The Jiangsu Branch of Ping An Property & Casualty Insurance Company of

China, Ltd.

v. Jiangsu Zhenjiang Installation Group Co., Ltd.,

A Dispute over an Insurer’s Right of Subrogation

Guiding Case No. 74

(Discussed and Passed by the Adjudication Committee of the Supreme People’s Court Released on December 28, 2016)

CHINA GUIDING CASES PROJECT

English Guiding Case (EGC74) September 14, 2018 Edition∗

∗ The citation of this translation of this Guiding Case is: 《中国平安财产保险股份有限公司江苏分公司诉

江苏镇江安装集团有限公司保险人代位求偿权纠纷案》 (The Jiangsu Branch of Ping An Property & Casualty Insurance Company of China, Ltd. v. Jiangsu Zhenjiang Installation Group Co., Ltd., A Dispute over an Insurer’s Right of Subrogation), STANFORD LAW SCHOOL CHINA GUIDING CASES PROJECT, English Guiding Case (EGC74), Sept. 14, 2018 Edition, http://cgc.law.stanford.edu/guiding-cases/guiding-case-74. The original, Chinese version of this case is available at 《最高人民法院网》(WWW.COURT.GOV.CN), http://www.court.gov.cn/zixun-xiangqing-34312.html. See also 《最高人民法院关于发布第 15 批指导性案例的通知》 (Notice of the Supreme People’s Court on the Release of the 15th Batch of Guiding Cases), issued on and effective as of Dec. 28, 2016, http://www.court.gov.cn/shenpan-xiangqing-34262.html.

This document was primarily prepared by Joyce Quan, Sean Webb, and Dr. Mei Gechlik; it was finalized by Dimitri Phillips and Dr. Mei Gechlik. Minor editing, such as splitting long paragraphs, adding a few words included in square brackets, and boldfacing the headings, was done to make the piece more comprehensible to readers; all footnotes, unless otherwise noted, have been added by the China Guiding Cases Project. The following text is otherwise a direct translation of the original text released by the Supreme People’s Court.

Keywords

Civil Insurance Subrogation Rights Property Insurance Contract

Third-Party’s Damage to the Insured Subject Matter Breach of Contract

Main Points of the Adjudication

Where a third party’s breach of contract causes damage to the insured subject matter of an insured [party], it can be determined to be “third-party’s damage to an insured subject matter” as provided for in Article 60 Paragraph 1 of the Insurance Law of the People’s Republic of China. Where, consequently, the insurer exercises, in accordance with law, its subrogation rights against the third party, a people’s court should support [this exercise of rights].

Related Legal Rule(s)

Article 60 Paragraph 1 of the Insurance Law of the People’s Republic of China1

Basic Facts of the Case

On October 28, 2008, Huadong United Can Co., Ltd.2 (hereinafter referred to as “Huadong Can Company”), Huadong United Can No. 2 Co., Ltd.3 (hereinafter referred to as “Huadong Can No. 2 Company”), the insured [parties in this case], and defendant Jiangsu Zhenjiang Installation Group Co., Ltd. 4 (hereinafter referred to as “Zhenjiang Installation Company”) signed the Construction Contract for Construction Projects, stipulating that Zhenjiang Installation Company would be in charge of the mechanical equipment relocation and installation work for the insureds’ entire factory.

In the second part, “General Terms”, of the Construction Contract for Construction Projects, Article 38 provides:

The Contractor shall subcontract part of the contracted project in accordance with the provisions in the “Special Terms” and sign a subcontract with the

1 《中华人民共和国保险法》(Insurance Law of the People’s Republic of China), passed and issued on June 30, 1995, effective as of Oct. 1, 1995, amended three times, most recently on Apr. 24, 2015, effective as of Apr. 24, 2015, http://www.lc123.net/law/zx/2015-07-02/281492.html. 2 The name “华东联合制罐有限公司” is translated here as “Huadong United Can Co., Ltd.” in accordance with the translation used on the company’s website, at http://www.hucc.cn/gsgk-e.html. 3 The name “华东联合制罐第二有限公司” is translated here literally as “ Huadong United Can No. 2 Co., Ltd.” 4 The name “江苏镇江安装集团有限公司” is translated herein as “Jiangsu Zhenjiang Installation Group Co., Ltd.” in accordance with the translation used on the company’s website, at http://www.jszag.com/English_index.htm.

subcontracting unit. Absent the Contract-Issuing Party’s consent, the Contractor shall not subcontract any part of the contracted project […].

