[Title] Dispute over the Subrogation Right of the Insurer between China Taiping Insurance Co., Ltd. Shenzhen Branch and Wan XXX Logistics Co., Ltd.

[Keywords] Civil/ Dispute over the insurer’s right of subrogation / Retrial

【Key Points of the Ruling】

The insurance company does not have a statutory right of subrogation with respect to the goods involved in the case. Therefore, when the insurance company exercises its right of subrogation against the logistics company, it should... According to the principle of “who asserts, who proves,” the logistics company bears the burden of proof regarding whether it has breached the transportation contract and the extent of the losses caused by such breach. If the insurance company is unable to establish that the logistics company committed a breach of contract, it shall bear the legal risk of failing to meet its burden of proof.

[Basic Facts of the Case]

On March 26, 2013, Guangzhou Gong Xda Logistics Co., Ltd. entrusted Wan XXX Logistics Co., Ltd. to transport a total of 315 cartons of electronic products—comprising 14 pallets—from Guangzhou to Shenyang. The following day, Wan XXXX Logistics Co., Ltd. sub-contracted the transportation of this shipment to Shenyang Changheng Transportation Co., Ltd. Wu X was the owner of the transporting vehicle, and Li Xpeng was the driver of that vehicle. On March 30, 2013, while driving the truck in Cangzhou City, Hebei Province, Li Xpeng was involved in a minor collision with another vehicle, resulting in damage to the goods inside the vehicle’s container. Subsequently, Shenzhen Gong Xda Logistics Co., Ltd. (a shareholder of Guangzhou Gong Xda Logistics Co., Ltd.), acting as the policyholder, filed a claim with Ta XXXX Company; however, the insurance company failed to conduct an on-site inspection as required by law.

On April 5, 2013, Guangzhou XX Insurance Surveying Co., Ltd., entrusted by XXXX Company, conducted an on-site inspection of the damaged goods at the factory of the cargo owner and issued an appraisal report, determining the property loss from this incident to be RMB 185,113.08. Subsequently, the insurance company paid compensation of RMB 185,113.08 to Shenzhen Gong X Da Company.

In August 2013, the insurance company filed a lawsuit against WanXXXX Logistics Co., Ltd. with the WanXX People's Court of Jiangxi Province, citing a dispute over the insurer’s right of subrogation. WanXXXX Logistics Co., Ltd. failed to appear in court and respond to the lawsuit. In September 2013, the WanZai County People's Court issued Civil Judgment No. (2013) Wan Min Er Chu Zi No. 76, ruling that WanXXXX Logistics Co., Ltd. must pay the insurance company the sum of 185,113.08 yuan. After the judgment became effective, the WanZai County Court froze bank deposits belonging to WanXXXX Logistics Co., Ltd. totaling 191,929.08 yuan.

On April 27, 2014, Attorney Geng Xhong, acting on behalf of Wan XXXX Logistics Co., Ltd., filed a lawsuit with the People’s Court of Xin X City against the actual carrier, vehicle owner Wu X, and the affiliated transportation company, Shenyang XX Transportation Co., Ltd., citing a dispute over a freight forwarding contract. The plaintiff requested the court to order both defendants to pay Wan XXXX Logistics Co., Ltd. total economic losses amounting to 205,629.08 yuan. During the litigation, the opposing party raised objections to the authenticity of one of the pieces of evidence submitted by our side—the “Traffic Accident Liability Determination Report.” Subsequently, the judge went to the XX Brigade of the Wu X Detachment under the Hebei Provincial Highway Traffic Police Corps to investigate and verify this evidence and discovered that the document was forged.

On October 24, 2014, Wan XXXX Logistics Co., Ltd. filed a request for retrial with the People’s Court of Wan XX, Jiangxi Province, requesting that the People’s Court of Wan XX revoke, in accordance with the law, Civil Judgment No. 76 of the First Instance in Civil Cases (2013) issued by this court. On February 6, 2015, the Court of Wan XX issued Civil Ruling No. 1 (2015) of the Supervisory Division in Civil Cases, ordering a retrial of this case.

