Balance needed in interpreting insurance contract obligations

In the rulings mentioned in last month’s column, even if there was no problem to finding that an insurance contract relationship had been established, and that the liability exemption clauses had not entered into effect, rendering a judgment ordering the insurance company to pay indemnities nevertheless lacked a legal basis and was unreasonable.

First, whether the event that caused the loss is an insured event is the basic factual issue of an insurance claim dispute case, otherwise there is no place to begin the discussion of the insurer’s scope of insurance liability. From either article 2 of the Insurance Law or the perspective of contractual philosophy it can be seen that the precondition to an insurer bearing insurance liability should be that “the event is specified in the contract”. In this case, the court should have first ascertained the contractual specification of the scope of insured events, and only provided that it determined that such event fell within the specified scope, it should then examine the validity of clauses that exempt the insurer from liability.

Fundamental differences

Second, the clauses describing the scope of insurance liability are fundamentally different from the clauses that exempt the insurer from liability, and the legal provisions applicable to determining their validity are also different. The first paragraph of article 9 of the second judicial interpretations of the Insurance Law provides as follows: “The clauses in a standard contract provided by the insurer that exempt it from, or reduce, its liability, such as liability exemption clauses, deductibles, franchise, pro rata settlement or benefit, etc., may be found to be ‘clauses that exempt the insurer from liability’ as specified in the second paragraph of article 17 of the Insurance Law.”

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