Article 17, Paragraph 1 of the Insurance Law of the People's Republic of China stipulates the insurer's obligation to provide a "general explanation" regarding standard contracts. Paragraph 2 stipulates the "duty to inform" and the "duty to clarify" regarding the "exemption clause from insurer's liability" in standard contracts.
For years, insurers have struggled in court over this clause, especially regarding the "obligation to clarify."
Everyone knows that the obligations of "explanation" and "reminder" + "clear explanation" are extremely important (although not many people can explain clearly). Insurers with some requirements for themselves probably know some legal technical points, such as that the implementation stage of these obligations should be during contract conclusion (before formation), the target is the policyholder, the differences between "general standard clauses" and "exemption clauses in standard clauses," and whether the font, boldness, and color used in exemption clauses should differ from other text, etc. In particular, there are some lessons learned and shared from past lawsuits, such as:
(1) Unable to prove that the insurance application form was submitted to the policyholder;
(2) The insurance application form does not include contract terms or exemption clauses;
(3) The exemption clauses attached to the insurance application form are inconsistent with those indicated in the insurance contract;
(4) Failure to bold or bold the font of "clauses exempting the insurer's obligations" (in judicial practice, courts sometimes find the bold or bold not obvious, or the entire page is bolded and the insurer is deemed to have "not enough to attract the policyholder's attention"), especially other forms of exemption content such as waiting periods, disability compensation ratio tables, expense schedules, and conceptual explanations, which are not treated as exemption clauses;
(5) The signature or seal must not be made by the policyholder;
(6) The date of signature or seal is later than the date of the insurance contract conclusion;
(7) There are contradictions or ambiguities in the exemption clause, and the insurer's explanation is unconvincing.
The above list could be extended and theoretically too exhaustive. So what exactly counts as fulfilling the "duty of clear disclosure"?
In practice, this issue is quite complex. Not only do many insured parties and their agents apply this principle to every case (making a lot of money from the "Gourd Monk"), but many courts also vary greatly in their standards when handling related cases, with a clear tendency toward "basket-cranging." Whenever many judges' simple sense of justice tips toward the insured/beneficiary and cannot find suitable legal norms or similar cases to cite, they unconsciously "evade the easy determination that the insurer has not fulfilled the duty of clear explanation." Subsequently, the exemption clause is deemed invalid (which the author calls "basket processing"), leaving insurance companies at a loss, feeling they cannot be exempted no matter what they do, and leaving their attorneys frustrated and resentful that their clients never learn their lessons.
Having witnessed the strange realities of insurance litigation for over twenty years, Ihave tried to summarize several tips aimed at providing some guidance for insurers to maintain the validity of exemption clauses.
1. Correctly understand the connotation and extension of the "exemption clause" in insurance contracts, and treat them equally in practice
The "liability exemption clause" in insurance clauses is the most concentrated and obvious category. After years of judicial practice and education, insurers usually attach great importance to it. However, there are still several other clauses that are easily overlooked or misinterpreted, such as:
- Deductible rate and deductible clauses;
- Proportional compensation clause;
- Waiting period clauses in personal insurance;
- Additional "condition" agreements after disease definition in medical/critical illness insurance, for example
— Definition of major illness: "One of the following diseases or surgeries: "1. Heart disease (myocardial infarction)." Heart disease (myocardial infarction) is annotated as: "Refers to partial myocardial necrosis caused by coronary artery blockage, and diagnosis must meet the following three conditions: (1) Recent ECG showing myocardial infarction variation; (2) Abnormally increased levels of cardiomycin in the blood; (3) Typical chest pain symptoms. ”
In fact, the latter three additional conditions have been restricted, excluded, or reduced through three rounds of insurance coverage.
- Special expense clauses in comprehensive or investment-linked insurance, such as risk protection clauses, initial expense clauses, investment account management fees, and clauses for surrender/partial withdrawal handling fees, because these clauses all share a common function: they all reduce the total value of the policyholder's investment account;
- Disability level table and disability assessment standards in the life insurance schedule;
- The "interval clause" in accident insurance, in the case of a single liability accident, actually causes the insured to "have already claimed a claim but cannot receive compensation";
- Disclaimer in the "Special Agreement" section.
