[Handling Attorney] Wang Zhanping

[Keywords] Civil/life insurance contract disputes/accurate disclosure/insurance company’s exemption from liability

【Key Points of the Ruling】

After an insurance contract is suspended, if the policyholder applies to reinstate it, they still have a duty to provide truthful information in response to the insurer’s inquiries; however, this duty applies only to the health status from the time the insurance contract was entered into up to the date of the reinstatement application. If an insured event occurs during the period when the insurance contract is suspended, the insurer has the right not to pay out the insurance benefit.

[Basic Facts of the Case]

On April 24, 2014, Mr. Song signed an insurance contract with a certain life insurance company, under which both the policyholder and the insured were Mr. Song. The insurance products included: a Certain Jin'an Kang Comprehensive Endowment Insurance (with dividend feature), a Certain Additional Jin'an Kang Multiple Benefit Critical Illness Insurance, and a Certain Additional Anjia Bao Traffic Accident Injury Insurance.

For a certain supplementary multiple-benefit critical illness insurance policy, Article 5 of the insurance contract stipulates: “If the insured is first diagnosed with a critical illness as defined in this supplementary contract ninety days after the effective date (or reinstatement date) of this supplementary contract, and remains alive at the time of claim submission, we shall pay the insured the initial critical illness benefit equal to the critical illness coverage amount applicable at the time of diagnosis. The main contract will then terminate, this contract will also terminate, and the liability for minor critical illnesses under this supplementary contract will cease; furthermore, the cash value of this supplementary contract will become zero.” However, if the insured develops one or more of the critical illnesses specified in this supplementary contract within ninety days from the effective date (or reinstatement date) of this contract, we will refund to you the total premiums you have paid for both this supplementary contract and the ‘Certain Jin An Kang Endowment Insurance (Participating)’ policy. At the same time, both this supplementary contract and the main contract will terminate.

On May 4, 2015, Mr. Song failed to pay the next year’s insurance premium as stipulated in the insurance contract. On October 19, 2015, Mr. Song submitted a “Request for Amendment to Insurance Contract” to the insurance company, requesting the reinstatement of both the main insurance policy and the supplementary (long-term) coverage. On the same day, Mr. Song completed a “Health Declaration Form,” and under item 4—“Have you ever had any of the following diseases or symptoms: a. Tumors, cysts, polyps, enlarged lymph nodes, or skin and breast diseases”—Mr. Song checked “No” for all items. On September 15, 2015, Mr. Song was hospitalized at the Sixth People’s Hospital of Shenyang due to post-hepatitis C liver cirrhosis, with a diagnosis of post-hepatitis C liver cirrhosis, hepatocellular carcinoma NOS (C22.0), and diabetes. On September 29, 2015, Mr. Song was admitted to the First Affiliated Hospital of China Medical University due to a liver mass, where he was diagnosed with hepatocellular carcinoma and chronic hepatitis C. On November 4, 2015, Mr. Song was admitted to the First Central Hospital of Tianjin and underwent an orthotopic liver transplant on January 10, 2016. After being discharged from the hospital, Mr. Song filed a claim with the insurance company. However, the insurance company refused to pay out, arguing that Mr. Song had failed to truthfully disclose his medical condition to the insurer prior to taking out the policy, thus triggering a dispute between the two parties.

【Judgment Result】

1. Within fifteen days from the date this judgment becomes effective, Liaoning Branch of a Certain Life Insurance Co., Ltd. shall refund to Mr. Song the insurance premium of 19,995.67 yuan.

