Introduction
Providers of maritime transport, warehousing and other logistics
services ("transport providers") will often purchase liability
insurance with a fixed insurance period (e.g. one or two years) to insure
potential risks and liabilities that may occur during the course of service.
However, if several incidents that result in large losses occur,
some insurers may unilaterally terminate such insurance contracts in advance of
the expiration of the insurance period.
It is important for transport providers to know whether insurers
are entitled to unilaterally terminate insurance contracts in advance without
their consent. This article summarizes insurers' termination rights under
Chinese law.
Insurers may terminate insurance contracts on the basis of
statutory termination rights or agreed termination rights.
There are relevant provisions about insurers' statutory
termination rights in:
- the Insurance
Law;
- the Maritime
Law; and
- some judicial
interpretations of the Supreme People's Court.
In the context of maritime insurance, if these laws have
different provisions on the same specific issue, the provisions of the Maritime
Law will take precedence over the Insurance Law and other laws.
The provisions of the above laws provide that insurers are
entitled to exercise statutory termination rights in the following
circumstances.
Where transport providers do not pay premiums in time
Where transport providers fail to pay their insurance premiums to the insurer
in time, the insurer will have the right to terminate the insurance contract
before the insurance liability begins, except where the insurer has already
issued insurance documents.
However, after the commencement of the insurance liability,
Chinese courts will not support insurers' requests for termination of the
contract on the ground that the transport provider has not paid the premium.
Where transport providers fail to inform insurers of material
circumstances
According to the Maritime Law, before a maritime insurance contract is
concluded, a transport provider must truthfully inform the insurer of the
material circumstances of which it has knowledge or ought to have knowledge in
its ordinary business practice and which may have a bearing on the insurer in
deciding on the premium or whether it agrees to insure.
Upon the intentional failure of the insured to truthfully inform
the insurer of such circumstances, the insurer has the right to terminate the
contract without refunding the premium. The insurer will not be liable for any
losses arising from the perils insured against before the contract is
terminated.
Where transport providers do not comply with warranties under
insurance contract
According to the Maritime Law, a transport provider must notify the insurer in
writing immediately where the transport provider has not complied with the
warranties under the contract. The insurer may, upon receipt of the notice,
terminate the contract or demand an amendment to the terms and conditions of
the insurance coverage or an increase in the premium.
Where degree of peril of subject matter insured greatly
increases
Where the degree of risk to the subject matter of insurance increases
appreciably during the term of the insurance contract, a transport provider
must notify the insurer in accordance with the contract in a timely manner. The
insurer may, in accordance with the contract, increase the insurance premium or
terminate the contract.
Where transport providers intentionally cause an insured
incident
Where a transport provider intentionally causes an insured incident, the
insurer will have the right to terminate the insurance contract, not to pay
indemnity and not refund the premium.
Where the insured fails to maintain safety of subject matter
Where a transport provider fails to perform the obligation of maintaining the
safety of the subject matter insured as agreed upon, the insurer will have the
right to increase the insurance premium or terminate the contract.
In addition to the aforementioned statutory termination rights,
generally speaking, neither an insurer nor a transport provider may terminate a
contract after the commencement of the insurance liability. However, both the
Maritime Law and the Insurance Law respect contract freedom and enable both
parties to agree on specific termination circumstances in an insurance
contract.
Insurers will usually put in some specific termination
circumstances in their general standard insurance clauses and the issued
policy. Some insurers add termination-at-will rights in their standard
insurance clauses or policies to protect their own rights and interests.
However, Chinese law places some restrictions on insurer termination rights.
For example, cargo insurance contracts and voyage insurance contracts may not
be terminated by the parties once the insurance liability has commenced.
One case that exemplifies this is that of a transport provider
that had bought liability insurance for one year. However, after several large
payments, the insurer notified the client that the insurance contract would be
terminated. The client argued that the insurance period had not expired. Upon
reviewing the insurance contract's clauses, a clause was found that provided
for the following:
Unless otherwise agreed, the insurer may terminate this
insurance contract by sending a notice of termination to the insured 15 days in
advance. After the termination of this insurance contract, the insurer will
charge the actual premium based on the actual operating income during the
period from the commencement of the insurance liability to the termination of
the contract.
Therefore, the client was advised to find another insurance
company to cover the potential risk in the future as soon as possible, instead
of filing a lawsuit which could have an adverse effect.
Insurers may legally terminate maritime insurance contracts in
advance of the expiration of the insurance period, provided that this
termination right has been clearly agreed in the contract. Under such
circumstances, transport providers will have to seek the services of another
insurance company quickly to insure any subsequent potential risks and
liabilities. This may be inconvenient for the transport provider and may result
in them taking on uninsured liability.
It is therefore suggested that, as well as avoiding the
occurrence of the statutory termination circumstances, transport providers
should pay more attention to the relevant provisions of insurance clauses and
policies. They should carefully consider whether to accept clauses that enable
the insurer to unilaterally terminate the insurance contract in advance of the
expiration of the insurance period.
Δεν υπάρχουν σχόλια:
Δημοσίευση σχολίου