Statutory termination rights
Agreed termination rights


Providers of maritime transport, warehousing and other logistics services ("transport providers") will often purchase liability insurance with a fixed insurance period (eg, one or two years) to insure potential risks and liabilities that may occur during the course of service.

However, if several incidents that result in large losses occur, some insurers may unilaterally terminate such insurance contracts in advance of the expiration of the insurance period.

It is important for transport providers to know whether insurers are entitled to unilaterally terminate insurance contracts in advance without their consent. This article summarises insurers' termination rights under Chinese law.

Insurers may terminate insurance contracts on the basis of statutory termination rights or agreed termination rights.

Statutory termination rights

There are relevant provisions about insurers' statutory termination rights in:

  • the Insurance Law;
  • the Maritime Law; and
  • some judicial interpretations of the Supreme People's Court.

In the context of maritime insurance, if these laws have different provisions on the same specific issue, the provisions of the Maritime Law will take precedence over the Insurance Law and other laws.

The provisions of the above laws provide that insurers are entitled to exercise statutory termination rights in the following circumstances.

Where transport providers do not pay premiums in time
Where transport providers fail to pay their insurance premiums to the insurer in time, the insurer will have the right to terminate the insurance contract before the insurance liability begins, except where the insurer has already issued insurance documents.

However, after the commencement of the insurance liability, Chinese courts will not support insurers' requests for termination of the contract on the ground that the transport provider has not paid the premium.

Where transport providers fail to inform insurers of material circumstances
According to the Maritime Law, before a maritime insurance contract is concluded, a transport provider must truthfully inform the insurer of the material circumstances of which it has knowledge or ought to have knowledge in its ordinary business practice and which may have a bearing on the insurer in deciding on the premium or whether it agrees to insure.

Upon the intentional failure of the insured to truthfully inform the insurer of such circumstances, the insurer has the right to terminate the contract without refunding the premium. The insurer will not be liable for any losses arising from the perils insured against before the contract is terminated.

Where transport providers do not comply with warranties under insurance contract
According to the Maritime Law, a transport provider must notify the insurer in writing immediately where the transport provider has not complied with the warranties under the contract. The insurer may, upon receipt of the notice, terminate the contract or demand an amendment to the terms and conditions of the insurance coverage or an increase in the premium.

Where degree of peril of subject matter insured greatly increases
Where the degree of risk to the subject matter of insurance increases appreciably during the term of the insurance contract, a transport provider must notify the insurer in accordance with the contract in a timely manner. The insurer may, in accordance with the contract, increase the insurance premium or terminate the contract.

Where transport providers intentionally cause an insured incident
Where a transport provider intentionally causes an insured incident, the insurer will have the right to terminate the insurance contract, not to pay indemnity and not refund the premium.

Where the insured fails to maintain safety of subject matter
Where a transport provider fails to perform the obligation of maintaining the safety of the subject matter insured as agreed upon, the insurer will have the right to increase the insurance premium or terminate the contract.

Agreed termination rights

In addition to the aforementioned statutory termination rights, generally speaking, neither an insurer nor a transport provider may terminate a contract after the commencement of the insurance liability. However, both the Maritime Law and the Insurance Law respect contract freedom and enable both parties to agree on specific termination circumstances in an insurance contract.

Insurers will usually put in some specific termination circumstances in their general standard insurance clauses and the issued policy. Some insurers add termination-at-will rights in their standard insurance clauses or policies to protect their own rights and interests. However, Chinese law places some restrictions on insurer termination rights. For example, cargo insurance contracts and voyage insurance contracts may not be terminated by the parties once the insurance liability has commenced.

One case that exemplifies this is that of a transport provider that had bought liability insurance for one year. However, after several large payments, the insurer notified the client that the insurance contract would be terminated. The client argued that the insurance period had not expired. Upon reviewing the insurance contract's clauses, a clause was found that provided for the following:

Unless otherwise agreed, the insurer may terminate this insurance contract by sending a notice of termination to the insured 15 days in advance. After the termination of this insurance contract, the insurer will charge the actual premium based on the actual operating income during the period from the commencement of the insurance liability to the termination of the contract.

Therefore, the client was advised to find another insurance company to cover the potential risk in the future as soon as possible, instead of filing a lawsuit which could have an adverse effect.


Insurers may legally terminate maritime insurance contracts in advance of the expiration of the insurance period, provided that this termination right has been clearly agreed in the contract. Under such circumstances, transport providers will have to seek the services of another insurance company quickly to insure any subsequent potential risks and liabilities. This may be inconvenient for the transport provider and may result in them taking on uninsured liability.

It is therefore suggested that, as well as avoiding the occurrence of the statutory termination circumstances, transport providers should pay more attention to the relevant provisions of insurance clauses and policies. They should carefully consider whether to accept clauses that enable the insurer to unilaterally terminate the insurance contract in advance of the expiration of the insurance period.

For further information on this topic please contact Jin Yu-Lai at KaiRong Law Firm by telephone (+86 21 5396 1065) or email ([email protected]). The KaiRong Law Firm website can be accessed at