II. The other claims of Mr. Song are dismissed. The case filing fee of 4,300 yuan shall be borne by Mr. Song.

【Reasons for the Ruling】

The court held that, according to the insurance contract signed between Mr. Song and a certain life insurance company, once the initial premium has been paid, the grace period for paying subsequent premiums is sixty days, starting from the day following each premium due date (including that day itself). Since Mr. Song’s first premium payment was made on May 4, 2014, his insurance contract with the insurer had already been terminated as of July 4, 2015. On October 19, 2015, Mr. Song applied to the insurer to reinstate his insurance contract and, in the “Health Declaration,” denied having ever been diagnosed with any tumor. By doing so, Mr. Song concealed the fact that he had been diagnosed with hepatocellular carcinoma in September 2015. According to Article 16 of the Insurance Law, when concluding an insurance contract, if the insurer asks the insured about relevant information concerning the insured object or the insured person, the insured shall provide truthful information. If the insured intentionally fails to fulfill the obligation of providing truthful information, the insurer shall not be liable for compensation or payment of insurance benefits for any insured events occurring before the termination of the contract, nor shall it refund the premium paid. Therefore, the insurer is not required to assume insurance liability. During the trial, the insurer stated that, taking into account Mr. Song’s actual difficulties and medical condition, it agreed to refund all premiums paid by Mr. Song. The court accordingly upheld this decision.

【Relevant Statutes】

Insurance Law of the People's Republic of China

Article 16: When concluding an insurance contract, if the insurer asks the applicant questions about the subject matter of insurance or relevant information about the insured, the applicant shall provide truthful answers.

If the policyholder intentionally or through gross negligence fails to fulfill the obligation of truthful disclosure as stipulated in the preceding paragraph, and such failure is sufficient to influence the insurer’s decision on whether to accept the insurance coverage or to increase the insurance premium, the insurer shall have the right to terminate the contract.

The right to terminate the contract as stipulated in the preceding paragraph shall lapse if it is not exercised within thirty days from the date on which the insurer becomes aware of the grounds for termination. If more than two years have elapsed since the contract was established, the insurer shall not be entitled to terminate the contract; in the event of an insured accident, the insurer shall be liable for compensation or payment of insurance benefits.

If the policyholder intentionally fails to fulfill the obligation of truthful disclosure, the insurer shall not be liable for compensation or payment of insurance benefits for insured events that occur before the contract is terminated, nor shall it refund the premium.

If the policyholder, due to gross negligence, fails to fulfill the obligation of truthful disclosure and such failure has a serious impact on the occurrence of the insured event, the insurer shall not be liable for compensation or payment of insurance benefits for insured events that occurred before the contract is terminated; however, the insurer shall refund the premium paid.

If the insurer was already aware, at the time of contract conclusion, that the insured had failed to disclose information truthfully, the insurer may not rescind the contract. In the event of an insured accident, the insurer shall be liable for compensation or payment of insurance benefits. An insured accident refers to an accident falling within the scope of insurance liability as stipulated in the insurance contract.

Article 90 of the “Interpretation by the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China” stipulates that 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, unless otherwise provided by law. If, prior to rendering a judgment, a party fails to provide evidence or the evidence provided is insufficient to prove its factual assertions, the party bearing the burden of proof shall bear the adverse consequences.

[Lawyer’s Perspective]

