[Abstract]
Under a co-insurance agreement, the policy issuer is authorized to handle all co-insurance matters such as issuing policies, collecting premiums, and settling claims on behalf of other co-insurer(s). Therefore, it should exercise such authority in a prudent and diligent manner within the scope of authorization, and be liable for any losses suffered by the other co-insurer(s) as a result of any claim settlement in breach of the Insurance Law.
[Keywords]
Co-insurance; authority of policy issuer; liability for compensation
Plaintiff: PICC Property & Casualty Shanghai Branch, domiciled in Huangpu District, Shanghai.
Responsible Person: Mao, General Manager.
Defendant: Ping An Property & Casualty Shanghai Branch, domiciled in Jing’an District, Shanghai.
Responsible Person: Chen, General Manager.
The Plaintiff PICC Property & Casualty Shanghai Branch (“PICC Shanghai”) filed a lawsuit in the People’s Court of Jing’an District of Shanghai against the Defendant Ping An Property & Casualty Shanghai Branch (“Ping An Shanghai”) on the grounds of their dispute over liability insurance contract.
The Plaintiff PICC Shanghai asserted that: on February 18, 2014, Hu rolled a motor vehicle (Hu BEXXXX) of Shanghai Workers Sanatorium Services Co., Ltd. (“Workers Sanatorium,” not a party to this case) on the Hefei Expressway. Three passengers died and several were injured. According to the traffic police, Hu was solely responsible for the accident. Owner of the motor vehicle, however, had maintained with Ping An Shanghai a carrier’s liability insurance, which was jointly underwritten by PICC Shanghai (50%), Ping An Shanghai (25%), and China Pacific Property Insurance Company Shanghai Branch (“CPPIC Shanghai,” 25%, not a party to this case). After the accident, the policy issuer and the claim settler Ping An Shanghai paid Workers Sanatorium a total of RMB 2,974,528 as insurance compensation for the three decedents and the injured. PICC Shanghai then, based on its underwriting percentage, reimbursed Ping An Shanghai for 50% of the compensation, i.e., RMB 1,487,264. But Workers Sanatorium did not deliver the amount to the families of the decedents. Hence in 2016 they initiated successive actions against PICC Shanghai, Ping An Shanghai, and CPPIC Shanghai. According to the effective judgments of these cases, PICC Shanghai paid another RMB 681,342.40 to the families and assumed the case acceptance fees of RMB 16,903.66. Therefore, PICC Shanghai brought this lawsuit to request the court to order: 1. Ping An Shanghai to indemnify PICC Shanghai for the twice-paid compensation of RMB 681,342.40; and 2. Ping An Shanghai to indemnify PICC Shanghai for the case acceptance fees of RMB 16,903.66, together with any interest accrued until the actual payment date.
The Defendant Ping An Shanghai contended that: the claims of PICC Shanghai were unacceptable. 1. This catastrophic accident caused several casualties and the claim settlement was still underway. The payment made by PICC Shanghai to Ping An Shanghai was a prepayment of the settlement amount without specifying purposes. 2. Despite being the policy issuer, Ping An Shanghai was mainly responsible for coordination and did not have the right to handle claims independently. Each claim was settled by all co-insurers together. On the other hand, PICC Shanghai was the lead underwriter and ought to assume proportionately greater responsibility for prudent inspections. Nevertheless, it raised no objection to the prepayment and reimbursement arrangements. It hence should be deemed to have consented to the direct prepayment from Ping An Shanghai to Workers Sanatorium. 3. Having compensating the families based on the judgment as a co-insurer, PICC Shanghai should recover its share of the prepayment from Workers Sanatorium instead of claiming against Ping An Shanghai.
During the first instance, the People’s Court of Jing’an District of Shanghai found the following facts:
(1) PICC Shanghai, Ping An Shanghai, and CPPIC Shanghai (not a party to this case) had entered into the Co-Insurance Agreement, underwriting Shanghai road passenger carrier’s liability insurance policies at a percentage of 50%, 25%, and 25%, respectively. According to the settlement terms under the Agreement, if the amount of losses is expected to be RMB 100,000 or more upon the filing of a claim case, the policy issuer shall notify the other two insurers and take the lead in their joint site survey, inspection, loss assessment, and other settlement-related matters. If the three insurers fail to agree on any settlement, the one with the highest underwriting percentage shall have the final say. In addition, the three insurers had executed the Four-Party Cooperation Agreement on Shanghai Road Passenger Carrier’s Liability Insurance (the “Four-Party Agreement”) with Shanghai Asian Insurance Brokers (“Asian Brokers,” not a party to this case). Under this Four-Party Agreement, the policy issuer shall automatically become the claim settler for the carrier set out in each policy and responsible for providing claim settlement and consulting services to such carrier. The policy issuer shall pay insurance compensation to the carrier directly and send a copy of the payment documents to Asian Brokers. After that, the policy insurer is entitled to require other insurers to reimburse it in proportion to their respective underwriting percentage against the payment documents.
