CHINA Trends and Developments Contributed by: Wenxuan Lu, Kangda Law Firm
• appropriately position the civil trial functions of four-level courts; • promote the downward shift of the focus in resolv- ing conflicts and disputes; and • strengthen the supervisory and guiding functions of the Supreme People’s Court and provincial high courts. Judicial Practice Business interruption insurance during the COVID-19 pandemic Business interruption insurance, commonly known as “profit loss insurance”, covers losses incurred by investors when their business operations are inter- rupted or temporarily halted due to physical property damage. Traditionally, it is an add-on to property or machinery damage insurance. However, business interruption insurance often extends to cover busi- ness interruptions caused by infectious diseases at the business premises, which put significant pressure on insurance companies during the COVID-19 pan- demic. China implemented a dynamic zero-COVID policy for over three years, frequently locking down specific areas or entire cities. This forced many businesses to close their doors, leading to them filing claims with insurance companies. A key issue in insurance dis- putes was whether business interruption insurance covered profit losses due to government-imposed lockdowns. In cases where the authors’ team rep- resented a large Chinese supermarket chain and an insurance company (spanning courts in Xinjiang, Shanghai, Anhui, Jiangsu, Hebei, Guangdong and other provinces), all courts ruled that: • the clause covering infectious diseases at busi- ness premises should not be narrowly interpreted to require confirmed infected cases at the premises – if the government mandated business closures for pandemic control, it fell within the insurance coverage; and • when the government required closed businesses to carry out essential supply plans to protect public safety, these businesses could not independently decide whether to operate, set prices or choose which goods to sell (limited to essential goods) – such supply actions, therefore, were not con-
sidered as autonomous business activities, and insurance companies could not exempt themselves from liability due to the existence of these supply actions. Litigation property preservation liability insurance Article 103 of the Civil Procedure Law of China stipu- lates that, if one party applies for the preservation of the other party’s property, the court may require the applicant to provide a guarantee. Before 2015, courts generally only accepted physical or cash guarantees from the applicant, or guarantees issued by creditwor- thy guarantee companies. Provisions of the Supreme People’s Court on Several Issues Concerning the Han- dling of Property Preservation Cases, implemented in December 2016, first introduced litigation property preservation liability insurance as a guarantee method in law. Since then, litigation property preservation lia- bility insurance has gradually dominated the property preservation guarantee market due to its low cost, convenience and good credit. Since 2019, the number of insurance cases arising from litigation property preservation has surged, with such claims accounting for a significant proportion of claims in China’s insurance industry. The main dispute in these cases is the determination of preservation errors. The prevailing judicial view holds that a preser- vation error cannot be established solely based on the applicant losing the case. Instead, the determination of whether a preservation error occurred focuses on: • whether the applicant had intent or gross negli- gence when applying for preservation; • whether the subject of the preservation was appro- priate and necessary; and • whether the preservation was lifted in a timely manner, etc. For example, Issue 9 of the 2018 Supreme People’s Court Gazette (Issue 263 in all) holds that the principle of fault liability applies to preservation errors, requiring the applicant to have subjective fault, and the appli- cant’s claim not being supported is not sufficient to establish a preservation error. Another focus in disputes over claims for litigation property preservation liability insurance is whether the
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