Subcontracting the project cannot remove any responsibilities or obligations of the Contractor. The Contractor should station corresponding management personnel at the subcontracting site to ensure the performance of this contract. [If] any breach of contract or negligence of the subcontracting unit causes damage to the project or causes other losses to the Contract-Issuing Party, the Contractor bears joint and several liability [for such damage or losses].

In the third part, “Special Terms”, of the Construction Contract for Construction Projects, Article 14 Paragraph 1 provides that “the Contractor shall not subcontract this project”.

Article 40 of “General Terms” stipulates:

Before the commencement of the project, the Contract-Issuing Party shall cover insurance with respect to the life and property of internal and third-party personnel of the construction project and construction site and pay the premiums;

The Contract-Issuing Party shall cover insurance for the materials and equipment to be installed that are shipped to the construction site for the project and pay the premiums;

The Contract-Issuing Party can entrust relevant insurance matters to the Contractor and fees incurred shall be borne by the Contract-Issuing Party;

The Contractor must cover accidental injury insurance for employees engaged in dangerous operations, and cover insurance for the life and property of internal personnel and construction machinery and equipment of the construction site and pay the insurance premiums.

On November 16, 2008, Zhenjiang Installation Company and Zhenjiang Yamin Bulk Lifting Co. Ltd. 5 (hereinafter referred to as “Yamin Transport Company”) signed the Project Subcontract, subcontracting the hoisting and transporting of equipment in the above-mentioned contract to Yamin Transport Company.

On November 20, 2008, Huadong Can Company and Huadong Can No. 2 Company purchased insurance from the Jiangsu Branch of Ping An Property & Casualty Insurance Company of China, Ltd.6 (hereinafter referred to as “Ping An Property Insurance Company”) to be covered by all-risk installation insurance for the above-mentioned mechanical equipment relocation and installation project for the entire factory. 5 The name “镇江亚民大件起重有限公司” is translated here literally as “Zhenjiang Yamin Bulk Lifting Co. Ltd. ” 6 The name “中国平安财产保险股份有限公司” is translated herein as “Ping An Property & Casualty Insurance Company of China, Ltd.” in accordance with the translation used on the company’s website, at http://property.pingan.com/gongkaixinxipilu/gongsigaikuang.shtml.

The insurance policy stated that the insureds were Huadong Can Company and Huadong

Can No. 2 Company, and it clearly stated that the Contractor, Zhenjiang Installation Company, was not an insured. The “Insured Items for Material Loss and the Insured Amount” column of the insurance policy stated that “the insured amount of the installation project is RMB 177,465,335.56”. In additional insurance, the “inland transportation expansion clause A” was also insured, and the compensation limit per accident for property damage was RMB 2 million. The insurance period was from November 20, 2008, to July 31, 2009. The insurance policy was accompanied by a list of installed machines and equipment, including two sets of SEQUA color printers, with an aggregate original value of RMB 29,894,340.88. In the list of insurance items attached to the insurance policy, the “inland transportation extension clause A” was explained as follows: given that the insureds have delivered additional insurance premiums as agreed [by the parties], with the consent of both parties, the insurance company shall be responsible for compensating the insureds’ property for losses caused by natural disasters or accidents [that occur] during inland transportation with the exception of [losses caused by] water and air transport from the place of supply in the People’s Republic of China to the site listed in the insurance policy, but the insured property must have qualifying packaging and loading during transportation.