If the insured violates the duty of honest disclosure, the insurance company should not pay out the insurance claim. On May 4, 2014, Mr. Song purchased from a certain life insurance company a Jin'an Kang Comprehensive Endowment Insurance, an附加 Jin'an Kang Multiple Benefit Critical Illness Insurance, and an附加 Anjia Bao Traffic Accident Injury Insurance. On May 4, 2015, Mr. Song failed to pay the next year’s premium as stipulated in the insurance contract, and despite repeated reminders from the life insurance company, he still did not pay. According to the insurance contract, starting from the day following each premium due date (including that day), there is a grace period of sixty days for premium payment after the initial premium has been paid. Therefore, beginning July 4, 2015, the insurance contract between Mr. Song and the insurance company was terminated. In October 2015, Mr. Song submitted to the insurance company an application to reinstate the insurance contract, requesting that both the main policy and the supplementary policies be reinstated simultaneously. At the same time that Mr. Song applied to reinstate the insurance contract, he completed a health declaration form. The insurance company explicitly asked in the health declaration whether the applicant and the insured had ever suffered from diseases or symptoms such as tumors, cysts, hepatitis, or cirrhosis. Mr. Song answered “no” to all these questions in the health declaration. However, according to medical records from the Sixth People’s Hospital of Shenyang and the First Affiliated Hospital of China Medical University, Mr. Song was diagnosed on September 15, 2015, and September 29, 2015, respectively, with post-hepatitis C cirrhosis, hepatocellular carcinoma, and chronic hepatitis C. Thus, Mr. Song had already known about his conditions—including tumors and cirrhosis—starting from September 15, 2015. According to Article 16 of the Insurance Law: “When concluding an insurance contract, if the insurer asks questions about the subject matter of insurance or the relevant circumstances of the insured, the applicant shall provide truthful information. If the applicant intentionally or through gross negligence fails to fulfill the obligation of truthful disclosure as prescribed in the preceding paragraph, and such failure is sufficient to influence the insurer’s decision on whether to accept the insurance or increase the premium rate, the insurer has the right to terminate the contract,” it is clear that the applicant has a duty to truthfully disclose information when the insurer makes inquiries. When the applicant’s failure to fulfill this duty of truthful disclosure is sufficient to affect the insurer’s decision on whether to accept the insurance or raise the premium, the insurer has the right to terminate the contract. In this case, during the period from the termination of the insurance contract until its reinstatement, Mr. Song was diagnosed by hospitals with cirrhosis and hepatocellular carcinoma. However, when applying for the reinstatement of the insurance contract, he failed to truthfully disclose this information to the insurance company. It was only under these circumstances of deception that the insurance company agreed to reinstate the contract. Therefore, the insurance company has the right, based on the provisions of the Insurance Law and the terms of the insurance contract, to terminate the insurance contract and not pay Mr. Song any insuraFirst, let’s examine the relevant provisions. Most importantly, the interpretation of Article 37 in the Supreme People’s Court’s “Understanding and Application of the Insurance Law—Insurance Contract Chapter” clearly states that the insurer bears no liability for insurance accidents occurring between the termination and the reinstatement of the insurance contract. It also explicitly stipulates that the applicant has a duty to truthfully disclose his or her health condition to the insurer before applying for reinstatement. Furthermore, Article 8 of the “Supreme People’s Court’s Interpretation No. 3 of the Insurance Law—Understanding and Application,” titled “Provisions on Reinstatement,” provides a clear opinion on the impact of reinstating an insurance contract on the applicant’s duty of truthful disclosure. To prevent “adverse selection,” this opinion once again affirms that the insurer has the right to require the insured to re-disclose his or her health condition when applying for reinstatement, and any failure to fulfill the duty of truthful disclosure shall be governed by the provisions of Article 16 of the Insurance Law. Since Mr. Song was diagnosed with a critical illness within ninety days from the date of reinstatement of the insurance contract, the insurance company should not pay him any insurance benefits. According to Article 5, Paragraph 1 of the “Certain Supplementary Multiple Benefit Critical Illness Insurance” that Mr. Song had purchased, which stipulates the critical illness benefit: “If the insured suffers from one or more of the critical illnesses specified in this supplementary contract within ninety days (including the day itself) from the effective date (or reinstatement date) of this supplementary contract, we will refund you the total premiums paid for both this supplementary contract and the ‘Certain Comprehensive Endowment Insurance (with Dividends)’ and terminate this supplementary contract and the main contract,” it is evident that, according to the agreement between the insured and the insurer, if the insured develops a disease specified in the contract within ninety days after the insurance contract is reinstated, the insurer will terminate the contract upon refunding the premiums already paid. Therefore, even if Mr. Song had not violated his duty of truthful disclosure, the insurance company would only need to refund the premiums he had paid, without having to pay any insurance benefits.