• No results found

China JADE & FOUNTAIN

In document The Duty of Utmost Good Faith (Page 47-52)

Jun Yang

I - Definition of the Principle of Utmost Good Faith 1. In your jurisdiction, do insurance laws

provide for the principle of utmost good faith (in latin, “uberrimae fidei”) and if so, what is its meaning? Provide any definition whether under statute or according to case law.

There is no specific definition of “utmost good faith” in Chinese insurance laws. However, it is generally accepted that Article 5 of PRC Insurance Law is the legal basis of the principle of utmost good faith, “The

parties to insurance activities shall follow the principle of good faith in their exercise of rights and performance of obligations.

Article 16 and 17 of PRC Insurance Law further construe such principle by stipulating obligations of the insurer and the insurance applicant. As “Where

the insurer makes any inquiry about the subject matter insured or about the insurant when entering into an insurance contract, the insurance applicant shall tell the truth.” “Where an insurance contract is entered into by using the standard clauses of the insurer, the insurer shall provide an insurance policy with the standard clauses attached and explain the contents of the contract to the insurance applicant.

2. Is the principle of utmost good faith (i) a statutory principle, (ii) a common law principle or (iii) a civil law principle? Or is it to be found under statute and otherwise?

The principle of utmost good faith is a statutory principle in Chinese insurance laws. Instead of principle of utmost good faith, there is the principle of good faith stipulated in other laws, i.e. PRC Contract

Law. This being said Chinese insurance laws require

a higher level of good faith than other laws.

3. Do insurance laws of your jurisdiction provide for both the principle of utmost good faith and a separate duty of disclosure for the insured?

Yes. As mentioned above, Article 16 of PRC

Insurance Law provides, “Where the insurer makes any inquiry about the subject matter insured or about the insurant when entering into an insurance contract, the insurance applicant shall tell the truth.” However,

such provision is deemed as a detailed article which construes the spirit of the principle of utmost good faith.

4. Does the principle of utmost good faith apply to all types of insurance contracts (life insurance, general insurance, reinsurance etc.)?

Yes, the abovementioned Article 5 is stipulated in Chapter I General Provisions of PRC Insurance Law, therefore, it is a general principle which could be applied to all types of insurance contracts.

5. Does the duty of utmost good faith apply only at the pre-contractual stage or is it a continuous duty applying both pre- contractually and post-contractually?

It is a continuous duty which should apply both pre- contractually and post-contractually. As per Article 5 of PRC Insurance Law, duty of utmost good faith shall be applied to “exercise of rights and performance of

obligations”. Regarding the specific provisions, Article 52 of PRC Insurance Law provides: “Where the

degree of peril of the subject matter insured greatly increases during the term of validity of the contract, the insured shall notify the insurer in a timely manner as agreed upon in the contract, and the insurer may increase the insurance premium or terminate the contract as agreed upon in the contract.”, this also reflects that such duty shall apply post-contractually.

II - Application of the Principle of Utmost Good Faith at the Pre-Contractual Stage

6. Does the Principle of Utmost Good Faith apply to both the insured and the insurer at the pre-contractual stage?

As a matter of fact, there is no specific provision stipulating the application of Principle of Utmost Good Faith to the insured. However, as per Article 5 of PRC

Insurance Law, Principle of Utmost Good Faith shall

apply to all “the parties to insurance activities”. On that basis, both of the insured and the insurer should obey the principle of utmost good faith at the pre- contractual stage.

A - For the Insured

7. What is the content of the duty of utmost good faith for the insured?

Describe the insured’s pre-contractual duty of utmost good faith by providing examples of the best known cases in which it has been applied.

As mentioned above, Article 16 of PRC Insurance

Law provides, “Where the insurer makes any inquiry

about the subject matter insured or about the insurant when entering into an insurance contract, the insurance applicant shall tell the truth. ….An insured incident means an incident within the insurance

IBA Insurance Committee Substantive Project 2014 47 The Duty of Utmost Good Faith: China

coverage as agreed upon in an insurance contract. “,

which stipulates the insured’s pre-contractual duty of utmost good faith while the abovementioned Article 52 stipulates the insured’s post-contractual duty of utmost good faith.

To sum up, the insured should disclose all the information that can possibly affect the insurer’s decision regarding the conclusion of the insurance contract. The insured should also disclose all the information regarding the change of degree of peril of the subject matter insured.

Case: Mr Li had purchased a health insurance for himself in which he checked the answer “no” to the inquiry regarding whether he had suffered any heart attack. After that, he claimed insurance money for his stay in hospital to cure his heart attack. However, after investigation, Mr. Li was found to had been through several heart attacks before he entered into the insurance contract. The court finally rejected Mr. Li’s claim as he didn’t disclose his medical history of heart attacks, which information will definitely influence the insurer’s decision regarding the insurance fee or even whether to accept the insurance application.

8. Is the duty of utmost good faith for the insured equivalent to the duty of disclosure in your jurisdiction so that pre-contractually the two are indistinguishable?

