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China – Potential For Change To Subrogation Regime.

10 September, 2013


Legal News & Analysis – Asia Pacific – China – Insurance & Reinsurance


The Chinese Supreme Court has recently published “interpretation (II) on several issues concerning the application of the Chinese Insurance Law 2009” (Interpretation II), which came into force on June 8, 2013.


Interpretations by the Chinese Supreme Court are not law, although they are extremely persuasive and authoritative and will invariably be followed by the lower courts.


Interpretation II aims to provide clearer judicial guidance on certain provisions of the Insurance Law 2009 and to balance the interests of the various parties to the insurance contracts, with a view to reinforcing the protection of consumers in the insurance industry.


Some of the more significant changes include:


• Time limit for pursuing subrogation rights


Article 16 of Interpretation II provides the time limit for pursuing an insurer’s subrogation right shall be calculated from the date when it acquires such a right, which should be the date of the insurance payment.


This differs from previous practicewherethetimelimitforsubrogation rights was the same as the “original” underlying time limit for claims between the assured and the liable third party. In Zurich International (Deutschland) Versicherungs AG v Chinese-Polish Joint Stock Shipping Co, (before the publication of Interpretation II), the Higher People’s Court of Guangdong judged against the insurer because it had made the insurance payment and commenced proceedings after the expiry of the “original” underlying time limit.


It is suggested a cautious approach should still be adopted in determining the time limit for pursuing insurer’s subrogation rights until the courts have considered the issue in the light of the latest interpretation.


• Probative value of conclusions on accidents as issued by administrative authorities


Article 18 of Interpretation II states the court shall examine, recognise and give probative effect to the written conclusion on a traffic accident or fire accident issued by an administrative authority, unless it can be overturned by any evidence to the contrary.


The Chinese courts could at their discretion decide whether or not to adopt such conclusions. Article 18 provides clear guidelines for the courts in the examination and recognition of such evidence.


• Failure of the assured to claim against the liable third party


Article 19 of Interpretation II states the court shall not support the insurer’s defence the assured has failed to claim against the liable third party.


It is common practice for Chinese insurers to reject an insurance claim or to reduce the insurance payment on the basis the assured has failed to protect the insurer’s right of subrogation by claiming against the liable third parties in a timely manner.


The rationale is the assured’s failure to protect the original time limit would result in the insurer’s loss of right to pursue its subrogated recovery claim. In Vitro Cristal Glass SL v Ping An Property & Casualty Insurance Co, a case before the Higher People’s Court of Guangdong province, the insurer successfully negotiated down the insurance payment to 65% of the loss amount on the basis the assured has failed to file a claim against the carrier within the “original” underlying time limit.


The changes proposed in Interpretation II have no doubt created some legal uncertainty that will require clarification by the courts in due course.



For further information, please contact:


Ik Wei Chong, Partner, Clyde & Co
[email protected]




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