(2) Workers Sanatorium had purchased a road passenger carrier’s liability insurance with Ping An Shanghai. The policy included the following terms: the insurance object is a 55-seat passenger bus (Hu B-E5950); the coverage period ranges from June 15, 2013 to June 14, 2014; the aggregate limits for compensation and additional moral damages are RMB 49,500,000 and RMB 3,000,000, respectively (the per-seat limits are RMB 900,000 and RMB 40,000, respectively); and the underwriting percentages of Ping An Shanghai, PICC Shanghai, and CPPIC Shanghai are 25%, 50%, and 25%, respectively.
(3) On February 18, 2014, the passenger bus (Hu B-E5950) of Workers Sanatorium rolled over on an expressway and caused the instant death of Shen, Zhang, and Liu as well as several injuries. The traffic police of the Hefei Public Security Bureau held that the driver Hu was solely responsible for the accident.
After the accident, the policy issuer Ping An Shanghai handled the settlement matters and issued the Claim Calculation Sheet of Carrier’s Liability Insurance: The first prepayment in March 2014 was RMB 350,000; the second prepayment in November 2014 was RMB 1,094,528 under the judgment of first instance, including a specified amount of RMB 940,000 payable to victim Shen; the third prepayment in June 2015 was RMB 1,530,000, making the total compensation for 1. Liu…reaching RMB 940,000, and 2. Zhang…reaching RMB 940,000. To reimburse Ping An Shanghai’s three prepayments pursuant to the Co-Insurance Agreement and the Claim Calculation Sheet of Carrier’s Liability Insurance, PICC Shanghai paid Ping An Shanghai RMB 175,000 on October 20, 2014, RMB 547,264 on July 13, 2015, RMB 725,000 on December 9, 2015, and RMB 40,000 on February 22, 2016, totaling RMB 1,487,264.
Not receiving their compensation in full, the three families brought a lawsuit on the grounds of a liability insurance contract dispute against each of the three insurers with Workers Sanatorium participating in the proceedings as a third party. At the first-instance and second-instance trials, the People’s Court of Jing’an District of Shanghai and the Second Intermediate People’s Court of Shanghai found that Ping An Shanghai had prepaid Workers Sanatorium RMB 350,000 on March 13, 2014 and RMB 1,094,528 on December 1, 2014 for the accident. Workers Sanatorium acknowledged the receipt of the two prepayments and alleged the money had been used for the injured. The courts found that although Ping An Shanghai paid insurance compensation directly to Workers Sanatorium, it did not verify whether the insured had compensated the third parties, nor provide proof that the third parties had received compensation in full. Therefore, Ping An Shanghai should continue discharging its liability of compensation, and the three co-insurers should be liable for such insurance compensation in proportion to their respective percentage set out in the Co-Insurance Agreement and the policy. The courts decided that PICC Shanghai should, based on its 50% underwriting percentage, pay insurance compensation of RMB 444,011.40 (Shen’s case, No. 2016 Hu 02 Min Zhong 8032), RMB 120,193 (Zhang’s case, No. 2018 Hu 02 Min Zhong 1386), and RMB 117,138 (Liu’s case, No. 2018 Hu 02 Min Zhong 1387); Ping An Shanghai and CPPIC Shanghai should pay insurance compensation based on their respective 25% percentage. After the court decision came into effect, PICC Shanghai paid RMB 455,685.06 (including case acceptance fees of RMB 11,673.66) on January 9, 2017, RMB 122,831 (including case acceptance fees of RMB 2,638), and RMB 119,730 (including case acceptance fees of RMB 2,592) on May 4, 2018.
