CHINA Trends and Developments Contributed by: Wenxuan Lu, Kangda Law Firm
ing states will only need to be accompanied by an apostille issued by the Foreign Affairs Office of China, significantly reducing both the time and cost associ- ated with international document circulation. Hot Issues in Foreign-Related Insurance Cases Application of sanction clauses Sanction clauses, often referred to as sanction limita- tion and exclusion clauses, stipulate that when cer- tain sanction scenarios occur a party may invoke the clause to suspend or cease fulfilling contractual obli- gations and be exempt from liability. These types of clauses are now commonly found in standard terms of policies for political risk insurance, maritime insur- ance, cargo insurance and others. For example, in a recent insurance case involving Myanmar sanctions that the authors’ team handled, the policy included the following sanction limitation and exclusion clause: “No Insurer shall be deemed to provide cover and no Insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would expose that Insurer to any sanc- tion, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, Australia, United Kingdom or United States of America.” Insurance cases dealing with sanction clauses are rare in Chinese courts. Currently, only one relevant case can be found in China. In (2018) Lu 72 Minchu 1860 , the court finally ruled that the shipowner did not pro- vide sufficient and effective evidence to prove that it disclosed its sanction status under US OFAC to the insurer. According to the sanction limitation and exclu- sion clause, the defendant was not liable for the claim- ant’s losses resulting from the incident. However, this case primarily addressed the issue of pre-disclosure obligations and did not extensively explore the effec- tiveness of sanction clauses themselves, their wording or their validity within the Chinese legal framework. Therefore, the definitive attitude and judicial principles of Chinese courts regarding the effectiveness of sanc- tion clauses remain unclear. In January 2021, China’s Ministry of Commerce issued the Rules on Counteracting Unjustified Extraterritorial
Application of Foreign Legislation and Other Meas- ures, of which Article 2 stipulates that these rules apply to situations where the extraterritorial appli- cation of foreign legislation and other measures, in violation of international law and the basic principles of international relations, unjustifiably prohibits or restricts the citizens, legal persons or other organi- sations of China from engaging in normal economic, trade and related activities with a third state (or region) or its citizens, legal persons or other organisations. This article poses challenges to the general applicabil- ity of sanction clauses. Disputes over fronting policy Owing to varying degrees of openness in the insur- ance industry across different countries, some con- servative countries restrict foreign insurance com- panies from conducting certain types of business domestically. When domestic insurance companies lack sufficient underwriting capacity, they often issue original policies on behalf of foreign insurers through reinsurance, transferring most or all of the risk to the foreign insurers. However, such fronting policy can lead to many dis- putes under Chinese law. For example, in a case handled by the authors’ team involving a China-Laos aerospace insurance premium payment dispute, both the original policy and reinsurance contract stipulated that the insured should pay the entire premium direct- ly to the Chinese reinsurer, with only the fronting fee paid to the Lao insurer. When the insured failed to pay the premium as agreed, Article 29 of the Chinese Insurance Law prevented the Chinese reinsurer from demanding payment from the original applicant, lim- iting the reinsurer to claiming the premium from the Lao insurer rather than requiring the premium from the insured as agreed in the contract. Additionally, fronting policies often bring disputes during claims processing. Despite the presence of claim control and cut-through clauses in insurance contracts, if the reinsurer denies a claim, the insured can typically only seek relief from the insurer, not directly from the reinsurer. Moreover, while the reinsur- ance contract generally mirrors the original insurance contract, differences in interpretation due to varying national laws can expose insurers to risks that they
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