CHINA Law and Practice Contributed by: Elsie Shi, George Yu, Eleanor Gu and Zach Xu, Jincheng Tongda & Neal Law Firm
misrepresentation, improper advice or failure to pro- vide mandatory explanations by the agent is treated as the insurer’s own violation, and the insurer bears the resulting legal consequences during contract for- mation. An insurance broker, by contrast, acts for the insured, as defined in the Measures for the Supervision of Insurance Brokers. Brokers must: • perform independent and objective needs assess- ments; • recommend products based on the insured’s inter- ests; and • ensure that the insured receives clear, complete and accurate information about policy terms and market alternatives. They are also required to disclose conflicts of interest, maintain professional independence, conduct suita- bility evaluations and protect client information. Unlike agents, brokers do not bind the insurer; instead, they owe duties of loyalty and professional diligence to the insured. If a broker provides negligent advice or fails to communicate material information, it may be liable to the insured for breach of its statutory obligations, though the insurer generally does not bear responsi- bility for the broker’s conduct. 6.4 Legal Requirements and Distinguishing Features of an Insurance Contract Article 13 of the Insurance Law mandates that, upon reaching an insurance contract, the insurer must issue an insurance policy or other insurance certificate to formalise the contract. Validity is strictly tied to insur- able interest, defined as a legally recognised interest in the subject matter (Article 12). Crucially, for personal insurance, the applicant must possess this interest at the time of contract conclusion – whereas for property insurance, the insured must possess the interest at the time the insurance accident occurs (Article 48). According to Article 18 of the Insurance Law, a valid insurance contract must, at a minimum, explicitly con- tain the following terms:
• parties – names and domiciles of the insurer, policyholder, insured and beneficiary (in personal insurance); • subject matter – the specific object or life/body being insured; • coverage and exclusions – the scope of insurance liability and explicitly stated liability exemptions; • duration – the insurance period and the com- mencement time of liability; • value – the insured value (for property) and the insured amount; • cost – the premium amount and payment method; • settlement – the method for paying indemnity or insurance benefits; and • legal recourse – liability for breach of contract and methods for dispute resolution. Notably, for liability exemption clauses to be effective, the insurer must explicitly explain these to the appli- cant under Article 17; otherwise, those specific terms will not be binding. 6.5 Multiple Insured or Potential Beneficiaries Under PRC law, unnamed parties may become ben- eficiaries of an insurance contract if the contract des- ignates them or identifies them by category. This is grounded in Article 12 of the Insurance Law (insur- able interest requirement), which permits insurance for the benefit of a third party with insurable interest. For property insurance, Article 55 recognises any law- ful economic interest – such as that held by tenants, subcontractors or mortgagors – as a valid insurable interest, enabling them to be beneficiaries if the policy so provides. Identification rules therefore require that the policy expressly name the beneficiary or define an identifi- able class, though the beneficiary need not be indi- vidually specified. If the policy does not mention the third party or its category, the courts generally do not extend coverage, as the contract must reflect the par- ties’ true intent under the Contract Chapter of the Civil Code. Regarding disclosure obligations at formation, the existence of third-party beneficiaries does not alter the statutory allocation of duties. Under Article 16 of the Insurance Law, the insurance applicant must truth-
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