Insurance Litigation 2023 Comparisons

In China, substantive issues of insurance disputes are mainly governed by the following laws and rules:

• the Insurance Law of the People’s Republic of China (hereinafter referred to as “the Insurance Law”) and its relevant Interpretation promulgated by the Supreme People’s Court (hereinafter referred to as “the Interpretations of the Insurance Law”); and
• the Civil Code of the People’s Republic of China (hereinafter referred to as “the Civil Code”) and its related Interpretations promulgated by the Supreme People’s Court.

Additionally, the Maritime Law of the People’s Republic of China (hereinafter referred to as “the Maritime Law”) is applicable to marine cargo insurance and marine hull insurance.

Procedural issues are mainly governed by the Civil Procedural Law of the People’s Republic of China (as amended in 2021) (hereinafter referred to as “the Civil Procedural Law”) and its relevant Interpretation promulgated by the Supreme People’s Court. In respect of marine insurance disputes, the Special Maritime Procedure Law of the People’s Republic of China shall be applied.

Litigation Process

Filing a lawsuit

The litigation process of an insurance dispute begins with the plaintiff (who could be the policyholder, the insured or the beneficiary, etc) submitting a complaint to the competent People’s Court of the First Instance, stating the facts of disputes, claims, and attaching preliminary evidence.

Registering the case

The People’s Court will register a case after examining the submitted complaint and finding it satisfactory according to registration requirements.

Mediation

After registration of the case, the court may attempt to mediate between the parties and seek a settlement.

Hearing

If the dispute cannot be resolved through mediation, the court will hold hearing(s) to hear the statements and arguments of both parties, during which the cross-examination of evidence will be carried out.

Judgment or ruling

After the hearing, the court will hand down a judgment or ruling based on the facts and the legal provisions to resolve the insurance disputes concerned.

Appeal

Where a party disagrees with the first-instance judgment, they have the right to directly file an appeal with the higher-level People’s Court, without a precondition of obtaining any permission “leave” from any court.

Final judgment or ruling

After registration of the appeal, the higher court will give final consideration to the case and make a final judgment or ruling. There could also be retrial proceedings, although such applications are not always approved by the courts having jurisdiction, and the corresponding enforcement proceedings will not be stayed unless any specific rulings to stay the enforcement proceedings are made.

General Rules on Limitation

The starting point of limitation

In accordance with the Civil Code and other relevant provisions in China, the time limitation regarding insurance disputes generally runs from the date when the parties know or should have known about the occurrence of the insurance incidents concerned.

Limitation period

According to the Insurance Law, the time limitation for the insured or the beneficiary of insurance (except for life insurance) to claim compensation or payment of insurance benefits from the insurer shall be a period of two years, running from the above-mentioned date. With regard to life insurance, the said time limitation is a period of five years.

Suspension of limitation

Under any of the circumstances stipulated in Article 194 of the Civil Code, the time limitation may be suspended and expire six months from the date when the reason for the suspension is eliminated.

Interruption of limitation

Time limitation may be interrupted pursuant to the provisions of Article 195 of the Civil Code, and shall recommence from the time of the interruption or the termination of the relevant procedures.

Alternative Dispute Resolution (ADR) exists and is encouraged in China. A relatively popular method of ADR at present is mediation, a procedure organised by court prior to registration of the case, usually with a specialised judge (typically a retired senior judge) appointed by court giving assistance to the parties. For certain cases with a relatively low value of claims, the court might entrust a third-party agency to give assistance in mediation.

Jurisdiction

Hierarchical jurisdiction

In China’s legal system, the primary court will act as the first instance court in most insurance cases. However, insurance disputes that involve significant sums or cross-border aspects might be directly handled by higher level courts, such as intermediate courts or the high courts.

Territorial jurisdiction

As is provided in Article 24 of the Civil Procedural Law, for actions arising from insurance contract disputes, the jurisdiction lies with the People’s Court of the defendant’s place of residence or the location of the insured object.

For property insurance disputes involving transportation vehicles or goods in transit, jurisdiction can be asserted by the courts in three potential areas:

• the place where the transportation vehicle is registered;
• the destination of the transportation; and
• the location where the insurance incident occurred.

For personal insurance contract disputes, the court in the jurisdiction where the insured person resides holds the authority. For actions arising from personal insurance contract disputes, the jurisdiction can be with the People’s Court of the insured person’s place of residence.