At 10:30 on December 19, 2008,7 Yamin Transport Company’s driver JIANG Yucai was driving Su L06069 and Su L003 heavy semi-trailer from the old factory transporting a color printer to the new factory. The steel wire rope on the trailer broke during a turn, causing the color printer to roll over and fall to the ground. After Ping An Property Insurance Company received the insurance application, a list of damaged items was determined. According to the onsite investigation by the Traffic Patrol Police Detachment of the Public Security Bureau of Zhenjiang Municipality, it was determined that JIANG Yucai was fully responsible for the accident. After, Huadong Can Company, Huadong Can No. 2 Company, Ping An Property Insurance Company, Zhenjiang Installation Company, and Yamin Transport Company jointly commissioned CNinsure Inc.8 (hereinafter referred to as “CNinsure”) to publicly assess the loss of the accident and agreed to approve CNinsure’s final adjustment results. On March 9, 2010, CNinsure issued a public assessment report, concluding that the cause of the accident was equipment falling during transportation (accident); the liability of the insurance policy was established; the total loss of the damage was RMB 1,518,143.32, the net loss was RMB 1,494,343.32; the adjustment amount was RMB 1,494,343.32. CNinsure received a public assessment fee of RMB 47,900 paid by Ping An Property Insurance Company.

On December 2, 2009, Huadong Can Company and Huadong Can No. 2 Company issued a “claim letter” to Zhenjiang Installation Company, stating that “all losses caused by the accident should be shared by your company and Yamin Transport Company. We have already reported the insurance to the insurer, China Ping An Property Insurance Co., Ltd. Zhenjiang Central Branch Company. Once the loss amount is determined and the insurance company verifies the amount and pays in advance, interest within the compensation limit will be transferred to the insurance company by us. For the shortfall amount, we will [file] a separate claim with your company and Yamin Transport Company.” 7 The original text reads “10 时 30 分许”: it is not clear whether the text refers to 10:30 a.m. or 10:30 p.m. 8 The name “泛华保险公估有限公司” is translated here as “CNinsure Inc.” in accordance with the translation used on the company’s website, at http://www.cnsurvey.cn/Default.aspx.

On May 12, 2010, Huadong Can Company and Huadong Can No. 2 Company issued a

claim receipt and instrument of equity transfer to Ping An Property Insurance Company, claiming that they had received RMB 1,149,843.32 from Ping An Property Insurance Company. They agreed to transfer all the rights and interests of the above-mentioned claim to Ping An Property Insurance Company and agreed that Ping An Property Insurance Company would recover from the responsible party under the name Ping An Property Insurance Company. Afterwards, Ping An Property Insurance Company sued in court, requesting that [the court] order Zhenjiang Installation Company to pay compensation and public assessment fees.

Results of the Adjudication

On February 16, 2011, the Jingkou District People’s Court of Zhenjiang Municipality, Jiangsu Province, rendered the (2010) Jing Shang Chu Zi No. 1822 Civil Judgment:

1. [The court orders] Jiangsu Zhenjiang Installation Group Co., Ltd. to pay RMB 1,498,431.32, within ten days of the judgment’s coming into effect, to the Jiangsu Branch of Ping An Property & Casualty Insurance Company of China, Ltd.

2. [The court] rejects the litigation request of the Jiangsu Branch of Ping An Property & Casualty Insurance Company of China, Ltd. regarding the payment of RMB 47,900 in public assessment fees.

After the first-instance judgment was pronounced, Jiangsu Zhenjiang Installation Group Co., Ltd. appealed to the Intermediate People’s Court of Zhenjiang Municipality, Jiangsu Province. On April 12, 2011, the Intermediate People’s Court of Zhenjiang Municipality, Jiangsu Province, rendered the (2011) Zhen Shang Zhong Zi No. 0133 Civil Judgment:

1. [The court] revokes the (2010) Jing Shang Chu Zi No. 1822 Civil Judgment of the Jingkou District People’s Court of Zhenjiang Municipality.

2. [The court] rejects the litigation request of the Jiangsu Branch of Ping An Property & Casualty Insurance Company of China, Ltd. against Jiangsu Zhenjiang Installation Group Co., Ltd.

