CHINA Law and Practice Contributed by: Fubin Xiang, Xinyi Zhang, Mengmeng Wei and Lanmengyuan Zhang, W&H Law Firm
6. Third-Party Claims and Defence Trends 6.1 Third-Party Claims and Direct Actions In liability insurance disputes, once the insured’s liabil- ity to the third party has been determined, the insur- er must pay the third party directly at the insured’s request. If the insured fails to make that request, the third party may claim directly against the insurer for the amount it is entitled to receive. Meanwhile, in com- pulsory traffic insurance, the third party may list the insurer as a co-defendant without the prerequisite that the insured delays in making a request. In cases of oil pollution from ships, the victim may bring a direct claim against the ship-owner’s liability insurer or financial guarantor under the special rules of Maritime Law. The Civil Aviation Law, by contrast, permits a direct action against the operator’s insurer or guarantor only where the coverage remains in force or the operator has become bankrupt. Outside liability insurance, the doctrine of privity of contract generally prevents third parties from suing the insurer directly under the policy. Third parties usu- ally need to assert their rights through the insured, unless otherwise provided by law or explicitly stipu- lated in the contract that the third party has a direct claim right against the insurer. 6.2 Emerging Liability and Defence Trends Regulatory Scrutiny of the Insured Product recalls, data and personal information enforcement, workplace safety investigations and securities enforcement now routinely run in paral- lel with insurance claims. Considering that findings emerging during the regulatory process are difficult to challenge later, the defence of the insurance claim must be co-ordinated with the response to the regula- tor from the outset. Reputational Exposure Reputational risks often cut against the insureds’ economic interest. An insured facing a consumer or personal injury claim may prefer to settle quickly and quietly, even where the defence is strong and the insurer’s consent-to-settle provisions become the point of friction. This tension is most intense where
5.4 Cost Risk Management and Funding Solutions In China, there are few insurance products that cover litigation cost risks. In practice, such risks are more often managed through the policy wording with express defence-cost cover, contractual indemnities, fee caps and budgeting, or settlement and mediation. Court fees are generally allocated by the court, com- monly against the unsuccessful party, but each side usually bears its own attorney fees unless a contract, statute or other legal basis permits recovery. In addition, China does not currently have a compre- hensive statutory regime for third-party litigation fund- ing comparable to some common-law jurisdictions. Funding arrangements therefore remain relatively uncommon and may raise questions about confiden- tiality, attorneys’ professional duties, control of pro- ceedings and enforceability of the funding agreement. They are more visible in some international arbitration and commercial contexts than in ordinary domestic insurance litigation. 5.5 AI-Driven Claims Volumes and Complaints There is not yet any market feedback to the effect that AI-generated or AI-assisted claims have materi- ally increased insurance claim volumes in China. The practical risk is nevertheless real. Generative tools could make it easier to produce large numbers of demand letters, complaints and submissions. A more difficult problem lies in AI-generated or manipulated evidence, including altered photographs, documents, audio or video. Existing evidentiary and insurance- fraud rules still apply, but authentication may require further review and preservation of metadata. Insurers are also trying to use AI in claims handling. In response, the National Financial Regulatory Admin- istration released AI guidance in June 2026, empha- sising governance, risk management and human oversight from insurers and warning that overreliance on automated decisions can itself create complaint, regulatory and litigation risk.
72 I NSURANCE L I T IGATI O N 2026
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