Preliminary and jurisdictional considerations in insurance litigation

Fora

In what fora are insurance disputes litigated?

Hierarchical jurisdiction

In China, there are four levels of courts: the primary courts, the intermediate courts, the high courts and the Supreme People’s Court. These courts have first instance jurisdiction over civil cases, including insurance cases. Normally, the primary court will act as the first instance court in most insurance cases; however, if the amount in dispute reaches a certain level or if the case is very influential for society, the intermediate courts or even the high courts will have jurisdiction to hear the case. It is rare for the Supreme People’s Court to hear a case in the first instance.

If any party is unsatisfied with the judgment or verdict of the first instance court, it may bring an appeal to a court of a higher level within the period of time prescribed. The judgment or verdict of the appeal court will be binding. The only remedy against the binding judgment or verdict can be found in the legal review procedure; however, it is rare and difficult to kick-start this procedure.

Territorial jurisdiction

A lawsuit brought on an insurance dispute will fall under the jurisdiction of the people’s court where the domicile of the defendant or the insured object is located.

However, the territorial jurisdiction is subject to some exceptions. For instance, insurance disputes that occur in the Dongcheng, Xicheng, Chaoyang and Haidian districts of Beijing will fall under the first instance jurisdiction of the Beijing Railway Transportation Court. The Fourth Intermediate Court tries the appeals from these four districts for insurance disputes. The maritime courts will hear cases regarding marine insurance claims and related subrogation litigations.

On 9 September 2018, the Beijing Railway Transportation Court was disbanded. From thereon, first instance insurance disputes that were previously accepted by the Beijing Railway Transportation Court are now filed with their respective district courts. Those insurance disputes that were pending before the Beijing Railway Transportation Court at the time of its dissolution will instead be heard and executed in the name of Beijing Haidian District People’s Court, under their existing docket numbers.

Causes of action

When do insurance-related causes of action accrue?

With respect to property insurance cases, the period of limitation of action for an insured to claim indemnification or payment of the insurance benefits against the insurer is two years. The period of limitation of action is counted from the day when the insured knew or should have known of the occurrence of the incident covered by the insurance policy.

With respect to life insurance, the period of limitation of action for an insured to claim payment of the insurance benefits is five years, which is counted from the day when the insured knew or should have known of the occurrence of the incident covered by the insurance policy.

Preliminary considerations

What preliminary procedural and strategic considerations should be evaluated in insurance litigation?

The following aspects are always considered in insurance litigation.

The validity of the insurance contract

The following clauses in an insurance contract that has been concluded by using the standard clauses provided by the insurer will be void: clauses exempting the insurer from any legal obligation or aggravating the liability of the insurance applicant or the insured, and clauses excluding any legal right of the insurance applicant, the insured or the beneficiary.

Besides these clauses, other issues that will make the policy void include, but are not limited to, fraud, violation of compulsory provisions of law and regulations, and violation of the public interest.

The insurance assessment report

An insurance assessment report made before litigation is not binding on the tribunal, but it can be used as a reference. If the tribunal deems it necessary, it can retain another loss adjuster to make an assessment again during the litigation procedure.

The disclosure obligation of the insurance applicant

In concluding an insurance contract, the insurance applicant must make an honest disclosure when the insurer enquires about the subject matter insured or relevant circumstances concerning the insured. The insurer shall have the right to rescind the insurance contract if the insurance applicant intentionally or out of gross negligence fails to perform his or her obligation to make an honest disclosure, and thereby materially affects the insurer’s decision on whether to issue the insurance policy or whether to increase the premium rate. If an insurance applicant intentionally fails to perform his or her obligation to make an honest disclosure, the insurer will bear no insurance obligation with regard to the insured incident occurring before the rescission of the contract, or for returning the paid insurance premiums. If an insurance applicant fails to perform his or her obligation to make an honest disclosure out of gross negligence, which has a material effect on the occurrence of an incident covered by the insurance, the insurer will, with respect to the incidents occurring before the rescission of the contract, bear no insurance obligation, but may return the paid insurance premiums.

When an insurer knows something that the insurance applicant fails to disclose and enters into an insurance contract with the insurance applicant, the insurer cannot rescind the contract. Further, if an insured incident occurs, the insurer bears the insurance obligation.

The specific explanation obligation of the insurer

For those clauses that exempt the insurer from liability in the insurance contract, the insurer must give sufficient warning to the insurance applicant of those clauses in the insurance application form, the insurance policy or any other insurance certificate, and expressly explain the contents of those clauses to the insurance applicant in writing or orally. If the insurer fails to give a warning or an explicit explanation thereof, those clauses will not be effective.

The decision of the insurer

The insurer must, after receiving a claim from the insured or the beneficiary, determine the matter without delay. If the circumstances are complex, the insurer must determine the matter within 30 days, unless the insurance contract provides otherwise.

The insurer must inform the insured or the beneficiary of the result of the determination. If responsibility lies with the insurer, the insurer must fulfil its obligation for the indemnity or payment within 10 days of an agreement being reached with the insured or the beneficiary on the indemnity or payment. If there are stipulations in the insurance contract on the period within which indemnification or payment should be made, then the insurer must fulfil its obligation accordingly. After the insurer determines that the events do not fall within the scope of the insurance cover, it must, within three days, send a notice refusing to pay indemnification or insurance benefits to the insured or the beneficiary, and give reasons for this determination.

The payment of premiums

Once an insurance contract is formed, the insurance applicant must pay the premiums in accordance with the terms of the contract. In China, the insurance contract always stipulates that the payment of premiums acts as a condition for the validity of the insurance contract.

Complaints to the China Banking and Insurance Regulatory Commission

In April 2018, the China Insurance Regulatory Commission (CIRC) and the China Banking Regulatory Commission officially merged to form the China Banking and Insurance Regulatory Commission (CBIRC). The functions of the CIRC were inherited by the CBIRC.

Whether the insured or the beneficiary complains to the CBIRC and how the CBIRC deals with a complaint will influence the litigation. In China, the regulator strictly monitors the insurance market, and the CBIRC has substantial influence over the claim process and result.

Damages

What remedies or damages may apply?

There are two kinds of remedies or damages in insurance litigation: payment of insurance benefits and compensation for loss, which includes repair or replacement.

In addition, the insurer will bear liability for delayed payment, which will always consist of bank interest accrued during the delay period.

In China, there is a clear difference between contractual liability and tort liability, and in an insurance dispute, even if a party violates the insurance contract with malicious intent, it will not incur tort liability or punitive damages.

Under what circumstances can extracontractual or punitive damages be awarded?

Even though an insurer is obliged to act in good faith while investigating the claim of an insured and in establishing the extent of coverage in a timely manner, the Chinese courts do not accept tort liability when claims have been wrongfully denied. Only in a situation where the insurer does not act in good faith when responding to the claim of an insured, or in a situation where the insurer denies a claim that is not fairly disputable in accordance with the terms of the insurance policy, will the insured be entitled to contractual remedies (eg, court-compelled performance, payment of insurance benefits and any damages caused by the breach). Regarding extracontractual or punitive damages, these are usually not recoverable or awarded.

Law stated date

Correct on

Give the date on which the information above is accurate.

28 January 2020