[Title] Tang v. Xia: Dispute over Life Insurance Contract between the Plaintiffs and the Dandong Branch of Company X Insurance Co., Ltd.

[Keywords] Civil/Personal Insurance Contract Disputes/Second Instance/Exemption Clauses

【Key Points of the Ruling】

The person who pays the premium on behalf of the insured cannot be considered the insured. Rather, the insured should be determined based on the information about the insured as stated in the insurance contract. Determining the insured is crucial because it enables the insurer to confirm whether it has asked the insured about health conditions and whether it has provided adequate notice and explicit explanation regarding clauses exempting the insurer from liability. According to the Provisions of the Second Judicial Interpretation of the Insurance Law, if an insurer uses prohibitive provisions stipulated in laws or administrative regulations as grounds for exemption in the insurance contract, and after providing appropriate notice of such clauses, the insured, the beneficiary, or the policyholder claims that the clause is invalid due to the insurer’s failure to fulfill its obligation of explicit explanation, the people’s court will not support such a claim. To determine whether a clause is effective under this provision, it is further necessary to ascertain whether the exemption clause falls within the scope of Article 30 of the Insurance Law: “In an insurance contract concluded using standardized terms provided by the insurer, if there is a dispute over the terms of the contract between the insurer and the insured, the beneficiary, or any other party, the terms shall be interpreted according to their ordinary meaning. If there are two or more interpretations of the contract terms, the people’s court or arbitration institution shall adopt the interpretation that is most favorable to the insured and the beneficiary”—a principle known as the “principle of interpretation against the insurer.”

[Basic Facts of the Case]

Plaintiff Xia is the wife of Tang, and Plaintiff Tang is the son of Tang. At the time of his death, Tang was an employee of Dandong XX Machinery Co., Ltd. In August 2017, the company arranged for its employees to obtain a comprehensive accidental injury insurance policy from the defendant via electronic card-based insurance coverage. Two such policies were purchased for Tang, both in card format. The premium for each policy was 100 yuan, paid by the company, and the death benefit under each policy was 70,000 yuan. The insured’s name listed on the policy was Tang, and the beneficiaries upon death were Tang’s legal heirs. The policy included a boldfaced warning stating: “The Company shall not be liable for paying any insurance benefits if the insured’s death, disability, or medical expenses are caused by any of the following circumstances.” Among these, item seven specifically states: “If the insured drives a motor vehicle while intoxicated, drives without a valid driver’s license, or drives a motor vehicle without a valid registration certificate.” At the time of insurance purchase, the defendant insurance company’s agent explained the exclusion clauses of the policy to the personnel responsible at Tang’s workplace. Liu Xzhi repeatedly explained these exclusion clauses to employees during company-wide meetings. At approximately 7:00 a.m. on September 26, 2017, Tang was riding an electric bicycle when he was involved in a traffic accident and died at the scene. The electric bicycle had been identified as a motor vehicle because it exceeded the prescribed standards. According to the traffic police department’s investigation, the insured, Tang, had failed to obtain a motor vehicle driver’s license as required by law and was driving an unregistered motor vehicle on the road. Furthermore, when making a turn, he failed to yield the right-of-way to vehicles traveling straight ahead, thus bearing equal responsibility for the accident.

【Judgment Result】

The court of first instance held that the plaintiff’s claim for insurance benefits from the insurance company lacked both factual and legal basis, and therefore was not supported by the court of first instance.

After the original plaintiff appealed to the Dandong Intermediate People's Court, the second-instance court held that the life insurance company should pay the accidental injury insurance benefit as stipulated in the insurance policy, totaling 140,000 yuan.

【Reasons for the Ruling】

The court of first instance held that although the insured person registered in the insurance contract involved in this case was Tang Moumou, the party that entered into the contract with the defendant insurance company and paid the premium was actually Tang Moumou’s employer, Dandong XX Machinery Co., Ltd. Therefore, Dandong XX Machinery Co., Ltd. is the actual insurer under the contract, while Tang Moumou is the insured. The act of the insured Tang Moumou driving a motor vehicle without a license and without license plates on the road constitutes a violation of relevant provisions of the Road Traffic Safety Law. The insurance company had already provided special warnings about this exclusion of liability in the insurance certificate and had fulfilled its duty to explain the matter to the policyholder, Dandong XX Machinery Co., Ltd. Accordingly, in accordance with the contract terms and applicable laws, the insurance company is exempt from its obligation to pay insurance benefits.

The second-instance court held that, in this case, the activation card policy inquiry provided by the three appellants in the second instance indicated that the insured under the insurance policy in question was Tang Moumou. Therefore, the life insurance company should have fulfilled its duty to provide notice to the insured, Tang Moumou, at the time of contract conclusion. However, the appellee, the Dandong Branch of a certain life insurance company, knowing full well that the insured under the policy could only be a natural person, failed to provide sufficient evidence demonstrating that it had adequately drawn the insured, Tang Moumou’s, attention to the clauses in the insurance contract that exempted the insurer from liability when concluding the insurance contract. Consequently, these exclusion clauses are not enforceable.

【Relevant Statutes】

Article 17 of the Insurance Law of the People's Republic of China stipulates that when concluding an insurance contract and using standard terms provided by the insurer, the insurer shall attach these standard terms to the insurance application submitted to the applicant. The insurer shall also explain the contents of the contract to the applicant. With regard to clauses in the insurance contract that exempt the insurer from liability, the insurer must, at the time of concluding the contract, provide conspicuous warnings on the insurance application, the insurance policy, or other insurance documents sufficient to attract the applicant’s attention, and must clearly explain the content of such clauses to the applicant either in writing or orally. If no such warning or explicit explanation is provided, such clauses shall be deemed ineffective.