The Supreme People's Court of Wan XX held in its retrial that Guangzhou Gong X Da had insured the goods it transported with the Shenzhen Branch of Tai XXXX. Both parties acknowledged the existence of an insurance contract, thereby establishing an insurance relationship between Guangzhou Gong X Da and the Shenzhen Branch of Tai XXXX. Although Tai XXXX has made an insurance claim for damage to the goods delivered by Guangzhou Gong X Da, the evidence provided by Tai XXXX is insufficient to prove that Yixi Logistics Co., Ltd. caused the damage to the goods in question, nor is it sufficient to establish that the damaged goods inspected by Guangdong XX Insurance Appraisal Co., Ltd. were indeed those consigned by Yixi Logistics Co., Ltd. Moreover, the evidence submitted by the original plaintiff, Tai XXXX, is insufficient to demonstrate that the vehicle owner, Wu X, actually transported the goods in question and caused the damage. As Shenzhen Gongsuda is one of the shareholders of Guangzhou Gongsuda, the original plaintiff, Pacific Insurance Company, also failed to provide adequate evidence to substantiate its involvement in the transportation of the goods at issue. Therefore, the court ruled to revoke Civil Judgment No. 76 of the First Instance of the Wan Min Er Chu Zi No. 76 (2013) and dismissed the claim brought by the original plaintiff, the Shenzhen Branch of China Tai XXXX Insurance Co., Ltd. Subsequently, the Shenzhen Branch of China Tai XXXX Insurance Co., Ltd. filed an appeal. On November 6, 2015, the Intermediate People's Court of Yichun issued Civil Judgment No. 10 of the Second Instance in Retrial (Yi Zhong Min Zai Shang Zi No. 10, 2015), dismissing the appeal and upholding the original judgment.

The WanZai County People's Court has now returned the executed funds of 189,149 yuan, which had been deducted, to WanXXXX Logistics Co., Ltd.

【Judgment Result】

First instance: Wan XXXX Logistics Co., Ltd. paid the insurance company 185,113.08 yuan.

Second-instance review of the first-instance judgment: The insurance subrogation claim of the Shenzhen branch of Tai XXXX is not supported, and the court rules to dismiss its lawsuit. 。

Second-instance retrial: The appeal is dismissed, and the civil judgment No. 1 of the Wanzi County People’s Court (2015) Wan Min Zai Zi No. 1 is upheld.

【Reasoning of the Ruling】

In the retrial conducted by the second-instance court—the Intermediate People’s Court of Yichun City, Jiangxi Province—the court held that Article 5, Paragraph 2 of the “Several Provisions of the Supreme People’s Court on Evidence in Civil Litigation” stipulates that, in cases involving a dispute over whether a contract has been performed, the party bearing the obligation to perform shall bear the burden of proof. However, in this case, the dispute does not concern whether the appellee, Yide Logistics, performed the transportation contract it had signed with Guangzhou Gongsudada; rather, the issue at hand is whether the appellee, Yix Logistics, committed a breach of contract by causing damage to the goods it was transporting under that very same transportation contract. The appellant, Pacific Property & Casualty Insurance Shenzhen Branch, chose to argue that Yide Logistics had breached the contract in order to assert its subrogation right against the appellant, Yide Logistics, as provided for in the insurance contract following its indemnity payment to Guangzhou Gongsudada. According to the principle of “whoever asserts must prove,” the appellant should therefore bear the burden of proving that the appellee had indeed breached the contract during performance and that such breach had caused specific losses. However, based on the evidence submitted by the appellant, Pacific Property & Casualty Insurance Shenzhen Branch, to the court: there is neither a detailed shipping manifest between Guangzhou Gongsudada and the appellee, Yide Logistics, nor a shipping list forwarded by the appellee, Yide Logistics, to Wu X Transportation, nor a receipt refusal certificate from the consignee, An川 Electric Machinery Co., Ltd., regarding the goods. Moreover, there is also no evidence showing that the appellant personally visited the scene of the traffic accident to verify the condition of the damaged goods. As a result, based on the existing evidence submitted by the appellant, it is difficult to confirm that the electronic circuit boards air-shipped from Shenyang back to Dongguan and subsequently assessed by the Guangdong Liangheng Insurance Surveying Company were indeed the same electronic products that Guangzhou Gongsudada had received from Sanhe Sheng Electronics and then entrusted to Yide Logistics for transportation. In other words, given the current evidence available, it remains impossible to determine whether the cargo damage assessed in the survey report was actually caused by the appellee, Yix Logistics, during the performance of the transportation contract. Therefore, since the appellant, Pacific Property & Casualty Insurance Shenzhen Branch, has failed to establish that the appellee, Yide Logistics, committed a breach of contract, it must bear the legal risk of failing to produce sufficient evidence. Consequently, the first-instance judgment rendered by the Wanzi County Court in the retrial was correct in its application of the law and should be upheld.