Agreed jurisdiction

In accordance with Article 35 of the Civil Procedural Law, parties in a dispute can decide on a specific jurisdiction through written agreements. Where a jurisdictional agreement clearly defines a court without violating the provisions of hierarchical jurisdiction and exclusive jurisdiction by law, the specified court should assume jurisdiction, otherwise the regular rules of the civil procedural law apply. In accordance with Article 36 of the Civil Procedural Law, where multiple courts with actual connections to the dispute are mentioned, the plaintiff is entitled to select any of them for filing the lawsuit. It is noteworthy that agreements concerning jurisdiction made between service providers and consumers using standard terms are invalid if the service provider did not adequately draw the consumer’s attention to such clauses. Courts should uphold a consumer’s claim that such an agreement is invalid. If there is a change in the defendant’s address after a jurisdiction agreement is made, the court that was in the defendant’s jurisdiction when the agreement was made retains jurisdiction unless otherwise agreed upon by the parties.

Choice of Law

Insurance contracts usually specify under which legal jurisdiction they are to be interpreted and applied. In respect of the contracts of international commercial insurance and cross-border insurance, it is common for the parties to choose a particular applicable legal system (such as English law, US law, etc) in the contract. Where the choice of applicable law is not specified in the insurance contract, the court will usually determine which country’s law is applicable pursuant to the rules of private international law. In China, the determination of the applicable law will generally be considered with reference to factors such as the location where the insurance contract is signed or performed or which has an actual connection with the dispute.

In accordance with the Civil Procedure Law and relevant international conventions, foreign judgments can be applied for enforcement in China subject to the following conditions.

• The judgment must have entered into force in the foreign country, ie, the court in that country must have confirmed the judgment and it has legal effect.
• The judgment must not violate China’s public policy principles, ie, the content of the judgment must not be contrary to China’s basic legal principles and social public interests.
• The judgment must not be contrary to China’s civil litigation jurisdiction principle, ie, the content of the judgment must be within China’s jurisdiction.

Exclusion of Foreign Judgments

The People’s Court may exclude the enforcement of foreign judgments under certain circumstances, including the following.

• The foreign judgment has no legal effect in China, ie, it has not been recognised or acknowledged in China.
• The foreign judgment is contrary to China’s public policy principles, ie, the content of the judgment seriously violates China’s basic legal principles and social public interests.
• The foreign judgment is in conflict with China’s own judgment, ie, in the same dispute, the People’s Court has already made a judgment that is inconsistent with the foreign judgment.

It is important to note that the enforcement or exclusion of a foreign judgment usually needs to be decided through litigation proceedings. The parties must file an application to a competent court, and the court shall hand down a judgment in accordance with the relevant laws and international conventions.

Special Rules on Jurisdiction

For insurance cases, different regions in China may be under the jurisdiction of specialised courts. For instance, in Shanghai, the second instance for insurance contract disputes is under the jurisdiction of the Shanghai Financial Court instead of the Shanghai First Intermediate People’s Court and Second Intermediate People’s Court, which have jurisdiction over other civil and commercial cases. Marine insurance cases are under the jurisdiction of specialised maritime courts.

Guarantee Required for Property Preservation Applications

In accordance with Article 100 of the Civil Procedure Law, a party who applies for the preservation of the other party’s property shall provide a guarantee. However, as is stipulated in Article 9.6 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Handling of Property Preservation Cases by the People’s Courts, which came into effect on 1 December 2016, where the applicant for preservation is a financial institution or one of its branches (such as a commercial bank or an insurance company) with independent solvency, which are established with the approval of the financial regulatory authority, the People’s Court may not require the applicant to provide a guarantee.

Chinese courts generally enforce arbitration provisions in commercial contracts, including those in insurance and reinsurance agreements. In accordance with Article 5 of the Arbitration Law of the PRC, should parties have an existing arbitration agreement, a People’s Court should decline a claim brought by one party unless the arbitration clause is deemed void. Additionally, if, after agreeing to arbitration, one party initiates litigation without revealing the arbitration agreement and the opposing party does not object before court hearings begin, the arbitration clause is considered waived and the court shall proceed with the trial.

However, it is noteworthy that under certain circumstances, Chinese courts, when considering the recognition and enforcement of overseas arbitration awards, may refuse to recognise and enforce the award on the grounds that the place of arbitration lacks a close connection to the subject matter of the dispute, which may be adjudicated and decided in accordance with the standards adopted in PRC law.

China acceded to the New York Convention in 1986, with the reservation that the People’s Republic of China only applies the Convention to:

• the recognition and enforcement of arbitration awards made in the territory of another signatory, on the basis of the principle of reciprocity; and
• disputes based on the contractual and non-contractual commercial legal relations recognised under the laws of PRC.

