TAIWAN Law and Practice Contributed by: Daniel T H Tsai, Lee and Li
9. Insurance Disputes 9.1 Insurance Disputes Over Coverage Insurance coverage in Taiwan depends on the parties’ mutual consent in the insurance contract. According to the Insurance Act, where there is doubt, interpre- tations of the insurance contract should in principle be favourable to the insured. Therefore, when there is a dispute over coverage, the agreement should first be reviewed to see whether there is any mutual consent on the coverage or exemption. However, if the agreement is vague or not specific enough, its interpretation must favour the insured. There are no major differences in the application of these princi- ples, regardless of whether the contract in question is a consumer insurance contract, reinsurance contract or commercial insurance contract. In general, any right to claim arising from an insurance contract shall be extinguished if not exercised within two years of the date on which it becomes possible to exercise the right. However, if any of the following circumstances apply, the two-year time period com- mences as set forth in the Insurance Act. • If there is concealment, non-disclosure or misrep- resentation on the part of the proposer or insured in the disclosure of risk, the period commences from the date on which the insurer becomes aware of the situation. • If, after a risk occurs, an interested party can prove that its lack of awareness was not due to negli- gence, the period will begin from the date on which it becomes aware of the situation. • If the claim of a proposer or insured against an insurer arises out of the claim of a third party, the period will begin from the date on which the pro- poser or insured is presented with the third-party claim. Third parties or unnamed beneficiaries are not usu- ally contractual parties to the insurance contract and therefore are not permitted to bring a direct action against an insurer – unless the court otherwise con- siders that they have the rights to claim under the insurance contract. However, there is one exception to this rule: liability insurance.
8.2 Warranties In Taiwan, a special provision (according to Article 66 of the Insurance Act) is one whereby parties warrant performance of a special obligation apart from the basic provisions of the insurance contract. Such spe- cial provisions are usually known as a kind of warranty even if the term “warranty” is not used. According to the Insurance Act, all matters ‒ whether past, present or future ‒ that relate to an insurance contract may be stipulated as a special provision by mutual consent of the parties; however, when a party to an insurance contract breaches such special provision, the other party may rescind the insurance contract. The same rule also applies after the risk has occurred. In order to determine whether these clauses are war- ranties, the court will usually examine whether these clauses were reviewed during the negotiation proce- dure and take into account: • whether the clauses were formed by the parties on an equal footing; • the legitimate expectations of the parties; and • the principle of good faith as well as the usual practice. 8.3 Conditions Precedent Insurers in Taiwan have the obligation of indemnifica- tion, in accordance with the insurance contract, when an insured peril occurs. The conditions precedent to the insurer’s liability are usually not imposed in favour of the insured. It is uncertain whether such conditions precedent will be considered by the court as unfair to the insured and thus render the insurance clause null and void. Therefore, in order to reduce possible disputes, it is advisable to expressly describe any conditions precedent in the contract. Otherwise, the court may directly refuse to accept them as part of the contract without making further effort to verify whether it is unfair to the insured. According to the Civil Code, if the court considers the conditions precedent to be a valid part of the contract, the violation of said con- ditions precedent will entitle the insurer to refuse to perform its indemnification obligation.
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