【Relevant Statutes】

Article 60 of the Insurance Law: If an insurance accident is caused by damage to the insured object resulting from the actions of a third party, the insurer, from the date on which it pays compensation to the insured, shall, within the amount of compensation paid, step in and exercise the insured’s right to claim compensation from the third party. After the occurrence of the insurance accident referred to in the preceding paragraph, if the insured has already obtained damages from the third party, the insurer may, when paying compensation, deduct accordingly the amount of damages the insured has already received from the third party. The insurer’s exercise of its subrogation right to claim compensation pursuant to the first paragraph of this article shall not affect the insured’s right to seek compensation from the third party for any portion of the damages that remains uncompensated.

Article 5, Paragraph 2 of the “Several Provisions of the Supreme People’s Court on Evidence in Civil Litigation” ： In the event of a dispute over whether a contract has been performed, the party obligated to perform shall bear the burden of proof.

Article 170, Paragraph 1, Item 1 of the Civil Procedure Law ： (1) If the original judgment or ruling clearly establishes the facts and correctly applies the law, the appeal shall be dismissed by way of judgment or ruling, and the original judgment or ruling shall be upheld.

[Lawyer’s Perspective]

I. Regarding whether the insurance company has a right of subrogation against the goods involved in the case:

Article 91 of the Interpretation of the New Civil Procedure Law stipulates: The party asserting the existence of a legal relationship shall bear the burden of proof regarding the basic facts giving rise to that legal relationship.

Article 60 of the Insurance Law stipulates: If an insurance accident is caused by damage to the insured object resulting from a third party’s actions, the insurer, from the date on which it pays compensation to the insured, shall, within the scope of the compensation paid, step in and exercise the insured’s right to claim compensation from the third party.

According to the aforementioned legal provisions, the insurance company shall bear the following burden of proof: that an insurance contract relationship exists between it and Guangzhou Gongsudada Company, and that Guangzhou Gongsudada Company is the insured.

The “Cargo Transportation Reservation Insurance Policy” submitted by the insurance company during the trial proves that Shenzhen Gongsudada Company was the party that entered into the insurance contract with it. Although an additional list was subsequently submitted, Guangzhou Gongsudada Company, as an independent corporate entity, did not affix its official seal to the list to confirm the establishment of an insurance contract relationship between itself and the insurance company.

Article 11 of the Insurance Law stipulates: The conclusion of an insurance contract shall be based on mutual agreement and shall adhere to the principle of fairness in determining the rights and obligations of all parties. Except for cases where insurance is mandated by laws or administrative regulations, insurance contracts are concluded on a voluntary basis. This provision embodies the principle of voluntary insurance, meaning that the parties to an insurance legal relationship have the right, according to their own wishes, to establish, modify, or terminate such a relationship without interference from others. According to this statutory provision, the “Cargo Transportation Reservation Insurance Policy” bears only the official seals of the insurance company and Shenzhen Gongsuda Company. Therefore, in accordance with the principle of contractual relativity, this insurance contract binds solely the insurance company and the insured, Shenzhen Gongsuda Company, and cannot serve as evidence of an insurance contractual relationship between the insurer and Guangzhou Gongsuda Company. Consequently, the insurance company does not possess the right of subrogation.