Enforcement Procedure

The procedure for enforcing a foreign arbitration award pursuant to the New York Convention involves the following steps.

Application to a competent court

A party seeking enforcement of a foreign arbitration award in China must apply to the intermediate people’s court where the party against whom the enforcement is sought resides or where its assets are located.

Documentation

The party applying for enforcement must submit the original or a certified copy of the arbitration award and the arbitration agreement. Corresponding translated documents in Chinese are also required if the original documents are in another language.

Grounds for refusing enforcement

Chinese courts can refuse enforcement of a foreign arbitration award based on the grounds as set out in the New York Convention, including but not limited to the following situations:

• the arbitration agreement is invalid;
• the party against whom the award is invoked was not given proper notice or was otherwise unable to present its case;
• the award deals with issues not contemplated by or not falling within the terms of the arbitration agreement; or
• the award has not yet become binding or has been set aside or suspended by a court of the country in which it was made.

Local conditions

In practice, while China is generally supportive of international arbitration and has made efforts to harmonise its approach in accordance with international standards, parties seeking enforcement might face challenges. For instance, as mentioned above, Chinese courts may refuse enforcement if they opine that the place of arbitration lacks a close connection to the subject matter of the dispute.

Popularity of Arbitration

In recent years, due to the efficiency, flexibility, and perceived neutrality of arbitration as compared to litigation in local courts, both domestic and foreign parties have increasingly favoured arbitration for resolving commercial disputes in China, especially in sectors where disputes may be complex, involve technical expertise, or have cross-border elements. In the insurance context, this often includes areas such as marine insurance, large-scale property insurance, reinsurance, and liability insurance.

Privacy of Arbitration

It is noteworthy that, as is provided in Article 40 of the Arbitration Law of the PRC, arbitration sessions are not conducted publicly unless both parties agree to a public hearing. However, matters involving state secrets cannot be made public even with mutual agreement.

Rules Applicable

The primary law governing arbitration in China is the Arbitration Law of the People’s Republic of China. There are specific arbitration institutions, such as the China International Economic and Trade Arbitration Commission (CIETAC), which have their own sets of rules. For insurance-specific arbitration, parties could opt to refer to the China Maritime Arbitration Commission (CMAC) or other specialised arbitration bodies.

Appeal of Awards

Arbitral awards in China are generally considered final and binding. The concept of “appeal” as it exists in certain other jurisdictions does not apply in the same way to arbitral awards in China (even just for “legal issues”). However, parties are entitled to request a court to set aside an arbitral award, but only on the specific grounds stipulated by the Arbitration Law. These grounds include the following situations:

• where there was no valid arbitration agreement;
• where the award exceeded the scope of the arbitration agreement; or
• where there was bias or corruption among the arbitrators.

Additionally, as is stipulated in the New York Convention, Chinese courts may refuse the recognition and enforcement of a foreign arbitral award on certain grounds.

In the laws and regulations that are binding for the parties to insurance contracts, there are various provisions which can be applied as implied terms. Among the aforesaid provisions, some clearly prohibit the parties to the contract from making agreements inconsistent with the content of these provisions. Such provisions are common in the Insurance Law, mainly involving the basic principles of insurance contracts, as in the following.

The Insurable Interest

Pursuant to Articles 12, 31 and 48, the insured must have insurable interest in the insured when the life insurance contract is concluded, otherwise the contract is invalid. As for property insurance contracts, the insured must have an insurable interest in the insured object when an insured event occurs, otherwise, the insured cannot claim compensation or payment from the insurer.

Limit on Death Insurance

For instance, Articles 33 and 34 of the Insurance Law stipulate that people without civil capacity cannot be insured in a life insurance that requires death as a condition for payment of insurance benefit (except for life insurance policies taken by parents for the benefit of their minor children). Additionally, in a contract where death is the condition for payment of insurance benefits, the amount insured must be agreed to and recognised by the insured, otherwise the contract shall be invalid.

Obligation to Notify of Increased Degree of Danger

In accordance with Article 52 of the Insurance Law, the insured is obliged to notify any significant increase in the degree of danger of the insured object during the validity period of the property insurance contract. Where the insured fails to fulfil such obligation, the insurer shall not bear the insurance liability for an insured incident occurring as a result of the significant increase in the degree of danger of the insured object.

