. Where the insurance applicant, insured or beneficiary fails to do so intentionally or for gross negligence, which makes it difficult to determine the nature, cause, extent of damage, etc., of the insured incident, the insurer need not pay indemnity or insurance benefits for the undeterminable part, unless the insurer has known or should have known the incident in a timely manner through any other channel.
There are two conditions that must be satisfied before the insurer can argue not to pay the insurance indemnity. First is that the late notice shall be due to the insured's intention or gross negligence. The other is that such late notice makes the insurer unable to determine, inter alia, the nature, cause and extent of damage.
In the appeal case The disputes over the property insurance contract between Hua'an Property Insurance Group Co Ltd Guangdong Dongguan Branch and Wang Juancai (2018)Yue19MinZhong No. 1148, the Guangdong Dongguan Intermediate Court issued final and appeal judgment in March 2018. Wang Juan insured her car with Hua'an Property Insurance and the car was involved in an accident on 11 March 2017. The car was dismantled and inspected on 23 April 2017 and she only notified insurer of the accident on 24 April 2017. The appeal court confirms the decision of the first instance court that Wang Jun failed to notify the insurer of the accident in a timely manner and as a result, the insurer was not able to attend on inspection and confirm the extent of damage and loss. The court, therefore, did not support Wang Juan's claim amount for repair costs, etc., for 171,726 yuan, but considered that 137,381 yuan was more reasonable. The judges were of the view that as the insured did not notify the insurer in a timely manner, the insurer was not obliged to make full payment for the insured's loss.
How to decide the extent to which the insurer's right was affected? What shall be the reasonable compensation amount? There are no criteria in this respect. These issues have not been clarified in the judgment and may still need to be subject to the discretion of the judges and facts on a case-by-case basis.
With regard to marine insurance, the Chinese Maritime Code requires the insured to notify the insurer immediately and take necessary and reasonable measures to avoid or minimise the loss. The insurer shall not be liable for the extended loss caused by the insured's breach of the immediate notice and failure to mitigate losses.
The obligation to give immediate notice seems to be more stringent than the timely notice provided in the Insurance Law. In addition, the insured also needs to take necessary and reasonable measures to avoid or minimise the loss. This requirement is in compliance with the specialities and characteristics of marine transportation. The insured is usually in control of the vessel and cargo during ocean transportation. When the accident occurs, it may take time for the salvor to reach the vessel at sea and carry out the salvage operations. The insurer also cannot send agents or surveyors on-site immediately. As the insured is professional and experienced in managing and operating the cargo and vessel, it shall take necessary and reasonable measures to avoid and mitigate loss in the first instance so as not to miss the best salvage time. The insurer could only exempt from liability for the losses that are extended owing to the insured's failure to take reasonable measures to mitigate such losses.
v Application and scope of insurer's subrogation rights and duty to defend
Article 60 of the Insurance Law provides that where an insured incident occurs for any damage caused by a third party to the subject matter insured, the insurer shall, after it pays indemnity to the insured, be subrogated with the insured's right to claim for indemnity against the third party within the extent of the indemnity amount.
The insurer's subrogation right shall be established on the following basis:
- the subject matter insured was damaged by a third party, either in tort or on a contractual basis;
- the insurer has paid the insurance indemnity for such damage;
- the insurer shall exercise the subrogation right in its own name (legal proceedings for the subrogated claim shall be started in the insurer's own name);
- the insurer shall not recover any amount that is more than the amount paid to the insured; and
- the insurer's right to claim and defend shall be based on the insured's right to claim and defend on a tortious or contractual basis.
Where the insured waives the right to claim indemnity against the third party without the consent of the insurer after the insurer pays indemnity to the insured, the waiver shall be null and void.
Where the insured, intentionally or for gross negligence, causes the insurer to be unable to exercise the right of subrogation to a claim for indemnity, the insurer may deduct or require the insured to refund the corresponding amount of indemnity.
Pursuant to the Interpretation IV on Several Issues concerning the Application of the Insurance Law, if the insured has waived its right to claim against the third party before the insurance contract is formed, such waiver shall be valid and the subrogated insurer shall not file any claim against the third party for the part waived by the insured.
Another consideration is whether the insurer could ask the insured to compensate such losses owing to the latter's waiver of right to claim against the third party. The Interpretation IV provides that at the time when the insurance contract is formed, if the insurer makes enquiries regarding whether the insured has waived any right to claim against the third party but the insured has not truthfully disclosed such information, the insurer could ask the insured to return the insurance indemnity. However, if the insurer knows or should have known the above situation and still agrees to insure the subject matter, the insurer cannot ask the insured to return the insurance indemnity.
If the insurer does not make enquiries regarding whether the insured has waived the right to claim against the third party at the time the insurance contract is formed, the insured is not obliged to disclose such information voluntarily and the insurer may not ask the insured to return the insurance indemnity afterwards.