II. Regarding whether Yide Company is a proper defendant in this case:

Article 60 of the Insurance Law stipulates: “If an insurance accident is caused by damage to the insured object resulting from the actions of a third party, the insurer, from the date on which it pays compensation to the insured, shall, within the amount of compensation paid, step in and exercise on behalf of the insured the right to claim compensation from the third party.”

Article 37, paragraph 2 of the Tort Liability Law stipulates: “If damage is caused to another person due to the actions of a third party, the third party shall bear tort liability.”

According to the aforementioned legal provisions, only third parties who have caused actual loss to the goods are entitled to seek reimbursement. In this case, the loss of the goods occurred when they were involved in a collision with another vehicle during the period when the vehicle owner, Wu X, was transporting them—not during the period when Yide Company was responsible for transportation. Therefore, Wan XXXX Company is not an infringing third party that caused the damage to the goods. Consequently, the insurance company’s assertion of subrogation rights against Wan XXXX Company, based on Article 60 of the Insurance Law, lacks both factual and legal basis.

III. Relevant doubts regarding whether the cargo damage in this case actually occurred and the value of the cargo damage:

1. The goods were packed in a sealed container, and the vehicle carrying the container was only involved in a minor scrape with another vehicle—not a collision while driving. Moreover, at the time, the vehicle owner, Wu Bin, only requested 3,000 yuan from the other driver as compensation for vehicle damage. Clearly, the extent of the damage caused by the scrape between the two vehicles was not severe.

2. If two vehicles are involved in a serious accident, Wu Bin, as the vehicle owner, would certainly check whether the goods inside the container have been damaged and would promptly inform both the cargo owner and Yide Company. In the event that the goods suffer severe damage, the insurance company would definitely send its own representatives or delegate the task to the local insurance company at the scene to conduct an on-site inspection and determine the extent of the damage. However, in reality, the insurance company not only failed to send its own representatives or delegate the task to the local insurance company for an on-site inspection but also did not carry out any inspection or confirmation whatsoever after the incident regarding whether the goods had been damaged and, if so, the extent of the damage. Subsequently, the insurance company merely entrusted an independent claims adjusting firm to perform a so-called damage assessment based on materials provided by the cargo owner and then proceeded with the claim settlement.

3. Under normal circumstances, if the goods are damaged during transportation, the carrier should promptly notify the consignee. Upon arrival of the goods, the carrier and the consignee should jointly inspect the goods and confirm in writing any damage that may have occurred. However, in this case, the consignee has not provided any documentation confirming refusal of the goods or acknowledging the extent of any damage.

4. Regarding the legality and authenticity of the damage assessment amount stated in the public appraisal report: The expenses referred to as rescue, sorting, and other related costs in insurance claims are considered additional expenditures rather than normal operating expenses. The damage assessment amount specified in the public appraisal report is RMB 194,855.88, broken down as follows: RMB 137,156.24 for scrapped baseboards, RMB 28,717.06 for manual sorting fees, and RMB 8,256 for equipment sorting fees. However, there is no other evidence to prove that the aforementioned manual and equipment sorting fees were not incurred during regular working hours. Therefore, these costs should not be regarded as additional expenditures and should not be covered by the claim.

5. The insurance company has not submitted any documentation showing that Guangzhou Gongsudada Company or Shenzhen Gongsudada Company paid insurance premiums to it for the transportation of the goods involved in this case. This case concerns a cargo transportation insurance contract relationship. Cargo transportation insurance refers to an insurance policy under which the shipper, upon delivering goods to the carrier, pays an insurance premium to the insurer, and in the event of loss covered by the insurance contract, the insurer is responsible for compensating the loss. It is undisputed that paying the premium to the insurance company is the insured’s insurance obligation, and the insurance company cannot make a claim payment unless the insured has fulfilled its obligation to pay the premium.