All the above clauses are "clauses exempting the insurer from liability" and must be treated equally in subsequent handling (the so-called "exemption clauses" mentioned below are abbreviations for "clauses exempting insurer liability").
2. The "Notification" must be proactively provided by the insurer and cannot passively wait for the policyholder to download or view it on their own
Some insurance companies, in scenarios such as electronic purchase, online purchase, or purchasing insurance cards, do not provide exemption clauses. Instead, they require policyholders to download or visit the insurer's official website to check and click the link to see the specific content of the exemption clause. Many insurers think this is a small favor and take it for granted, but legal professionals may believe such actions do not comply with legal requirements.
According to legal and judicial interpretations, "When concluding a contract, the insurer shall provide notices on the application form, insurance policy, or other insurance documents that sufficiently attract the policyholder's attention," and "the insurer shall provide reminders of the exemption clauses for the insurer through websites, audio, video, etc.". It is clear that the insurer must provide reminders of the exemption clauses, which is a proactive duty and should be completed and pushed by the insurer, rather than waiting for the policyholder to inquire on their own. If policyholders do not open the exemption clause link or log in to the website to check the exemption clauses, wouldn't the insurer's duty of clear explanation be meaningless? Therefore, prompting the "exemption from insurer liability clause" does not mean providing a link to the exemption clause; the full disclaimer clause must be presented as a basic requirement, rather than just providing a link or a website.
Note that the above provisions treat the "insurance application form" and the "insurance policy" side by side, so the requirement for the "full text presentation" should be fulfilled simultaneously. At the same time, the so-called "enough to attract the policyholder's attention" in external forms either involves printing the relevant content as a standalone book, or attaching the full text of both the policy and the insurance policy, with the exemption sections bold, bold, or significantly differentiated in font.
3. The original insurance application form must be retained
Keeping the original policy document is usually not an issue, but in insurance litigation practice, it is common for insurance company handlers to be unable to provide the original insurance application form. If the original documents are missing, the insured's lawyer is very likely to question the authenticity of the insurance application form, which only contains copies, and courts usually find it difficult to recognize their authenticity. As a result, the "policyholder's declaration clause" in the policy is likely to be deemed invalid, which could seriously affect the validity of the insurance exemption clause.
The insurance application form is an important part of the insurance contract and serves as the written proof for the insurance agreement between the insurer and the policyholder. Retaining the original insurance application form ensures that in the event of a dispute, the insurer can provide the most original and authentic evidence. Among these, the "Policyholder Declaration Clause" is important evidence proving that the insurer has fulfilled its obligation to clearly explain the exemption clause.
Upon receiving the original insurance policy, the insurer should promptly copy or scan it for archiving and keep the originals safe. At the same time, it is recommended to keep the delivery waybill you received from the insurance application.
4. The insurance application form must include insurance clauses and be stamped with a cross-section seal
The policyholder's declaration clause on the insurance application usually states that the policyholder has received the insurance terms, but in judicial practice, whether the insurer actually provides the insurance terms to the policyholder often leads to disputes. If the policy does not include an exemption clause, it first does not comply with Article 17 of the Insurance Law. Therefore, even if there is a declaration clause signed by the policyholder, most courts still require the insurer to provide evidence of the provision of the clause.
Therefore, when the insurer provides the insurance application form to the policyholder, it is essential to include the insurance terms together. To ensure the consistency and completeness of the terms, it is recommended to uniformly arrange page numbers for both the application form and the insurance clauses, using the format "Page × of ×." Regarding the policyholder's seal, if the policy is for a unit, the employer should be required to affix a cross-section seal, which effectively prevents the policyholder or insured from altering or replacing the terms after signing, ensuring the authenticity and completeness of the contract content; If you are purchasing insurance individually, you can require the individual to sign their full name, at least the last name, at the bottom of each page of the application form, to strengthen the confirmation of the insurance terms.