SFKS Xi an Electronic Newspaper Issue One Hundred and Twenty-Three June 2013

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1 SFKS Xi an Electronic Newspaper Issue One Hundred and Twenty-Three June 2013 Laws and Regulations Updates I. Supreme People s Court s Explanations for Several Matters Concerning the Applicability of the Insurance Law of the People s Republic of China (2) Local courts have diverse interpretation and understanding of matters concerning the applicability of the Insurance Law and have different standards when adjudicating cases involving insurance contract disputes. These discrepancies have seriously undermined the consistency of adjudication standards as well as the judicial authority. In view of that, the Supreme People s Court has formulated and promulgated the Explanations for Several Matters Concerning the Applicability of the Insurance Law of the People s Republic of China (2) (the Judicial Explanations ), which came into effect on 8 June The main content of the Judicial Explanations is as follows: 1. Article 1 of the Judicial Explanations stipulates that different policy holders may separately insure for the same insurance subject. This article recognizes that different policy holders, such as the user, lessee and carrier of a property, also have insurable interest in the insurance subject and prevents insurers from refusing to bear their insurance responsibility by abusing the insurable interest principle. It is certain that no one may receive compensation which exceeds 1

2 his/her loss through an insurance contract. Thus, the insured person may only claim for compensation within his/her scope of insurable interest in accordance with the insurance contract. 2. Article 3 of the Judicial Explanations expressly states that when entering into an insurance contract, if the policy holder or his/her agent does not personally sign or seal thereon and the insurer or its agent has done so on behalf of the policy holder, such insurance contract shall not be binding on such policy holder. However, if the policy holder has paid his/her insurance fee, such payment shall be deemed as his/her ratification of the signing or sealing by the insurer or its agent on his/her behalf. Such requirement aims at encouraging policy holders to sign and seal the contract on their own and be responsible for their own behaviors in order to safeguard their interests. 3. Practically speaking, some insurance companies require policy holders to take up excessive obligations of honest disclosure and hence refuse claims at their own will on the ground that the policy holders have violated such obligations. In order to protect the lawful interests of insurance policy consumers, the Judicial Explanations have set out regulations in the following aspects to restrict insurers right to refuse a claim when the policy holder has violated his/her obligations of honest disclosure: (a) According to Article 5 of the Judicial Explanations, the policy holder shall bear obligations of disclosure only for situations which are related to the insurance subject or the insured person within his/her own knowledge. As such, the insurer shall not refuse a claim on the ground that the policy 2

3 holder has failed to disclose a fact he/she is not aware of; (b) Article 6 of the Judicial Explanations stipulates that the policy holder s obligations of disclosure are limited to the scope and content inquired by the insurer. In principal, the insurer shall not make inquiries in broad and general terms; (c) Article 7 of the Judicial Explanations provides that if the insurer knows or shall know the policy holder has failed to discharge the obligation of disclosure after the entering into of the insurance contract but continues to receive insurance fee, the insurance contract shall not be terminated; (d) Article 8 of the Judicial Explanations sets out that the People s Court shall not render its support to the insurer if it did not exercise its right to terminate pursuant to the contract but has directly refused a claim on the ground that a situation under Paragraph 4 or Paragraph 5 of Article 16 of the Insurance Law exists. In other words, the insurer may refuse a claim on the ground that the policy holder has violated his/her obligation of honest disclosure only if it terminates the insurance contract. However, the People s Court shall of course grant permission if the parties concerned have otherwise reached a consensus regarding the matter of refusing to compensate and the continuing existence of the insurance contract. II. Notice of Further Clarification on Matters Related to the Entrance Requirement for Market of Insurance Professional Intermediaries 3

4 In order to implement the Decisions of the Amendments to the Regulations of the Administration of Insurance Brokerages as well as the Decisions of the Amendments to the Regulations of the Administration of Insurance Professional Agencies (the two Decisions ) promulgated by the China Insurance Regulatory Commission (the CIRC ), the CIRC has announced the Notice of Further Clarification on Matters Related to the Entrance Requirement for Market of Insurance Professional Intermediaries (the Notice ) on 16 May The main content is as follows: 1. Unless otherwise required by the CIRC, the minimum amount of registered capital for the establishment of insurance professional agencies and/or insurance brokerages shall be RMB50 million; 2. The Notice has provided further stipulation to expressly allow the relevant automobile enterprises (such as those engaging in manufacturing, sale, maintenance of automobile and transportation) to establish insurance professional agencies with an amount of RMB10 million as registered capital; 3. After the present policy adjustment, there will be three types of insurance professional agencies in the market, they are: agencies with registered capital between RMB2 million and RMB10 million, agencies with registered capital between RMB10 million and RMB50 million, and agencies with registered capital above RMB50 million. There will also be two kinds of insurance brokerages, which include those with registered capital between RMB10 million and RMB50 million, and those with registered capital above RMB50 million. To ensure policy fairness, insurance professional agencies and/or insurance brokerages with registered capital less than RMB50 million before the 4

5 promulgation of the two Decisions are allowed to maintain their original registered capital at current level with guidance strengthened; 4. The Notice explicitly requires each and every local insurance regulatory authority to accept and examine, in accordance with the law, applications filed for the setting up of insurance assessors, insurance professional agencies and insurance brokerages, and no restriction shall be imposed in respect of the investing parties. The summary is only intended to provide an outline of certain recent developments in the PRC and is not intended to be relied upon or taken as legal advice provided by Sit, Fung, Kwong & Shum or Hong Kong Sit, Fung, Kwong & Shum Xi an Representative Office. If you have any enquiry, please contact Alex Chan, our partner in Xi an Representative Office at Tel: (852) and fax: (852) (Hong Kong) or Tel: (8629) and fax: (8629) (Xi an) Please note that amendments have been made to the Personal Data (Privacy) Ordinance in Hong Kong in regard to the use of individuals personal data for direct marketing purposes. We have been using your personal data (and in particular your name and address) to send to you our regular electronic news as well as information about the legal services that our firm is able to provide to its clients. We hope that you find these communications and information useful and of value and we would like to continue to send them to you if you agree. If you no longer wish to receive our communications, please us at If you have any queries, or you would like to update your contact details, please also us at 5