Limitation

The rules and regulations in China’s legal system prohibit the parties to the contract from negotiating to change the limitation of actions, yet clearly prescribe that the limitation of disputes over life insurance is five years, while the limitation of disputes over property insurance contracts is two years, which is one year shorter than the ordinary limitation provided in the Civil Code. It is noteworthy that, in accordance with the principle that special law is superior to general law, the two-year special limitation, instead of the three-year ordinary litigation, shall be applied in litigation regarding disputes over property insurance contracts.

Other Provisions

Other provisions prescribe terms that could be applied as implied terms provided that there is no agreement contrary to the provisions or no relevant agreement is made in the contract. The characteristic of these provisions is that the text of them usually contains the wording “unless otherwise specified in the contract”, as in the following.

Termination of insurance contract

In accordance with Article 15 of the Insurance Law, the insurer may specify the causes of termination in the insurance contract. Where no similar agreement is made in the contract, the insurer shall not be entitled to terminate the insurance contract unless the conditions for the termination of contract stipulated by law are met.

Bearing costs related to liability insurance

With regard to the issue of bearing the costs related to liability insurance, the insurer may stipulate in the insurance contract that the arbitration or litigation costs shall be borne by the insured. Where there is no such agreement, the insurer shall bear the costs in accordance with Article 66 of the Insurance Law.

Pursuant to Article 16 of the Insurance Law, the policyholder is under an obligation to disclose truthfully to the insurer the relevant information about the insurance objects or the insureds.

Remedies for Breaches of the Obligation of Disclosure

Where a policyholder deliberately fails to fulfil the aforesaid obligation, thus affecting the insurer’s decision on underwriting or increasing premium rates, the insurer is entitled to terminate the contract without making compensation for any insured event which has occurred prior to the termination of contract, and the premium shall not be refunded.

Where a policyholder fails to fulfil the aforesaid obligation due to gross negligence, thus affecting the insurer’s decision on underwriting or increasing premium rates, the insurer is entitled to terminate the contract. Where there is a serious impact on the occurrence of an insured event, the insurer shall not be liable to make compensation for the insured event which has occurred prior to the termination of contract, provided that the premium shall be refunded.

However, an insurer who is aware that the policyholder has not provided truthful information at the time of establishment of contract shall not be entitled to the right to terminate the contract and shall bear the insurance liability for the insured event.

The aforesaid right to terminate the contract shall be exercised within 30 days from the date on which the insurer knows about the trigger event for the termination; otherwise, it shall be extinguished. Additionally, the insurer will no longer be entitled to such right where the contract has been concluded for more than two years.

Establishment and Improvement of Multiple Dispute Resolution

The People’s Courts all over the country are committed to establishing and improving multiple dispute resolution mechanisms. There has been an increase in the proportion of insurance disputes settled through pre-litigation mediation and in-litigation mediation procedures.

Increase in Disputes Caused by Electronic Insurance

There has been an increase in the number of cases where insurance contracts are concluded by electronic means, resulting in an increase in disputes regarding the insurer’s fulfilment of the obligation of reminding and clear explanation. Such disputes mainly involve the specific application and understanding of Article 17 of the Insurance Law.

Increased Complexity and Number of Disputes in Liability Insurance Litigation

With the development of new types of liability insurance, such as occupational liability insurance, directors and officers liability insurance, cyber insurance, property preservation liability insurance, etc, a large number of related cases have emerged. The legal relations involved in such cases are complicated, and there is still much controversy over issues on fact-finding and the specific ways of undertaking responsibilities.

Insurance terms or special agreements in insurance policies usually contain dispute resolution terms, agreed by the parties, to resolve disputes through negotiation, arbitration or litigation. In legal practice, it is more common to resolve disputes through litigation.

Similar to general insurance contracts, reinsurance contracts usually stipulate dispute resolution clauses. The difference is that, in practice, the parties to the contract seem to be more inclined to agree to resolve disputes through arbitration.

The Insurance Law and other relevant rules and regulations do not distinguish between consumer insurance contracts and non-consumer insurance contracts, nor do they distinguish between consumer insurers and non-consumer insurers in respect of the rights and obligations of the insured. However, there is a tendency to protect the insured in accordance with some specific provisions.

Bias Towards the Insured

In respect of a standard insurance term provided by the insurer, if the standard term includes contents that exempt the insurer from its liabilities (such as deductible amount, deductible ratio, principle of average, etc), the insurer shall make a reminder of the standard term that is sufficient to attract the attention of the policyholder, and the insurer shall clearly explain the content of the clause to the policyholder, otherwise the standard term is invalid.

Where the stipulation of the standard term exempts the insurer from its statutory obligations, increases the liability of the policyholder or the insured, or excludes the legal rights of the policyholder, the insured or the beneficiary, such term shall be invalid.