After the second-instance judgment was pronounced, the Jiangsu Branch of Ping An Property & Casualty Insurance Company of China, Ltd. applied to the High People’s Court of Jiangsu Province for retrial. On May 30, 2014, the High People’s Court of Jiangsu Province rendered the (2012) Su Shang Zai Ti Zi No. 0035 Civil Judgment:

1. [The court] revokes the (2011) Zhen Shang Zhong Zi No. 0133 Civil Judgment of the Intermediate People’s Court of Zhenjiang Municipality, Jiangsu Province.

2. [The court] upholds the (2010) Jing Shang Chu Zi No. 1822 Civil Judgment of the Jingkou District People’s Court of Zhenjiang Municipality.

Reasons for the Adjudication

In the effective judgment, the court opined:9 the focal points of this case were

1. Whether the scope of application of insurance subrogation rights is limited to the right to request compensation for an infringement of rights.

2. Whether Zhenjiang Installation Company could reject the insurer’s exercise of insurance subrogation rights against it on the grounds that Huadong Can Company and Huadong Can No. 2 Company had purchased related property loss insurance.

On the first focal point in dispute.

Article 60 Paragraph 1 of the Insurance Law of the People’s Republic of China (hereinafter referred to as the “Insurance Law”) provides:

Where an insured event is caused by a third party’s damage to an insured subject matter, the insurer shall, from the date of paying an indemnity to the insured and to the extent of the indemnity amount, exercise through subrogation the insured’s right to request compensation from the third party.

This Article uses the expression “an insured event … caused by a third party’s damage to an insured subject matter”, and does not limit the definition to “an insured event … caused by a third party’s infringement of rights of an insured subject matter”. There is no legal basis for understanding the scope of rights of insurance subrogation rights as limited to claims for damages [arising from] an infringement [of rights]. From the perspective of legislative intent, the insurance subrogation rights system is designed to prevent an insured [that has] property insurance from obtaining compensation from an insurer and a third party due to the occurrence of an insured event, obtaining improper benefits beyond the actual losses, and thus increasing moral hazard. “damage” in Article 60 Paragraph 1 of the Insurance Law is understood to mean “infringement damage only” and does not accord with the purpose of the establishment of the insurance subrogation rights system. Therefore, the insurer’s exercise of the right of subrogation should be the premise for the insured to have the right to claim damages from a third party. The claim for compensation may arise from a third party’s infringement vis-à-vis the insured subject matter or be based on a third party’s breach of contract, etc., [but] should not be limited to claims for infringement claims.

In this case, Ping An Property Insurance Company exercised its insurance subrogation rights on the basis of Zhenjiang Installation Company’s breach of contract instead of on the basis of an infringement of rights. The issue whether Zhenjiang Installation Company made a mistake during the occurrence of an insured event has no impact on the judgment of the case. Moreover, the Construction Contract for Construction Projects provides that “the Contractor shall not subcontract the project”. Therefore, Zhenjiang Installation Company’s defense that it is not at fault for the occurrence of an insured event and therefore that it should not bear liability cannot be 9 The Chinese text does not specify which court opined. Given the context, this should be the High People’s Court of Jiangsu Province.

established. The subject of Ping An Property Insurance Company’s claim of rights to Zhenjiang Installation Company is eligible and not improper.

On the second focal point in dispute.

Zhenjiang Installation Company proposes that Article 40 of the “General Terms” in the Construction Contract for Construction Projects that it signed with the Contract-Issuing Party provided that the equipment to be installed should be insured by the Contract-Issuing Party and that [the Contract-Issuing Party] should pay the insurance premiums. It can be seen from the agreement that the Contract-Issuing Party and Zhenjiang Installation Company agreed to cover the insurance for the relocation of the factory and the dismantling and installation of the equipment. Although the insurance costs should be borne by the Contract-Issuing Party, this provision appears in clauses of the contract of both parties, i.e., the cost is to be borne by both parties; or in other words, Zhenjiang Installation Company has already made concessions concerning insurance premiums in the general contracting costs. The Contractor should also be the insured with respect to the business insured by Ping An Property Insurance Company for the Contract-Issuing Party.