6. Regarding the determination of the insured value and the sum insured for the goods involved in the case: Article 7 of the cargo transportation reservation insurance policy submitted by the plaintiff stipulates that, for domestic transportation, the insurer shall recognize the price specified in the transportation contract reported by the policyholder to the insurer. It is evident from this provision that the insurance company should have obtained from the policyholder (Shenzhen Gong X Da Company or Guangzhou Gong X Da Company) the transportation contract pertaining to the goods involved in the case, and both the insured value and the sum insured were determined based on the price stipulated in the reported transportation contract. However, the insurance company failed to submit this evidence to the court, leading to the conclusion that the relevant transportation contract was not reported to the insurance company. Under these circumstances, it is clearly unreasonable for the insurance company to proceed with claims settlement without clearly defining the insured value and the sum insured.

Article 90 of the Interpretation of the New Civil Procedure Law stipulates: The parties shall provide evidence to substantiate the facts upon which their claims are based or to refute the facts upon which the opposing party’s claims are based.

The evidence submitted by the insurance company at trial is insufficient to prove the following: (1) that an insurance contract existed between the insurance company and Guangzhou Gongxuda Company; (2) that a principal-agent relationship existed between Guangzhou GongXuda Company and Shenzhen GongXuda Company, such that the insurance company’s claim payment to Shenzhen GongXuda Company would be deemed equivalent to a claim payment to Guangzhou GongXuda Company; (3) the actual extent of cargo damage suffered by the cargo owner, Sanhesheng Company; and (4) the legality of the assessed value used for determining the claim amount.

In summary, the insurance company does not have a statutory right of subrogation with respect to the goods involved in the case. Furthermore, the insurance company’s exercise of its right of subrogation against WanXXXX Logistics Co., Ltd., which did not cause any actual damage to the goods, lacks both factual and legal basis. Moreover, there are numerous doubts regarding the legitimacy of the insurance claim itself and the value assigned to it.

Ultimately, the two-level courts dismissed the insurance company’s lawsuit against Wan XXXX Logistics Co., Ltd. through a retrial.

When the case was entrusted to us, the party involved, as the judgment debtor in a subrogation dispute involving an insurer, had already had 191,929.08 yuan deducted from its account by the People’s Court of Wanzi County. Relying on the evidence materials provided by the party involved, we represented our client in filing a lawsuit against the owner of the vehicle transporting the goods and the entity under which the vehicle was registered, citing a dispute over the cargo forwarding agency contract. However, during the litigation, the People’s Court of Xinmin City verified and determined that one of the pieces of evidence submitted by us—the “Road Traffic Accident Liability Determination Report”—was forged. Upon further investigation, we learned that this evidence had previously been submitted to the court by the insurance company in an earlier subrogation dispute involving the insurer. In that earlier subrogation dispute, our client had failed to appear in court to respond to the lawsuit; thus, this evidence was obtained when our client reviewed the case files at the court.

Faced with this sudden and unfavorable situation for our client, we promptly adjusted our litigation strategy. Relying on the relevant provision of Article 200, Paragraph 1, Item (3) of the Civil Procedure Law—that “the primary evidence upon which the original judgment or ruling was based is forged”—we filed a request for retrial with the People’s Court of Wanzi County, asking it to revoke the previously issued Civil Judgment No. 76 of the First Instance in Civil Cases (2013) issued by the court. Subsequently, the case smoothly proceeded through the retrial process, including both the first-instance and second-instance retrial procedures, until the court ultimately dismissed the insurance company’s claim. The judgment has now become final, and the People’s Court of Wanzi County has fully refunded all execution funds that had been deducted to our client.

The highlight of this case lies in the fact that, thanks to our careful and responsible timely adjustments to the case strategy, the client was able to turn a passive situation into an active one and ultimately reverse the unfavorable outcome to achieve victory. We successfully prevented economic losses exceeding 200,000 yuan.