Reply on Issues Relevant to Insurance Contract Disputes

(Issued by the China Insurance Regulatory Commission on February 21 2006.)

Chongqing Municipal Higher People's Court:

Your Letter Requesting Advice on Issues Relevant to Insurance Contract Disputes ([2005] Yu Gao Fa Min Zhong Zi No.174) has been received. After study, we provide you the following reply on relevant issues:

1. Obligation of Truthful Disclosure

Pursuant to Article 17 of the Insurance Law, the obligation of truthful disclosure by the proposer at the time of conclusion of an insurance contract should be a disclosure by query, i.e. the insurer asks questions in written or oral form and the proposer is obligated to make a disclosure. If the insurer has raised relevant issues on the risk inquiry form and the proposer leaves such portion blank, the proposer should be deemed to have failed to perform his disclosure obligation.

Pursuant to Article 5 of the Insurance Law and Article 60 of the Contract Law, the parties to an insurance contract should abide by the principle of good faith in exercising their rights and performing their obligations, and in the course of the performance of the contract should perform incidental good faith obligations such as the obligation of notification, assistance, etc. based on the nature and objective of the contract and trade practice. At the time the insurance is taken out, if the proposer is well aware or ought to know of certain important matters that have a bearing on the risk attaching to the subject matter of the insurance and would have an impact on the insurer's decision on whether or not to underwrite the insurance or increase the premium rate, the proposer should, based on the principle of good faith, provide an appropriate explanation or disclosure thereof, regardless of whether the insurer expressly asked about such matters. If the proposer deliberately fails to perform such good faith obligation, he is liable for damages for negligence in the conclusion of an agreement pursuant to Items (2) and (3) of Article 42 of the Contract Law. Furthermore, pursuant to Article 37 of the Insurance Law, if the degree of risk attaching to the subject matter of the insurance increases after the formation of an insurance contract, the proposer bears an obligation of notification in accordance with the contract. If the proposer fails in such obligation, the insurance company is not liable for indemnification for any insurable accident occurring due to the increase in the degree of risk attaching to the subject matter of the insurance.

2. Interpretation of Insurance Clauses

The letter you sent us was not accompanied by a sample of the specific insurance clauses, making it difficult for us to determine the actual version of such clauses. Deducing from the time the insurance was underwritten, the clauses of such All Risks Property Insurance should be the ones formulated, issued and implemented by the People's Bank of China in 1996. Pursuant to the relevant provisions of our Circular on the Administration of the Record Filing of Property Insurance Clauses and Premium Rates (Bao Jian Fa [2001] No.120), the clauses of such insurance should, before the revision by the China Insurance Regulatory Commission, continue to be handled in accordance with the original provisions of the People's Bank of China. If an insurance company continues to use such clauses, it is not required to carry out record filing procedures. The China Insurance Regulatory Commission is not responsible for interpreting insurance clauses that were neither formulated or revised by it. For the interpretation of the relevant terms and expressions in such clauses, you are asked to refer to the People's Bank of China, Circular on the Issue of the Clauses of, and Premium Rates for, and and the Interpretation of the Clauses Thereof (Yin Fa [1996] No.187). The Interpretation of the Clauses of All Risks Insurance attached to the said Circular does not expressly define the term 'dangerous structure', however the third item (which reads as follows, "those which are not conducive to the thorough implementation of relevant government orders or provisions, such as illegal structures and other premises or buildings that the government has ordered demolished or renovated within a specified period of time") of the explanation of the main reasons of Article 3 concerning "property listed that does not fall within the insured scope of the subject matter of the insurance" may serve as a reference criterion. The term 'sudden landslip' is defined in Article 4 as "the sudden downward slippage under the force of gravity of unstable rock masses, earth masses or man made accretions on a slope".

3. Insurance Assessment

Pursuant to the Provisions for the Administration of Insurance Assessment Institutions issued by us, an insurance assessment company is a work unit whose establishment was approved by the China Insurance Regulatory Commission in accordance with the law and that, upon appointment by a party to an insurance policy, engages in appraisal, survey, assessment, loss evaluation and adjustment with respect to the subject matter of insurance. The objection by a concerned party to the assessment conclusion reached by an insurance assessment company appointed by a concerned party falls within the scope of facts subject to determination and should be determined through in an investigation by a court.

The foregoing opinions are provided for your reference.