(4) In April 2017, Ping An Shanghai brought a lawsuit against Workers Sanatorium, requiring the return of RMB 222,005.70 that it had paid to Shen’s family for Shen’s case (No. 2016 Hu 02 Min Zhong 8032) because Workers Sanatorium failed to deliver its prepayment to the family. The People’s Court of Huangpu District of Shanghai held that the insured had the obligation to provide the relevant expense documents, payment certificates, and other evidence proving that it had compensated the victims and their families. But Workers Sanatorium could not provide such evidence and failed to make compensation in a timely manner, causing double compensation by the insurer. The Huangpu Court decided that Workers Sanatorium should return RMB 222,005.70 to Ping An Shanghai.
The People’s Court of Jing’an District of Shanghai held in the trial of first instance as follows:
The Co-Insurance Agreement, the Four-Party Agreement, and the liability insurance contract involved in this case between PICC Shanghai, Ping An Shanghai, and others expressed their true intentions and were lawful and valid. In accordance with their agreement, Ping An Shanghai, as the policy issuer, handled claim settlement matters for the accident underwritten by the three insurers. During the hearings, PICC Shanghai expressly asserted that the basis for its claim was that Ping An Shanghai violated Article 65(3) of the Insurance Law in settling the insurance claim, which caused double compensation by PICC Shanghai and constituted gross negligence.
Article 65(3) of the Insurance Law provides that where an insured of a liability insurance policy causes damage to a third party and has not compensated the third party, the insurer shall not pay insurance compensation to the insured. Therefore, an insurer who violates this provision shall continue to compensate the third party and require the insured to return any insurance compensation improperly paid to the insured. The courts that tried the previous lawsuits regarding the accident confirmed that PICC Shanghai, as a co-insurer of the liability insurance contract, shall be liable for the insurance compensation in proportion to the agreed percentage. Therefore, PICC Shanghai also had the right to require a return from the insured. PICC Shanghai’s assertion that it had no legal relation with the insured and could not require for return was groundless and would not be upheld. If Ping An Shanghai’s settlement under the Co-Insurance Agreement violated any legal or contractual provisions, PICC Shanghai may claim for other losses after requiring a return from the insured and ascertaining the amount.
Therefore, in accordance with Article 60 of the Contract Law of the PRC and Article 65 of the Insurance Law of the PRC, the People’s Court of Jing’an District of Shanghai decided on January 7, 2020 that:
The claims of the Plaintiff PICC Shanghai are rejected.
PICC Shanghai refused to accept the judgment of first instance and filed an appeal to the Shanghai Financial Court, asserting that the judgment should be reversed due to incorrect application of law. 1. In accordance with the Four-Party Agreement, Ping An Shanghai was the issuer of the policy concerned. In settling the claim, it violated the Insurance Law and paid compensation to the insured before the insured compensated the third parties. As a result, the co-insurers, including PICC Shanghai, made double compensation. Ping An Shanghai breached the Four-Party Agreement and should be liable for damages in accordance with the law and return the twice-paid compensation to PICC Shanghai together with any interest accrued thereon. 2. With respect to the twice-paid compensation, PICC Shanghai may hold Ping An Shanghai liable on the basis of the Four-Party Agreement or hold the insured liable pursuant to the insurance contract. Since their liabilities are not really joint and several, PICC Shanghai has the right to choose either way. In this case, its choice to claim against Ping An Shanghai is lawful and well grounded. After Ping An Shanghai discharges that liability, PICC Shanghai’s right to claim against the insured will certainly be transferred to Ping An Shanghai, which may recover the amount from the ultimately responsible party. The judgment of first instance held that PICC Shanghai must first require the insured to return the insurance compensation and, only if the insured is unable to do so, may seek compensation from Ping An Shanghai. This judgment had no legal ground. As such, PICC Shanghai requested for reversing the Civil Judgment of the People’s Court of Jing’an District of Shanghai (No. (2019) Hu 0106 Min Chu 34844) and upholding its claim in the first instance.
The Appellee Ping An Shanghai argued: The judgment of first instance was correct, but Ping An Shanghai’s gross negligence found in the judgment was unacceptable and not supported by existing evidence. 1. The insurance prepayment and claim settlement did not constitute double compensation as asserted by PICC Shanghai, because the prepayment from PICC Shanghai was not designated for any specific purpose but for compensating the entire accident. 2. Ping An Shanghai did not have the right to handle claims independently. Each claim was settled by all co-insurers together. On the other hand, PICC Shanghai was the lead underwriter and ought to assume proportionately greater responsibility for prudent inspections. Nevertheless, it raised no objection to the prepayment and reimbursement arrangements. It hence should be deemed to have consented to the direct prepayment from Ping An Shanghai to the insured. 3. Upon discharging the liabilities to the third party as required by the court judgment, PICC Shanghai had the right as a co-insurer to require the insured to return the prepaid compensation. However, it was inactive in exercising such right and thereby should solely bear all resulting consequences. Therefore, Ping An Shanghai requested the court of second instance to dismiss the appeal and uphold the original judgment.
