SOUTH KOREA Trends and Developments Contributed by: C J Kim and M H Lim, Choi & Kim
even if an exemption clause under a policy is trig- gered, the insurer would be nonetheless liable if the insurer has breached the Duty to Explain at the time of policy inception, and the burden is on the insurer to prove that it has satisfied the Duty to Explain in respect of the exemption clause. An example would be where a Claims Co-Operation Clause provides, as a condition precedent to liabil- ity, that the insured must notify the insurer of any cir- cumstances which may give rise to a claim; as the insured’s duty to notify is a condition precedent to the insurer’s liability and therefore a “material provision”, the insurer would have to prove that it has explained the Claims Co-Operation Clause in order to rely on the insured’s breach of the Claims Co-Operation Clause as a ground for exemption. In practice, it is very dif- ficult for the insurer to satisfy the burden that it has explained the “material terms” to the insured prior to policy inception. In light of this, a Claims Co-Operation Clause may be rendered null and void if the insurer has breached its statutory duty to explain a material provision, such as the Claims Co-Operation Clause. The Korean Supreme Court has consistently held that terms which are subject to the Duty to Explain may be nullified if the insurer fails to prove that it has satisfied the Duty to Explain in respect of those terms (case no. 2020Da291449, etc). That said, in reinsurance market practice, the place- ment of reinsurance is conducted through insurance brokers, and under Korean law insurance brokers are treated as agents of the reinsured. Where the insur-
ance broker who negotiates the reinsurance terms with the reinsurers is aware that the policy terms contain a Claims Co-Operation Clause, the cedant is deemed to have such knowledge as well. Accordingly, the likelihood that the reinsurance contract could be voided on the basis of a breach of the Duty to Explain in regard to the Claims Co-Operation Clause is con- sidered low. Claims Co-Operation Clause in the Original Policy That is Intended to be Applicable to a Reinsurance Contract There are many instances under which a Claims Co- Operation Clause applicable to reinsurance has been incorporated into the original policy:“ Notwithstanding anything contained herein to the contrary, it is a condi - tion precedent to any liability under this reinsurance that … ” It is unclear based on the wording alone why a clause expressly intended to bind reinsurers appears in the original policy. The best guess is that such inclu- sion was a drafting mistake. Because reinsurers are not parties to the original insurance contract, a Claims Co-Operation Clause embedded in the original policy cannot bind or be invoked by the reinsurers. This was the conclusion of the Seoul Central District Court in 2025, which held that the inclusion of a reinsurance “Claims Co- Operation Clause” in an original policy resulted from a drafting error and thus the reinsurer, being a non- party to that contract, cannot rely on the Claims Co- Operation Clause (case no. 2022GaHap51852). This decision highlighted the importance of careful wording during policy drafting.
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