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What do you need to do?Be alert to the effect of the interpretation of the revised Insurance Law on your existing and future insurance contracts in China.
Stuart Valentine (萬思陶)
Partner
Maggie Shen (沈佳琦)
Associate
Stuart Valentine
(萬思陶)
Partner
T +852 3443 1080
Beijing
David Olsson
(沈文)
John Shi
(史衛)
Shanghai
Martyn Huckerby
(贺墨亭)
China's Supreme People's Court has recently issued a judicial interpretation (Interpretation) to clarify the application of revisions to China’s Insurance Law. We reported on the revisions in a previous Insurance Update. The changes affect insurance contracts concluded before 1 October 2009, the date on which the revised Insurance Law comes into effect.
There has been some uncertainty as to whether the provisions of the revised Insurance Law will apply to contracts of insurance concluded before the revised Insurance Law comes into effect.
Applicability of the revised Insurance Law
The Interpretation stipulates that disputes arising from insurance contracts concluded prior to the implementation of the revised Insurance Law will be dealt with according the provisions of the laws in effect at the time such contracts were concluded unless such laws did not provide for the matters under dispute, in which case the provisions of the revised Insurance Law will apply, or the Interpretation specifically provides otherwise.
Importantly, the Interpretation stipulates that where an insurance contract is concluded prior to the implementation of the revised Insurance Law, but an act or incident such as assignment of the subject matter insured, an insured event, claim adjustment or subrogation occurs after the implementation of the revised Insurance Law, the provisions of the revised Insurance Law shall apply.
Stronger customer protection mechanisms
Under the revised Insurance Law, customers are better protected in a number of ways. The Interpretation extends the application of these mechanisms to insurance contracts concluded or claims raised before the implementation of the revised Insurance Law.
Timely handling of claims
Customers may have found it difficult to receive insurance compensation in the past, as insurance companies could delay the compensation procedure by requiring additional supporting documents again and again. The revised Insurance Law provides that upon receiving a claim, where the insurer deems the supporting evidence or materials insufficient, the insurer must make a one-off notification to the applicant for additional documents. This new rule will apply in the future, regardless of the execution date of the insurance contracts.
In addition, the insurer must render a determination on a claim in a timely manner or within 30 days in complex circumstances, after receiving a claim from a customer. The Interpretation further clarifies that time limit will also apply to claims raised by customers before the implementation of the revised Insurance Law, and 1 October 2009 shall be regarded as the commencement date for calculating the time limit.
Failure to fully disclose
The applicant must truthfully disclose all information in respect of the subject matter insured as the insurer may require. If the applicant intentionally or through gross negligence fails in its duty to disclose and these facts would be sufficient to affect the decision of the insurer to underwrite the risks or raise the insurance premium, the insurer may cancel the contract and would not be liable to pay the indemnity or insurance proceeds (unless the insurer had knowledge that an honest disclosure was not made). If the applicant’s failure to disclose is intentional, the insurer does not have to return insurance premiums but must do if the failure is due to gross negligence. However, the insurer is prohibited from cancelling the insurance contract if the insurer has not exercised its cancellation right within 30 days after the date on which it became aware of the grounds for termination or if the insurance contract has been valid for more than two years. According to the Interpretation, the 30 days and two years time limits will also apply to insurance contracts concluded prior to the implementation of the revised Insurance Law, and 1 October 2009 shall be regarded as the commencement date for calculating the time limit.
Previous null and void insurance contracts may be effective
Where an insurance contract concluded prior to the implementation of the revised Insurance Law is considered to be null and void by application of the laws then prevailing but would be effective by application of the revised Insurance Law, the Interpretation stipulates that the provisions of the revised Insurance Law shall apply, thus rendering the contract effective.
For more information, please refer to the text of the Interpretation (both Chinese text and our English translation) and our earlier Insurance Update commenting on revisions to the Insurance Law.
Disclaimer
The views set out in this publication are based on our experience as international counsel representing clients in their business activities in China. As is the case for all international law firms licensed in China, we are authorised to provide information concerning the effect of the Chinese legal environment. However we are not admitted to practice Chinese law and so are unable to issue opinions on matters of Chinese law.