In the second instance, the Shanghai Financial Court confirmed the facts found in the first instance.
The Shanghai Financial Court also found that, Clause 3 of the Co-Insurance Agreement set out PICC Shanghai is the lead underwriter, and Ping An Shanghai and CPPIC Shanghai are the secondary underwriters. According to Clause 5(4) (Authority for claim verification), if the amount of losses is expected to be RMB 100,000 or more upon the filing of a claim case, the policy issuer shall notify the other two insurers and take the lead in their joint site survey, inspection, loss assessment, and other settlement-related matters. The policy issuer shall pay the insured insurance compensation within three working days after the case is closed and the other two insurers shall, within three working days after the policy issuer makes the payment and receives the relevant certificates and claim documents, reimburse the policy issuer in proportion to their underwriting percentages.
During the second instance, PICC Shanghai made it clear that: 1. the interest it claimed in the first instance should be calculated at the deposit interest rate published by the People’s Bank of China for the same period; and 2. the interest on the compensation and case acceptance fees paid for Shen’s case should accrue from January 10, 2017 and the interest on those paid for Zhang’s case and Liu’s case should accrue from July 14, 2018.
The focus of dispute in the second instance is whether PICC Shanghai can recover the twice-paid compensation from Ping An Shanghai.
Following the second instance, the Shanghai Financial Court considered the following questions and held as follows:
Firstly, which legal relation can be the basis of PICC Shanghai’s claim against Ping An Shanghai? The court considered there are two layers of legal relations between the two. 1. External layer: pursuant to the road passenger carrier’s liability insurance contract, PICC Shanghai and Ping An Shanghai are co-insurers. They may claim the prepaid third-party insurance compensation in proportion to their respective underwriting percentages from the insured Workers Sanatorium; 2. Internal layer: pursuant to the Co-Insurance Agreement and the Four-Party Agreement, Ping An Shanghai, as the policy issuer who is responsible for settling claims for the insured, needs to prepay the insurance compensation in full after assessing the losses with other co-insurers. PICC Shanghai, as a co-insurer, needs to coordinate in the assessment and assume the losses in proportion to its underwriting percentage after the policy issuer makes compensation. The above arrangements for rights and obligations show that in external settlement, the insurance compensation payable by both PICC Shanghai and CPPIC Shanghai (not a party to this case) would also be made by Ping An Shanghai based on its authority. Now PICC Shanghai sues Ping An Shanghai for its twice-paid compensation caused by Ping An Shanghai’s violation of the Insurance Law in external settlement. Such claim was obviously based on the internal layer of legal relation and was intended to hold the authorized insurer liable for the losses arising out of its failure to perform the necessary duty of care in exercising its authority. This claim was made by PICC Shanghai at its sole discretion in accordance with the law and was permissible.
Secondly, whether PICC Shanghai suffered from any loss and whether such loss has been determined? According to the Claim Calculation Sheet of Carrier’s Liability Insurance issued by Ping An Shanghai, the second prepayment of RMB 1,094,528 in November 2014 listed RMB 940,000 for the third party Shen; the third prepayment in June 2015 listed RMB 940,000 for each of the third parties Liu and Zhang. PICC Shanghai had reimbursed such prepayments in proportion to its underwriting percentage. Hence the defense of Ping An Shanghai that the reimbursement of PICC Shanghai has no specific purpose is groundless. After reimbursing such prepayments, PICC Shanghai paid insurance compensation to the three families and assumed the case acceptance fees as required by the previous judgment. Such expenses were PICC Shanghai’s actually incurred losses. Whether PICC Shanghai would require a return from Workers Sanatorium or claim against Ping An Shanghai is a question of remedy approach selection and has no bearing on the incurred losses. Therefore, the opinion of the court of first instance that PICC Shanghai should claim for other losses against Ping An Shanghai after requiring a return from Workers Sanatorium and ascertaining the amount is groundless and should be rectified.