In Chinese judiciary practice, the insured’s duty of disclosure is merely limited to the insurer’s inquiry when entering into an insurance contract whilst the duty of utmost good faith is throughout the insurance contract. However, pre-contractually, these two duties are indistinguishable.

9. If the duty of utmost good faith operates separately pre-contractually from the duty of disclosure describe that operation and how the two sit together. You may need to describe the duty of disclosure to illustrate the differences.

Not Given.

10. What are the remedies for a pre- contractual breach by the insured of the duty of utmost good faith? Are the remedies different from a breach of the duty of disclosure?

As duty of utmost good faith is stipulated as a principle in PRC Insurance Law, there is no specific remedy for a pre-contractual breach by the insured. Regarding the remedies for breach of the duty of disclosure, as per paragraphs of Article 16 provides: “Where the insurance applicant fails to perform the

obligation of telling the truth as prescribed in the preceding paragraph intentionally or for gross negligence, which is enough to affect the insurer’s decision on whether to underwrite the insurance or

raise the insurance premium, the insurer shall have the right to rescind the insurance contract.

The right to rescind an insurance contract as prescribed in the preceding paragraph shall be annulled after the lapse of 30 days or more from the day when the insurer knows the cause of rescission. After the lapse of two years or more from the day when an insurance contract is entered into, the insurer may not rescind the contract; where an insured incident occurs, the insurer shall be liable for paying indemnity or insurance money.

Where the insurance applicant intentionally fails to perform the obligation of telling the truth, the insurer shall not be liable for paying indemnity or insurance money for an insured incident which occurs before the contract is rescinded, and shall not refund the insurance premium.

Where the insurance applicant fails to perform the obligation of telling the truth for gross negligence, which materially affects the occurrence of an insured incident, the insurer shall not be liable for paying indemnity or insurance money for an insured incident which occurs before the contract is rescinded, but shall refund the insurance premium.

11. If the duty of utmost good faith operates separately from the duty of disclosure does one have precedence over the other?

The duty of utmost good faith is a general principle stipulated in PRC Insurance Law, which functions as a declaration of the spirit of insurance law rather than a specific provision that could be directly applied to cases. On the contrary, the duty of disclosure is a specific provision that could be applied directly to cases. In other words, the duty of disclosure has precedence over the duty of utmost good faith but its interpretation shall be subject to the principle of utmost good faith.

B - For the Insurer

12. What is the content of the pre-contractual duty of utmost good faith for the insurer?

Article 17 of PRC Insurance Law provides, “Where an insurance contract is entered into by using the standard clauses of the insurer, the insurer shall provide an insurance policy with the standard clauses attached and explain the contents of the contract to the insurance applicant.

For those clauses exempting the insurer from liability in the insurance contract, the insurer shall sufficiently warn 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 verbally. If the insurer fails to make a warning or express explanation thereof, those clauses shall not be effective.”

IBA Insurance Committee Substantive Project 2014 48 The Duty of Utmost Good Faith: China

This being said, the insurer should explain the content of the contract, especially the content against the insured/ insurance applicant, otherwise the insurer may bear the unfavorable result.

13. Describe the insurer’s pre-contractual duty of utmost good faith by providing examples of the best known cases in which it has been applied.

Mrs. Han purchased a life insurance e-policy online for his husband, a farmer. However, after Mrs. Han claimed insurance money after his husband died in a car accident, the insurer raised the argument that the policy can only be purchased for vehicle drivers rather than farmers, should Mrs. Han disclose his husband’s occupation when entering into the contract, it would not accept the insurance application. Finally, the court upheld Mrs. Han’s claim as the court is of the view that the insurance company shall not avoid its obligation of explaining materials to the insurance applicant by promoting on-line insurance policy, the insurer shall still check with the insurance applicant re certain important issues even though the policy is purchased online. On that basis, the court found the insurer breach its duty of utmost good faith.

14. Is it a breach of the duty of utmost good faith in your jurisdiction for insurers not to notify the prospective insured of the nature and extent of their duty of disclosure?

No. It is not clearly stipulated that the insurers are obligated to notify the prospective insured of the nature and extent of the duty of disclosure. However, the scope of the information with respect to the insured’s duty of disclosure is only limited to the insurers’ inquiry. The insured are not obligated to provide other information.

15. What are the remedies for a pre- contractual breach by the insurer of its duty of utmost good faith?

As mentioned above, “For those clauses exempting

the insurer from liability in the insurance contract, the insurer shall sufficiently warn 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 verbally. If the insurer fails to make a warning or express explanation thereof, those clauses shall not be effective.” Therefore, “liability exempting clauses” would be considered invalid should the insure breach its duty of utmost good faith by failing to sufficiently explain such clauses.

III - Post-Contractual Application of the Principle of Utmost Good Faith (at the Claim Stage)

A - For the Insured and Third Party Beneficiary of Cover

16. What is the content of the post- contractual duty of utmost good faith for the insured at the claim stage?

As per Article 21 of PRC Insurance Law: “After knowing the occurrence of an insured incident, the insurance applicant, insured or beneficiary shall notify the insurer in a timely manner. Where the insurance applicant, insurant or beneficiary fails to do so intentionally or for gross negligence, which makes it difficult to determine the nature, cause, degree of damage, etc. of the insured incident, the insurer shall not be liable for paying the indemnity or insurance money for the undeterminable part, unless the insurer has known or should have known the incident in a timely manner through any other channel.”