Regarding the interpretation of standard terms, the Insurance Law also provides that disputed terms should be interpreted according to common understanding, and the interpretation that is beneficial to the insured should be adopted if there are two or more interpretations.

Controversy Over Whether to Regard the Insured as a Consumer

There is controversy as to whether the insured is regarded as a consumer, of which the focus is whether the insurance involved in the case should be recognised as “purchasing or using goods, or receiving services for daily consumption” in Article 2 of the Law of the People’s Republic of China on the Protection of Rights and Interests of Consumers (hereinafter referred to as “the Consumer Protection Law”). If the answer is positive, the insured shall also enjoy the relevant rights provided in the Consumer Protection Law.

For high-risk financial products such as insurance investment products, it is clearly prescribed in the Minutes of the National Court Work Conference for Civil and Commercial Trials that the insured’s claim that the seller’s agency should bear punitive compensation pursuant to Article 55 of the Consumer Protection Law on the grounds that the seller’s agency has committed fraud will not be supported.

In liability insurance cases, where the insured causes damage to a third party, the third party may directly enforce the insurance contract or sue the insurer for payment of the amount insured, provided that all of the conditions stipulated in Article 65 of the Insurance Law are met.

In certain fields of liability insurance, the provisions of the third party directly suing the insurer are different from those of general liability insurance. For example, in accordance with the Law of the People’s Republic of China on Road Traffic Safety and the Regulations on Compulsory Liability Insurance for Motor Vehicle Traffic Accidents, in the compulsory third-party liability insurance of the motor vehicle and commercial third-party liability insurance, the insurer could opt to directly compensate the third party for losses and damages caused by the insured vehicles, while the third party is entitled to directly sue the insurer. Another example is that in accordance with the corresponding provisions in the International Convention on Civil Liability for Oil Pollution Damage and the International Convention on Civil Liability for Bunker Oil Pollution Damage which China has joined, a third party is entitled to directly sue the civil liability insurer for oil pollution damages as well as filing a claim.

There is no concept of “bad faith” in the Insurance Law or other relevant laws or regulations. However, certain rules and regulations embody the spirit of the principle of good faith, as in the following examples.

• Article 5 of the Insurance Law prescribes that parties concerned in insurance activities shall comply with the principle of honesty and trustworthiness in the exercise of rights and performance of obligations.
• It is prescribed in the Insurance Law and the Maritime Law that the policyholder or the insured must perform the obligation of truthful disclosure, otherwise they shall correspondingly bear adverse legal consequences. At the same time, the Interpretation further prescribes that the insurer who is aware that the insured has not fulfilled the obligation of truthful disclosure, yet still receives the premium, shall not be entitled to terminate the contract. This also reflects the requirement of good faith on the part of the insurance parties.
• In accordance with the Insurance Law, the insurer shall perform the obligation of reminder and clear explanation, and shall fulfil the obligation of payment of the insurance benefit in a timely manner, otherwise it will bear the corresponding adverse legal consequences.

The Insurance Law stipulates that if insurance companies delay the payment of claims, they must compensate the insured party or the beneficiary for any resultant losses and damages. However, they will not be subject to administrative penalties.       

As is prescribed in Article 118 of the Insurance Law and Articles 2 and 48 of the Regulatory Provisions on Insurance Brokerages, where they provide intermediary services for the conclusion of insurance contracts based on the interests of policyholders, insurance brokers should sign a power of attorney with the principal to stipulate the rights and obligations of both parties, as well as other matters, in accordance with the law. However, it is noteworthy that the signing of the power of attorney does not mean that the broker is the agent of the insured, thus the insured is not bound by the statements made by the broker, unless otherwise stipulated in the power of attorney that there is a clear authorisation that the broker can make statements on behalf of the insured.

Authorisation arrangements for insurance agencies and insurance brokers are relatively common in practice, on which the Insurance law and the relevant rules and regulations also have provisions. There are also many litigation disputes caused by these arrangements, including but not limited to:

• whether the party involved is an insurance agent or an insurance broker (in many cases);
• whether the effectiveness of relevant acts of an insurance broker is attributable to or shall bind the insured/policy applicant;
• whether the insurance broker is at fault in engaging in the insurance brokerage business and has caused losses to the policyholder or the insured; and
• whether the effectiveness of the insurance agent’s relevant behaviour is attributable to or shall bind the insurer.

Pursuant to Article 65 of the Insurance Law, in liability insurance, unless otherwise stipulated in the insurance contract, the litigation, arbitration fees and other necessary and reasonable costs fall within the coverage of liability insurance, where the costs are incurred by the insured responding to a lawsuit or arbitration caused by an insured event causing damages to a third party.