Thirdly, whether Ping An Shanghai should compensate for such losses? Article 66(2) of the General Principles of Civil Law provides that an agent who fails to perform its obligations and thus causes losses to the principal shall bear civil liabilities. In this case, it is agreed under the Co-Insurance Agreement and the Four-Party Agreement that Ping An Shanghai shall, as the policy issuer, be responsible for settling claims for the insured. Accordingly, as required by the principle of good faith, Ping An Shanghai, as the agent of other co-insurers, should exercise its authority in a prudent, diligent, and faithful way within the scope of authorization and settle claims in accordance with the law. In accordance with the Insurance Law, it should verify whether Workers Sanatorium compensated Shen, Liu, and Zhang for the insured accident and, if not, should not pay the insurance compensation. However, despite being a professional insurer that is aware of such legal rules, Ping An Shanghai still violated its duty of care as an agent and directly paid the insurance compensation payable by PICC Shanghai to Workers Sanatorium. As a result, PICC Shanghai made compensation twice for the same accident. Ping An Shanghai evidently breached the Co-Insurance Agreement and the Four-Party Agreement and should be liable for the losses thus incurred. Ping An Shanghai defended that PICC Shanghai, as the lead insurer, raised no objection to the prepayment and reimbursement arrangements. It hence should be deemed to have consented to the direct prepayment from Ping An Shanghai to Workers Sanatorium. Contrarily, the court held that in accordance with the Co-Insurance Agreement and the Four-Party Agreement, PICC Shanghai was the lead insurer, but not the policy issuer. Its responsibilities included conducting site survey and loss assessment jointly with other co-insurers, but excluding paying insurance compensation. Whether the insured compensated the third parties should be verified by the policy issuer when paying insurance compensation. As PICC Shanghai did not participate in nor get aware of such payment activity, the defense of Ping An Shanghai was rejected.
The next issue is the specific amount of losses. PICC Shanghai paid insurance compensation of RMB 444,011.40 and case acceptance fees of RMB 11,673.66 for Shen’s case on January 9, 2017, and similarly RMB 120,193 and RMB 2,638 for Zhang’s case, and RMB 117,138 and RMB 2,592 for Liu’s case on May 4, 2018. The above insurance compensation has already been included in the prepayment allocated to PICC Shanghai. Had Ping An Shanghai made such prepayment in accordance with the law, the relevant lawsuits would have been avoided. Therefore, the above insurance compensation and case acceptance fees are the losses suffered by PICC Shanghai. The interest claimed by PICC Shanghai can be supported because the insurance compensation and case acceptance fees have incurred losses of interest that would otherwise have been accrued. The principal, period, and rate claimed by PICC Shanghai for interest calculation are reasonable and confirmed.
In addition, it should be noted that PICC Shanghai may either require a return from Workers Sanatorium or claim against Ping An Shanghai. To avoid duplicate payments, after PICC Shanghai receives any amount from either of the two, the amount payable by the other should be reduced accordingly. After discharging its obligation of compensation, Ping An Shanghai may exercise its right of subrogation to recover the compensation from Workers Sanatorium in place of PICC Shanghai.
Therefore, on July 30, 2020, the Shanghai Financial Court ordered and adjudged as follows in accordance with Article 65(3) of the Insurance Law of the PRC, Article 66(2) of the General Principles of the Civil Law of the PRC, Article 406 of the Contract Law of the PRC, and Article 170(1)(2) of the Civil Procedure Law of the PRC:
I. The Civil Judgment of the People’s Court of Jing’an District of Shanghai (No. (2019) Hu 0106 Min Chu 34844) is reversed.
II. The Appellee Ping An Shanghai shall, within ten days of the effective date of this judgment, indemnify the Appellant PICC Shanghai for the insurance compensation of RMB 681,342.40 as well as the interest calculated at the benchmark deposit interest rate published by the People’s Bank of China for the same period from January 10, 2017 (RMB 444,011.40) and July 14, 2018 (RMB 237,331) to the actual payment date.
III. The Appellee Ping An Shanghai shall, within ten days of the effective date of the judgment, indemnify the Appellant PICC Shanghai for the case acceptance fees of RMB 16,903.66 as well as the interest calculated at the benchmark deposit interest rate published by the People’s Bank of China for the same period from January 10, 2017 (RMB 11,673.66) and July 14, 2018 (RMB 5,230) to the actual payment date.
This is the final judgment against defaulting defendants.
Copyright (c) 2018 Shanghai Financial Court China Disclaimer