The Chinese Maritime Code requires the insured to disclose all the material facts insured voluntarily. The insured shall disclose all the material information before the insurance contract is entered into without enquiries from the insurer. There is conflict between the Interpretation IV and the duty of disclosure in the Chinese Maritime Code and it seems that it is not proper to apply such provisions of the Interpretation IV for marine insurance at the moment.
IV THE INTERNATIONAL ARENA
i Jurisdiction of foreign-related insurance disputes
For foreign-related insurance disputes, if legal action is started against a Chinese party, the jurisdiction shall be confirmed as set out in Section II.iii above.
With regard to contract disputes or any other proprietary right disputes against a defendant who is not domiciled in China, if the contract is signed or performed in China, the subject matter in dispute is located in China, the defendant has any property that could be mortgaged in China, or the defendant has any representative office in China, jurisdiction may be held by the court at the place where the contract is signed or performed, where the subject matter in dispute is located, where the property is located, where the tortious act occurs, or where the representative office is located.
ii Which law is applied to foreign-related insurance disputes
For insurance disputes involving foreign parties, the parties can expressly agree on the governing law. If the parties fail to reach agreement on the governing law, the law of the country to which the contract is most closely connected shall be applied.
For a foreign-related contractual relationship, the parties may choose the law applicable to contracts by agreement. If the parties do not reach agreement, the law at the place of habitual residence of the party whose fulfilment of obligations can best reflect the characteristics of this contract or other laws that are most closely connected with this contract shall apply.
For the foreign-related tortious relationship, the laws at the place where the tortious act was carried out shall be applied, but if the parties have the same habitual residence, the laws of their habitual residence shall apply. If the parties choose the applicable laws by agreement after the tortious act was carried out, the agreement shall prevail.
The arbitral tribunal or administrative organ shall verify or ascertain the foreign law that is applicable to foreign-related civil relations. If either party chooses the applicable foreign law, it shall provide the laws of this country. If foreign laws cannot be verified or ascertained, or there are no provisions in the laws of that country, Chinese law shall be applied.
iii Enforcement of foreign judgments or arbitration awards against insurers domiciled in China
The foreign judgments or arbitration awards need to be recognised first by the Chinese court before the court will enforce the same. The intermediate court at the place where the party against whom the application is made or at the place where the property to be enforced is located shall have jurisdiction. The party may also apply before the foreign courts and ask them to request recognition and enforcement by the Chinese court in accordance with the provisions of an international treaty concluded or acceded to by China or under the principle of reciprocity.
If there is no judicial assistance treaty between China and the other country, no mutual treaty that both countries enter into, and no reciprocity relationship between the two countries, the court may dismiss the application for recognition and enforcement of the judgment issued in that country.
After examining an application for recognition and enforcement of an effective foreign judgment in accordance with an international treaty concluded or acceded to by China or under the principle of reciprocity, the court shall issue an order to recognise the judgment and issue an order to enforce the judgment if the court deems that the judgment does not violate the basic principles of Chinese law and the sovereignty, security and public interests of China. If the judgment violates the basic principles of the Chinese law or the sovereignty, security or public interests of the China, the court shall not recognise and enforce the same.
In respect of the arbitration award, as China is one of the contracting parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), the arbitration award issued in other contracting countries will, in principle, be recognised and enforced in China.
The party may apply directly to the intermediate court at the place of domicile of the party against whom the application is made or at the place where the property is located.
The time limit for the party to apply for recognition and enforcement of foreign judgment or arbitration award is two years, counting from the last performance date set out in the foreign judgment or arbitration award.
V TRENDS AND OUTLOOK
More and more claims in respect of insurance disputes are now filed before the courts. In 2013, the number of first instance cases that were registered by various courts is 82,564, while the number reached 127,611 in 2017. The number is still increasing.
The disputes arising from the motor policy account for a large proportion of insurance dispute cases. According to the reported cases, the disputes arising from traditional insurance, including property insurance, liability insurance, personal injury or death insurance, and insurer's subrogated cases are still major parts.
Traditional insurance will be gradually changing. Electric and automated vehicles are progressing at an unprecedented rate in China. The traditional risks arising from third-party liability and mechanical breakdown may be replaced by risks arising from battery breakdown, vehicle software issues, etc., in the near future. The product liability, renewable energy and agriculture areas may need innovative insurance to cover the potential risks.
According to the updated data issued by the China Export & Credit Insurance Corporation, the insured amount for the export credit insurance also increased dramatically over the past year, especially in the Belt and Road countries and regions. The credit insurance disputes and the subrogated claims arising therefrom will also increase and may involve more international parties and elements.
Traditional insurance companies will expand their online sales channels and cooperate with internet giants, for example, by establishing joint ventures. More internet insurance products will be sold online, and this will inevitably bring more disputes in this regard.
To cope with the aging society in China, more commercial insurance products would potentially be provided to meet the rising and differentiated needs of the aging population. This would no doubt require implementation of the relevant law or regulation and supervision from the relevant authorities. Disputes may also arise as the aging population increases in the future.
1 Frank Fulong Huang and Shouzhi An are partners, and Dan Liu is a lawyer at Guantao Law Firm.