In addition, many P&I clubs also provide insurance (Freight, Demurrage and Defence, referred to as “FD&D”) for legal fees and expenses arising from bill of lading disputes, charterparty disputes, collision accidents, salvage, towage, general average, insurance contracts, and so on.

With the practice of FD&D, an increase in the number of insurance companies providing similar insurance products may be witnessed in the future. In addition, if a third-party funding arbitration system is introduced and established in China in the future, insurance products supporting defence may increase accordingly.

In the past few years, litigation costs have mainly included litigation fees, arbitration fees, appraisal fees, attorney fees, and so on. With the development of diversification of dispute resolution methods, there may be a trend of an increase in, for instance, mediation fees and other fees incurred by alternative dispute resolution mechanisms.

In addition, with the continuous development of defence insurance, its field of application may gradually expand, and the complexity and diversity of such litigation will increase accordingly.

In accordance with the relevant provisions, the claimant can buy insurance to guard against costs risks incurred in filing or preparing for litigation or arbitration for the claim, such as litigation fees, arbitration fees, appraisal fees, and attorney fees.

At present, such types of insurance in the Chinese insurance market are legal fee insurance, legal fee compensation insurance, and so on, which are especially common in the field of intellectual property, as illustrated by the following.

• Patent Enforcement Insurance, Intellectual Property Enforcement Insurance to protect against investigation costs and legal fees arising from filing legal claims for compensation for the infringements of patent rights and intellectual property.
• Loss insurance of intellectual property rights litigation costs to compensate for the costs incurred in filing lawsuits to protect rights against intellectual property rights infringement.
• Patent worry-free insurance to compensate for direct economic losses, investigation costs, and legal costs arising from patent infringement by a third party.
• Copyright infringement loss insurance, trade mark infringement loss insurance and geographical indication infringement loss insurance to comprehensively cover the direct economic losses, investigation costs and legal costs caused by infringements of the insured’s copyright, trade mark rights and geographical indications by a third party.
• Legal fee insurance of overseas intellectual property disputes and legal fee insurance of patent disputes at overseas exhibitions to compensate for legal fees incurred in intellectual property rights and overseas patent infringement disputes.

The Insurance Law clearly grants the insurer of property insurance the right of subrogation against a third party (see Articles 60–63 of the Insurance Law), while the insurer of a life insurance contract is not entitled to claim the subrogation from a third party (see Article 46 of the Insurance Law).

There are provisions on the subrogation rights of property insurers against third parties in the Insurance Law and the Interpretation of the Insurance Law. Since there is much controversy in practice, the Supreme People’s Court is committed to improving the relevant provisions on the right of subrogation by promulgating the Interpretation as well as publishing guiding cases and typical cases.

• Pursuant to the relevant provisions, under a property insurance contract, the insurer needs to claim the right of subrogation from a third party in its own name.
• In addition, the Insurance Law stipulates that when the insurer seeks subrogation from a third party, it is not allowed to exercise the right of subrogation against the insured’s family members or its constituents.
• In insurance contract disputes involving the right of subrogation in practice, the party being subrogated usually argues that the insured has already waived its right of subrogation. The standard of the courts when hearing such cases is that the relevant waiver of the insured should be clearly stated, rather than through reasoning or ratification after the fact.
• It is noteworthy that, many insurers expressly promise to waive the right of subrogation of their affiliated companies or even business cooperation companies in the process of concluding insurance contracts. Such agreements specified in the contract are valid and binding for the parties hereto.

Driven by the impact of the COVID-19 pandemic, China has expedited the adoption of digital solutions for dispute resolution, including online arbitration, mediation, and court hearings. While these approaches offer benefits like convenience, speed and cost savings, they also introduce concerns related to data protection, privacy and technical glitches.

Further, the pandemic has increased the number and complexity of insurance disputes, especially in relation to health insurance, life insurance, business interruption insurance, travel insurance and liability insurance. Some of the disputed issues include the definition and scope of force majeure, the causation and extent of losses, the interpretation and application of policy terms and exclusions, and the burden of proof and evidence rules.

Due to the impact of the COVID-19 pandemic, disruptions and uncertainties for individuals and businesses have increased the demand and complexity of dispute resolution, while in the post-pandemic era, there may be a gradual recovery and normalisation of social and economic activities in China, which may reduce the number and severity of pandemic-related disputes.