Article 30 of the Insurance Law of the People's Republic of China stipulates: “In an insurance contract concluded using standard clauses provided by the insurer, if there is a dispute over the terms of the contract between the insurer and the policyholder, the insured, or the beneficiary, the terms shall be interpreted according to their ordinary meaning. If there are two or more interpretations of the contract terms, the people’s court or the arbitration institution shall adopt the interpretation that is favorable to the insured and the beneficiary.”

[Lawyer’s Perspective]

The court of first instance held that although the insured person registered in the insurance contract involved in this case was Tang Moumou, the entity that entered into the contract with the defendant insurance company and paid the premium was Dandong XX Machinery Co., Ltd., Tang Moumou’s employer. Therefore, the company should be regarded as the actual policyholder. Consequently, the court concluded that the insurer had duly provided the policyholder with notice and explicit explanation regarding the exclusion clauses. However, the author believes that this factual finding is incorrect. The determination of the policyholder should be based on the insurance application form itself. Moreover, Article 3 of the Judicial Interpretation of the Insurance Law stipulates that the policyholder may authorize a third party to pay the premium on their behalf; thus, the policyholder need not necessarily be the person who actually pays the premium—rather, the policyholder should be the one identified in the insurance application form. In this case, the insurance involved is not group accident insurance but rather an electronic card-based insurance contract. Under such an electronic card-based insurance contract, each policyholder or the policyholder’s agent must individually access the internet to apply for insurance. On the internet, the insurer asks the policyholder about their health status and provides notice and explicit explanation of the exclusion clauses. In this case, although the premium was paid by the employer, this fact alone cannot establish that the employer is the policyholder. Instead, the employer should be considered the policyholder’s agent, and the consequences arising from the policyholder’s actions at the time of application shall be borne by the policyholder himself, rather than by the insurer for failing to ask the policyholder about their health condition or to provide notice and explicit explanation of the exclusion clauses. Clearly, both the first-instance and second-instance courts have flaws in their reasoning and approach to the case.

Moreover, the reasoning of the second-instance court did not address the issue of interpreting the insurance clauses involved in this case. According to the common understanding of ordinary people, electric vehicles cannot be registered and objectively cannot obtain motor vehicle license plates; yet they are still permitted to drive on public roads. Although the electric vehicle in this case was identified as a motor vehicle through expert appraisal, there remains a dispute over whether it falls within the definition of “motor vehicle” as stipulated in the insurance contract terms. In accordance with the Supreme People’s Court Gazette case—Cao Xcheng, Hu Xlan, Cao Xjian, and Cao Xzhong v. Minsheng Life Insurance Co., Ltd. Jiangsu Branch, Insurance Contract Dispute Case—the summary of the judgment in that case states: “According to Article 30 of the Insurance Law: ‘In an insurance contract concluded using standard clauses provided by the insurer, if there is a dispute over the contract terms between the insurer and the policyholder, the insured, or the beneficiary, the terms shall be interpreted according to their ordinary meaning. If there are two or more interpretations of the contract terms, the people’s court or arbitration institution shall adopt the interpretation that is favorable to the insured and the beneficiary.’”

In the absence of any provisions in the insurer’s exclusion clauses or in the interpretation of the insurance terms defining the criteria for identifying motor vehicles, the interpretation that the vehicle involved in this case does not fall within the category of “motor vehicles” as defined in the insurer’s exclusion clauses—based on the misleading information provided by the manufacturer’s product manual and the product inspection certificate (both of which indicate that the vehicle is a moped), as well as the objective fact that the insured party was unable to obtain a motor vehicle license plate—is consistent with the common-sense understanding held by an ordinary purchaser and user of such vehicles. Therefore, an interpretation favorable to the insured should be adopted, and the vehicle in question should be deemed not to fall within the category of “motor vehicles” as specified in the insurer’s exclusion clauses. In this context, the insured’s driving of the aforementioned vehicle without obtaining a driver’s license also does not constitute the circumstance of driving without a license as stipulated in the exclusion clauses. Similar to the circumstances of this case, although China is not a common-law country, the published cases issued by the Supreme People’s Court reflect the Court’s prevailing judicial views and carry significant guiding importance for judicial practice.

As mentioned above, in judicial practice, there still exist cases of misinterpretation of insurance law. In this case, the principle of “adverse interpretation” stipulated in Article 30 of the Insurance Law should have been applied. However, not all provisions are subject to this principle; it applies only when the disputed provision genuinely allows for two or more reasonable interpretations. Yet, some judges, regardless of whether the alternative interpretations are reasonable or not, simply apply the principle of adverse interpretation without following the interpretation principles prescribed by the Contract Law. This has led to arbitrary interpretations of insurance contract terms by the people’s courts, seriously undermining the insurance market and the principle of fairness.

Currently, the exclusion clauses in accident insurance policies issued by various insurance companies all include provisions such as “driving without a license” and “driving a vehicle without a license.” If an insurance company intends to exclude liability for electric bicycles that exceed regulatory standards and have been classified as motor vehicles, it must explicitly state this in the exclusion clause. Otherwise, ambiguity is likely to arise, potentially leading the people’s court to apply the principle of “interpretation against the insurer.”