Moreover, Paragraph 3, Article 27 of PRC Insurance

Law provides, “Where, after the occurrence of an

insured incident, the insurance applicant, insurant or beneficiary fabricates the cause of incident or exaggerates the degree of damage by forging or altering the relevant certificates or materials or any other evidence, the insurer shall not be liable for paying indemnity or insurance money for the false part.”

On that basis, The insured should inform the insurer in a timely manner about the incident without exaggerating or fabricating relevant information. In addition, Paragraph 1, Article 22 of PRC Insurance

Law provides, “After an insured incident occurs, the insurance applicant, insured or beneficiary claiming indemnity or insurance money against the insurer under the insurance contract shall provide the insurer with available certificates and materials related to the determination of the nature, cause, degree of damage, etc. of the incident.

Therefore, when claiming for the insurance money, the insured was obligated to submit all the relevant certificates or materials related to the insured incident.

16.1 Do third party beneficiaries of cover have a duty of utmost good faith?

Yes, according to abovementioned Articles, the beneficiaries is not only obligated to provide all the materials concerned, but also is prohibited from exaggerating or fabricating relevant information.

17. Describe the insured’s post-contractual duty of utmost good faith by providing examples of the best known cases in which it has been applied.

Teng Fa construction company in China Pacific Insurance Co.,Ltd entered into an insurance contract in which a hoisting crane owned by Teng Fa construction company is insured as a tool for construction, but the company changed its usual function and used it as a tool for bungee jumping without notice to the insurer. Thereafter an accident happened, the company filed claim to the insurer for insurance money. The court upheld the insurer’s

IBA Insurance Committee Substantive Project 2014 49 The Duty of Utmost Good Faith: China

argument as the risk of the insured subject increased appreciably during the term of the contract, which information shall be notified to the insurer in a timely manner by the insured. However, the insured failed to perform its obligation which shall be deemed as a breach of its duty of utmost good faith as prescribed in Article 52 of PRC Insurance Law : “Where the

degree of peril of the subject matter insured greatly increases during the term of validity of the contract, the insured shall notify the insurer in a timely manner as agreed upon in the contract, and the insurer may increase the insurance premium or terminate the contract as agreed upon in the contract.

18. Is the insured’s intentional concealment of his/her criminal activities when completing a proposal for life policies a breach of the duty of utmost good faith?

Yes, as per Article 45 of PRC Insurance Law, “Where

the insured is injured, disabled or dead for his or her intentional commission of a crime or resistance to any legally taken criminal compulsory measure, the insurer shall not be liable for paying insurance money. If the insurer has paid the insurance premium for two full years or more, the insurer shall refund the cash value of the insurance policy as agreed upon in the contract.”

B - For the Insurer

19. What is the content of the duty of utmost good faith for the insurer when dealing with a claim?

Although the insured is obligated to provide all relevant materials related to the insured incident, as an expertise who posses more professional knowledge of insurance, the insurer is also obligated to assist the insured in performing its obligation. As per Paragraph 2, Article 22 of PRC Insurance Law, “If

the insurer deems that the relevant certificates and materials are incomplete according to the contract, it shall notify, in a timely manner and at one time, the insurance applicant, insured or beneficiary of all certificates and materials to be supplemented.”

In addition, the insurer shall indemnify the insured in a timely manner should the claim is justified. According to Paragraph 1, Article 23 of PRC Insurance Law, “After receiving an insured’s or beneficiary’s claim for

paying indemnity or insurance money, the insurer shall assess the claim in a timely manner. If the circumstances are complex, the insurer shall complete the assessment within 30 days, unless it is otherwise agreed upon in the insurance contract. The insurer shall notify the insured or beneficiary of the assessment result. For a claim which falls within the insurance coverage, the insurer shall perform the obligation of paying indemnity or insurance money within 10 days after reaching an agreement on payment of indemnity or insurance money with the insurant or beneficiary. If the insurance contract provides otherwise for the time limit for payment of indemnity or insurance money, the insurer shall

perform the obligation of paying indemnity or insurance money as agreed upon therein.”

20. Does an insurer owe a duty of utmost good faith towards third party beneficiaries of cover in handling claims?

Yes, the abovementioned Articles which stipulate the duty of utmost good faith for the insurer are all applicable to third party beneficiaries.

21. Describe the post-contractual duty of utmost good faith by providing examples of the best known cases in which it has been applied.

In a case heard by a Beijing Court, the insurance company was sued by Mr. Du for the payment of insurance money. Mr. Du and Chinese Life Insurance Company entered into a contract in which Mr. Du’ life and health were insured. After that, Mr. Du was injured in an accident which was then ascertained by the insurance company. However, the insurance company withheld the payment of the insurance money for the reason that a small part of the payment has not been justified. Finally, the court not only

In document The Duty of Utmost Good Faith (Page 47-52)