Furthermore, the efficiency of procedures such as litigation and arbitration had been significantly impacted, and there had also been more challenges and difficulties for conducting online or offline hearings due to travel restrictions, quarantine measures, and health risks. However, with the resumption of work in the relevant industries and departments, this issue has now improved.

In China, there have been several cases involving health insurance claims related to COVID-19 infections or deaths. Some insurers denied or scaled back coverage based on the exemption terms or other limitations related to infectious diseases or force majeure events. In response, some policyholders have contested these decisions, invoking consumer protection regulations or principles of contractual interpretation. In terms of cases involving business interruption insurance with claims related to COVID-19 lockdowns or restrictions, some insurers argued that the relevant claims fell outside the scope of coverage, asserting that compensation and settlement necessitate physical damage to property or direct intervention by authorities. Conversely, some policyholders argued that the loss of income or profit due to an unforeseen event should also be included in the coverage. The outcomes of these aforesaid disputes have varied depending on the specific facts and circumstances of each case, such as the respective terms and conditions of the policies.

The COVID-19 pandemic has increased the demand for and awareness of insurance products, especially health insurance, life insurance, and online insurance. However, this also means higher costs and risks for insurers due to potential increases in claims, disputes, and other uncertainties. Therefore, some insurers may adjust their coverage, premiums or exemption terms to better match the current market trends and the needs of customers.

The concept of ESG (Environmental, Social, and Governance) has received widespread attention and discussion in China in recent years. In June 2022, the China Banking and Insurance Regulatory Commission released the Guidelines for Green Finance in Banking and Insurance Industries, the core content of which is to introduce the principles and requirements of ESG into the decision-making and management systems of financial institutions. For the insurance industry, the introduction of ESG relates to its core business’s risk management and decision-making processes. This has encouraged insurance companies to make a series of adjustments in underwriting decisions, product development and risk assessment, which will have certain implications for insurance coverage and litigation.

Adjustment of Insurance Companies’ Underwriting Strategy

Based on the characteristics of different industries or fields, insurance companies’ underwriting strategies may be adjusted in responding to the ESG assessment system. This also means that insurance companies may be facing higher due diligence and compliance costs. For example, companies involved in high pollution and high energy consumption may face stricter regulatory constraints, which implies that these companies may face higher claim risks. Accordingly, insurers should be more cautious when carrying out due diligence investigations into these companies and should place stricter limitations on their coverage. Meanwhile, companies that adopt sustainable measures and actively fulfil their social responsibilities may receive preferential treatment from insurance companies.

New Insurance Products and Services

Many risks in the ESG domain are insurable risks, such as environmental risks from natural disasters and pollution, social risks from employee health and product liabilities, and governance risks like director liabilities. In the future, it is believed that there will be more ESG-related new products and services emerging in the insurance market.

Potential Increase in Litigation Related to Insurance Coverage

As public attention to ESG issues increases, insurance companies may face more ESG-related claims and litigation. For instance, victims may seek compensation in cases of accidents or pollution caused by poor environmental management, in which situations the companies may attempt to obtain compensation from their liability insurance.

Potential Reduction in Litigation Risk for Insurance Companies

Since ESG covers the interests of various stakeholders in the environment and society, it essentially forms a supervisory mechanism, which, at least theoretically speaking, could regulate corporate behaviour more effectively than the previous evaluation standards, thereby reducing the company’s litigation risks. Therefore, it is believed that insurance companies will incorporate ESG more in their internal governance and control for assessment in the future.

The legal framework for data protection in China is underpinned by a series of comprehensive laws and regulations that address both the broader issues of data security and the specific challenges related to personal data.

Legal Framework for Data Protection in China and Its Impacts

The Cybersecurity Law (CSL)

The CSL, enacted in 2017, focuses to ensure network security and protect cyberspace sovereignty. The CSL established the minimisation principle in data collection, restricting the arbitrary use or transfer of data. Transfers require consent from the original data rights-holder, and individuals must also have access to their collected data and can request its deletion.

The Civil Code

The Civil Code, enacted in 2020, is the first comprehensive codification of civil law in China. It includes provisions on personal rights, including data rights, and clearly prescribes that businesses collecting user data must adhere to principles of necessity, legitimacy and reasonableness.

Personal Information Protection Law (PIPL)

The PIPL, enacted in 2021, as the comprehensive national law for personal data protection, emphasises lawful, legitimate and necessary data processing.

The law also addresses cross-border data transfers, which has a potential impact on multinational insurers.

Data Security Law (DSL)

While the PIPL focuses on personal data, the DSL enacted in the same year covers data security in a broader sense, encompassing both personal and non-personal data. It introduces a tiered data security system based on the relevance of the data to China’s interests. Data deemed “important” requires a risk assessment for overseas transfer.

