——Li vs. Shijiazhuang Branch of PICC Property and Casualty Company Limited. on Dispute over Property Insurance Contract

[Principle of Adjudication]

The stipulation of the insurer’s liabilities in the standard clauses is the basis for determining the equilibrium relationship between the insurer’s assuming contract liabilities and charging corresponding insurance premium, and such basis shall not be shaken due to the insurer’s failure to deliver the standard clauses to the other party. That is to say, the stipulation of insurance liabilities in the standard clauses shall not be denied on the ground of non-delivery of the standard clauses. The standard clauses shall first be interpreted according to common understanding, and where two or more interpretations with almost equal reasonableness exist for a standard clause in the contract, the interpretation favorable to the insured and the beneficiary shall be adopted. 

[Implications]

This is a typical case of correctly applying the principle of compensation for equal value on the insurance transaction occasion, and has exemplary significance in terms of bridging legal gaps, establishing adjudication rules, guiding reasonable social expectations, etc. The principle of compensation for equal value is one of the basic principles for commercial activities. In this case, the court accurately clarified the scope of insurance liabilities from the perspective of the consideration equilibrium relationship, and acknowledged the certainty of insurance premium charged and scope of risks insured, which was a specific embodiment of the consideration equilibrium relationship under the insurance contract. The denial of provisions regarding insurance liability scope on the ground that the insurer failed to deliver the insurance liability clauses is fundamentally contrary to the principle of compensation for equal value. In addition, the application conditions of the doctrine of contra proferentem for standard clauses are further clarified, and the interpretation method of disputed standard clauses in this case is typical.

[Basic Facts]

After the insurance applicant Li purchased comprehensive insurance for all his engineering machinery and equipment, the insured claimed compensation from the Shijiazhuang Branch of PICC Property and Casualty Company Limited because the boom of the vehicle involved in the case was broken and damaged. The insurance company rejected the compensation request by claiming that vehicle damage was not covered by the insurance. Upon trial, the first-instance court held that both parties had different understandings of the term “capsize” in the insurance liability scope. Since this is in a standard clause provided by the insurer but the insurer failed to submit evidence to prove that it delivered the insurance clauses, an interpretation was made against the party providing such standard clauses, and accordingly, the court ruled that the insurance company shall compensate losses of the subject matter insured in the accident. The insurance company refused to accept the first-instance judgment and filed an appeal. Upon trial, the Beijing Financial Court held that the insurer’s failure to deliver the standard clauses during the execution of the insurance contract could not lead to an unlimited expansion of the insurance liability scope, and can only stop the exemption clauses of the standard clauses from taking effect. Objectively, the vehicle involved in the case was “capsized” or “turned over”. That is to say, the cause of loss of the subject matter insured did not fall within the scope of risks (causes) for which the insurance company shall bear compensation liability as claimed by Li and agreed in the contract, and the insurance company shall not be liable for insurance compensation for the accident and corresponding losses. Therefore, a judgment was entered to revoke the first-instance court judgement and dismiss all claims of Li.

[Judge Comments]

Insurance is a kind of consensus reached by parties for sharing losses arising from accidents, and has its own unique laws and characteristics. The handling of insurance cases shall not only comply with judicial principles of insurance, but also respect general principles of insurance. After ascertaining the facts of the case, the collegial bench of this case paid sufficient attention to the objective reality of the development of the insurance industry in our country, followed the principle of compensation for equal value, and balanced the interests of the policy owner, the insured and the orderly development of the insurance industry, so as to prevent an unlimited expansion of insurance liability scope and enhance the predictability of behaviors for market players. Hopefully, in this way, we can further unify judgment standards, protect the legitimate rights and interests of insurance consumers and promote the healthy development of the insurance industry.

[Expert Comments]

Expert: Ren Zili, Professor, Law School, Beihang University

This case establishes two important adjudication principles for the handling of insurance contract disputes. First, it clarifies the legal consequences of an insurer’s failure to deliver standard clauses. Both insurance liability clauses and exemption clauses are usually standard clauses. Whether insurance liability clauses fall within the scope of exemption clauses is a common dispute in judicial practice. According to Paragraph 2 of Article 17 of the Insurance Law, if an insurer fails to deliver standard clauses, the exemption clauses therein shall not take effect, but the insurance liability clauses therein are still generally valid unless they constitute exemption clauses at the same time. Upon the trial of this case, the court held that the failure of the insurer to deliver standard clauses during the execution of the contract can only stop the exemption clauses of the standard clauses from taking effect. The insurance liability clauses will not be affected and the insurance liability scope shall not be expanded unlimitedly. Second, the application conditions of the doctrine of contra proferentem as provided in Article 30 of the Insurance Law are clarified. That is, we need to interpret terms and expressions in the insurance contract together with relevant clauses, nature and purpose of act, customs and the principle of good faith by all interpretation methods such as literal interpretation, system interpretation, purpose interpretation, customs interpretation, and good faith interpretation. If there are still two or more interpretations with almost equal reasonableness for the contract after the above-mentioned interpretation, then the interpretation favorable to the insured and the beneficiary shall be adopted. This case reflects the judge’s accurate understanding of the legislative spirit and rules of the insurance laws. It fills the legal gap and unifies the trial standards to a certain extent, has reference significance for the trial of similar cases, and is of great value in establishing innovative rules and guiding reasonable expectations.