Regarding the above defenses of Zhenjiang Installation Company, Article 12 Paragraph 2 and Paragraph 6 of the Insurance Law provide, respectively:

An insured [that has] property insurance should have an insured interest in the insured subject matter when an insured event occurs; […]

Insured interest refers to a legally recognized benefit of the applicant or the insured with respect to the insured subject matter.

Accordingly, different subjects may have different insurance benefits for the same insured subject matter and different insurance contracts may be established with respect to the insurance for the insured subject matter and the [different] types of insurance corresponding to its insurance interests. [Different subjects] obtain insurance coverage within the scope of their respective insurance benefits, thereby realizing the purpose of using the insurance system to diversify the risks. Given that the Contract-Issuing Party and the Contractor have different insurance benefits for the insured subject matter, only property insurance categories corresponding to their insurance interests can be insured separately and corresponding insurance protection be obtained. The two cannot replace each other. As owners of the insured subject matter, Huadong Can Company and Huadong Can No. 2 Company were covered by all-risk installation insurance, which is based on the insurance interest of the insured subject matter and the types of insurance by which [the subject matter is] insured and is designed to disperse the risk of damage to the subject matter or the risk of loss. This is property damage insurance in nature. In additional insurance, the “inland transportation extension clause A” was also insured and [it was] provided that “the insurance company shall be responsible for compensating the insured’s property for losses caused by natural disasters or accidents [that occur] during inland transportation with the exception [of losses caused by] water and air transport from the place of supply in the People’s Republic of China to the site listed in the insurance policy”; and therefore, the additional insurance is also property damage insurance in nature. Zhenjiang Installation Company is not the owner of the insured subject matter and does not have an insurance interest [in the subject matter]. As the Contractor, it has a

liability insurance interest in the insured subject matter in this case. In order to transfer liability for compensating damages that may arise during the construction process to the insurer, it must cover the related liability insurance and cannot relieve itself of liability for compensating damages under the property loss insurance of the insureds.

Secondly, the Contract-Issuing Party did not recognize the insured status of the Contractor. The insureds recorded in the All Risks Insurance Policy for an Installation Project are Huadong Can Company and Huadong Can No. 2 Company, and it clearly stated that the Contractor Zhenjiang Installation Company was not an insured. Therefore, Zhenjiang Installation Company’s reply that “[t]he Contractor should also be the insured with respect to the business insured by Ping An Property Insurance Company for the Contract-Issuing Party” could not be established. The Construction Contract for Construction Projects clearly provided:

The Contract-Issuing Party shall cover insurance for the materials and equipment to be installed that are shipped to the construction site for the project and pay the premiums

and

Subcontracting the project cannot remove any responsibilities or obligations of the Contractor, [and if] any breach of contract or negligence of the subcontracting unit causes damage to the project or causes other losses to the Contract-Issuing Party, the Contractor bears joint and several liability [for such damage or losses].

From this, it can be seen that the Contract-Issuing Party never had the intention to remove the Contractor’s liability from within the scope of insurance compensation. The parties did not agree to remove the Contractor’s liability from within the scope of insurance compensation. Again, after the insured event [occurred], the insureds actively filed a claim with the Contractor and issued an instrument of equity transfer to Ping An Property Insurance Company. Based on the above situation, Zhenjiang Installation Company’s claim that, on the grounds that it also had an insurance interest in the insured subject matter and that the insured subject matter’s owners, Huadong Can Company and Huadong Can No. 2 Company, had already insured property loss insurance, it was relieved from liability to the two Can Companies for compensation damages arising from a breach of contract in accordance with the Construction Contract for Construction Projects and its rejection of Ping An Property Insurance Company’s exercise of subrogation rights lack legal basis and should not be upheld.

The above judgment was rendered in accordance with the reasons summarized here.

(Adjudication personnel of the effective judgment: LIU Zhen, CAO Xia, and MA Qian)