CHINA Law and Practice Contributed by: Elsie Shi, George Yu, Eleanor Gu and Zach Xu, Jincheng Tongda & Neal Law Firm
practice registration within one insurer or insurance intermediary to perform insurance activities. As for reinsurance products, a cedent may directly enter into a contract with a reinsurer or select the reinsurer through an insurance broker for reinsurance business. 6. Making an Insurance Contract 6.1 Obligations of the Insured and Insurer Under PRC law, pre-contractual disclosure is gov- erned primarily by Article 16 of the Insurance Law, which establishes an enquiry-based disclosure sys- tem. The insurance applicant is required to truthfully disclose those risk-related facts that the insurer asks about. There is no general duty to volunteer all materi- al information, and courts strictly restrict insurers from relying on non-disclosure where they failed to raise clear, specific questions. Correspondingly, the insurer bears a professional obligation to conduct adequate inquiries, design precise questionnaires, and investi- gate risks consistent with its underwriting expertise. The insurer must also give clear and prominent expla- nations of exclusion or limitation clauses, failing which such clauses may not be enforceable. By contrast, PRC law makes a clear doctrinal distinc- tion between non-marine and marine insurance. Non- marine insurance is governed solely by the Insurance Law and strictly follows the enquiry-based model: consequences for non-disclosure arise only for mat- ters that the insurer has expressly asked about. Marine insurance, regulated also by the Maritime Law, impos- es a broader duty of good-faith disclosure, requiring the disclosure of all known material circumstances, even in the absence of the insurer’s enquiry. Failure to disclose such material information may entitle the insurer to rescind the contract if the non-disclosure would have affected underwriting decisions. 6.2 Failure to Comply With Obligations of an Insurance Contract Failure to comply with pre-contractual information obligations may trigger two principal rights for the non-breaching party: the right to rescind the insurance contract and the right to deny liability for insurance
benefits. These consequences arise under Article 16 of the Insurance Law, which adopts an enquiry-based disclosure system (see 6.1 Obligations of the Insured and Insurer ). Right to Rescind the Insurance Contract Under Article 16, if a policyholder, intentionally or due to gross negligence, fails to perform the obligation of truthful disclosure, and such failure is sufficient to influence the insurer’s decision on whether to under- write the insurance or to increase the premium rate, the insurer shall have the right to rescind the contract. Right to Deny Liability for Insurance Benefits Legal consequences associated with this right depend on the subjective state of policyholders. In cases of either intentional non-disclosure or gross negligence that significantly affected the insured event, the insur- er is not liable for compensation or payment of insur- ance money for events occurring prior to the termina- tion of the contract. With regard to the treatment of premiums, however, the insurer is required to refund the premiums if the non-disclosure was due to gross negligence, whereas it is not obligated to do so if the concealment is intentional. Notwithstanding the foregoing, the insurer shall not rescind the contract if it knew of the policyholder’s failure to perform the obligation of truthful disclosure at the time of entering into the contract; in such a case, the insurer shall be liable for compensation or payment of insurance money. 6.3 Intermediary Involvement in an Insurance Contract An insurance agent acts for the insurer, and its con- duct is legally attributable to the insurer under the Measures for the Supervision of Insurance Agents. Agents are required to: • accurately collect and transmit risk information; • provide truthful explanations of policy terms; and • give prominent warnings about exclusions and liability limitations. Agents must also prevent misleading sales practices, conduct proper identity verification and protect cus- tomer data. Because they represent the insurer, any
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