Rulings run counter to spirit of the insurance contract

A civil contract is entered into by equal civil subjects based on the principle of autonomy of will. Insurance contracts are a type of civil contract and have certain special aspects. They are usually standard contracts provided by the insurer, i.e. the insurance company. The proposer, as the passive accepter of a standard contract, is usually deemed the party in the weaker position at the time of application. Considering the potential for the insurer to exploit its contracting advantage by setting “contractual traps” in its standard contract that exempt it from liability, the Insurance Law establishes a system of limits on the validity of clauses that exempt insurers from liability in order to protect proposers’ right to know, when entering into a contract, and balance the interests of insurers and proposers.

The second paragraph of article 17 of the Insurance Law specifies that “the insurer shall, when entering into the contract, provide on the application, insurance policy or other insurance certificate a reminder sufficient to draw the attention of the proposer to the clauses in the insurance contract that exempt it from liability, and shall expressly explain the contents of such clauses to the proposer in writing or orally. If no such reminder or express explanation is given, such clauses shall not enter into effect”.

In judicial practice, the foregoing provision seems to have been misunderstood, and even abused. In an insurance claim dispute, a certain insurance company even suspected that it had fallen into a “system trap” – so long as it was unable to show that the proposer had signed for receipt of the insurance contract, it was required to indemnify any of the insured’s losses, regardless of whether they were incurred as the result of an insured event or not.

Xu Dang is a partner and Luo Huichao is a lawyer at Dacheng Law Offices in Beijing