Relevant Guidelines and Regulations

In addition to the aforementioned core laws, there are several sector-specific guidelines, regulations and standards, usually provided by the China Banking and Insurance Regulatory Commission (CBIRC), which further define the expectations and responsibilities for financial industries including the insurance providers operating in China. For instance, the Regulations on the Management of Insurance Sales Behaviour (Draft for Solicitation of Comments) specifically stipulates that insurance sales activities should respect and protect the fundamental rights to information security of the policyholders, insured parties and beneficiaries, further specifying the principles and rules that insurance companies and insurance intermediary agencies must adhere to during the information collection and processing as well.

Impact of Data Protection Laws on the Insurance Industry

In the domain of underwriting, data protection laws can create both challenges and opportunities for insurance companies. The stringent rules on data collection might limit the type and amount of data that insurers can gather, which is critical for assessing risks accurately. Precision underwriting techniques, which rely heavily on large datasets and employ AI and data analytics, might face restrictions. This situation could affect product development and risk profiling. Moreover, global insurers may find it challenging to consolidate data across borders due to data localisation requirements. As a result, while there is a push for insurers to innovate and offer personalised policies using personal data, they must navigate the regulatory landscape cautiously to ensure compliance and accurate risk assessment.

As for the litigating of insurance risks, insurers must exhibit heightened diligence during claims verification due to the rights individuals have, like data access and correction under data protection laws. If insurers contravene data protection regulations, they risk that litigation could lead to significant fines and reputational damage. Ambiguities in data collection or usage can also spur disputes between insurers and policyholders. Moreover, in legal scenarios, the way data has been protected might influence its credibility and admissibility as evidence. Hence, insurers have to be meticulous in their data-handling processes to avoid potential pitfalls during litigation.

The Insurance Law is set for its fifth amendment, aiming to address prominent practical issues arising from its implementation, which, as understood from the corresponding discussions in the market, may include but not be limited to the following.

• Internal governance of insurance companies:The primary practical issues highlighted include the composition of the board of directors (especially the formation of independent directors), the need for independent directors to possess relevant professional knowledge and industry experience, and the specific procedures on how directors can effectively fulfil their roles.
• Issues regarding standard terms: In accordance with Article 17 of the current Insurance Law, where an insurer adopts standard terms during the conclusion of contract, it must explain these terms to the policyholder. Where exemption terms are included, the insurer must sufficiently highlight and provide a clear explanation of the terms. However, in practice, ambiguities exist regarding definitions such as “clear explanation”. Furthermore, the scope of what constitutes an exemption term remains unclear. Also, the introduction of the Civil Code has brought about changes in the portrayal of standard terms, causing subsequent application issues under the Insurance Law. These problems are expected to be addressed and rectified in this amendment.
• Inclusion of new insurance contracts:There has been a debate over whether the Insurance Law shall govern the new types of insurance contracts, which are roughly categorised into investment-type insurance contracts and health insurance contracts. The revision needs to define the nature of these new types of insurance contracts and thus to clarify the obligations and responsibilities of all parties involved.

Impact on Insurance Litigation

As for insurance coverage, the amendment may place an emphasis on transparency and accountability, especially with the focus on board composition and the role of independent directors in insurance companies, which is anticipated to lead to stricter underwriting criteria, potentially reshaping the terms and design of insurance products. Additionally, the move to provide more clarity on standard terms, especially exemption terms, will likely simplify insurance policies and reduce ambiguities. The introduction of new types of insurance contracts will also expand and diversify the range of available insurance products, offering consumers more specialised coverage options.

As for the impact on insurance litigation, the upcoming amendment of the Insurance Law may aim to minimise policy interpretation disputes by seeking clearer definitions around terms and exemption clauses. By aligning with the interpretation of the Civil Code and pinpointing which terms are considered as exemption terms, the chances of litigation arising from misunderstandings or ambiguous interpretations could decrease. However, the integration and classification of new insurance contracts may bring a temporary increase in litigation. This increase will be a result of the market adapting to and navigating the boundaries and interpretations of these contracts until standardised practices are firmly in place.

In addition, it is believed that, with better-defined standard terms and exemption terms, insurers will be equipped with clearer criteria on which to base their claims decisions, potentially reducing the frequency of disputes and the consequent need for defence funding. Yet, the initial unfamiliarity with claims related to these fresh product offerings may necessitate insurers to allocate more resources towards claim defences until practices become standardised.