China’s Court Releases Second Draft Interpretation of Insurance Law

On March 22, the Highest People’s Court released the “Interpretation II on Several Issues Concerning the Application of the Insurance Law (Draft for Comments)” (“Draft Interpretation”), which provides clarifications to the latest version of China’s Insurance Law promulgated in October 1, 2009.

As a result of the development of the insurance industry and increasing awareness of civil rights in China, disputes arising from insurance contracts have been increasing in number. To better handle disputes over insurance contracts, as well as protect the rights of the parties to the disputes, the Draft Interpretation was issued to provide judicial interpretation of the General Provisions section of the Insurance Contracts chapter of the Insurance Law.

The Draft Interpretation consists of 24 articles, some of which are highlighted below:

Treatment of insured incidents that occur prior to confirmation of insurance acceptance
If the insurer has accepted the insurance application and the premium from the policy holder, but has not notified the policy holder within a reasonable period of time whether or not the insurance will be provided and an incident covered by the insurance (“insured incident”) happens, it should be handled as follows:

• If the case meets the terms and conditions of the insurance coverage, and the insured or the beneficiary requests the insurer to undertake the responsibility to pay indemnity or the insured amount according to the insurance application, the people’s court should support the claim.
• If the case does not meet the terms and conditions of the insurance coverage, and i) the insurer is not at fault and the policy holder requests that the premium be refunded; or ii) the insurer is at fault and the policy holder requests the insurer to undertake the corresponding responsibility, the people’s court should support the claim.

The insurer bears the burden of proof in determining whether the case meets the terms and conditions of the insurance coverage, and the court can make a ruling based on the relevant industry standards.

Ascertaining legal liability
If there are multiple causes, including both insured and uninsured risks, leading to losses incurred by the subject matter insured, and the causality between the insured risks and the losses is difficult to ascertain, then the people’s court should determine the insurer’s liability according to the ratio or extent to which the insured risks occupy the causes of the incident.

Property insurance claim
After the occurrence of an insured property incident, if the compensation claimed from a third party is not sufficient to cover the losses incurred by the insured, and the insured requests the insurer to compensate the rest of the losses within the amount insured in the contract, the people’s court should support the claim, unless there is evidence that the insurer and the third party are in collusion.

Evidentiary principle of insurance contract disputes
Traffic accident investigation reports and fire accident investigation reports issued by the relevant authorities in accordance with laws and regulations should be the basis upon which the people’s court determines the facts of the case, unless the parties have evidence and reasons sufficient to refute the determined facts.

Comments to the Draft Interpretation can be sent to No. 27, East Jiao Min Xiang, Cheng Dong District, Beijing, 100745, or insurancelaw2012@sina.com by April 20, 2012.

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