Trials of Disputes over Marine Insurance Contract (2013-2017)

Trials of Disputes over Marine Insurance Contract

(January 2013 to December 2017)

Ningbo Maritime Court

Preface

Insurance has played a vital role in social stability, risk diversification, capital accumulation and increase in national storage. As an important type of property insurance, marine insurance necessarily upholds the development of international trade and shipping industry, and also plays a unique role in diversification of marine risk, capital accumulation, prevention and mitigation of lost in disaster, and prevention and control of marine pollution. The sustained promotion of the belt and road initiative, Zhejiang Pilot Free Trade Zone and Ningbo National Insurance Innovative Comprehensive Model Zone, has brought a fresh chance of development for shipping insurance industry of Zhejiang. This maritime trials report summarizes and sorts out marine insurance cases that had been accepted and handled by Ningbo Maritime Court from January 2013 to December 2017. Thirteen comprehensive dispute prevention and control advises are given after the analysis on the causes and features of these cases, and aimed at providing a precise and strong judicial security for the development of marine shipping insurance industry via regulation on the operation acts of parties of marine insurance contract, strengthen of risk prevention and control, and enhancement of competitiveness in international shipping logistics.

Ⅰ Basic Information and characteristics about Cases of Disputes over Marine Insurance Contract

From Jan 1st, 2013 to Dec 31st, 2017, this court had accepted 752 cases of disputes over marine insurance contract, accounting for 4.03% of total accepted cases over the same period, and the total amount of subject matters is about 0.855 billion yuan. The number of the cases closed is 736, accounting for 3.95% of total accepted cases over the same period, and the total amount of subject matters is 0.623 billion yuan. The average handling period is 108.67 days per case. These cases present the following features:

ⅰ The Number of Accepted and Closed Cases Stabilized Over the Years Except a sudden rise of accepted cases in 2015 for a ship collision

Over five years, the number of accepted cases of dispute over marine insurance contract has been stabilized, but for 2015 it surged 163.55% compared with the same period of last year and dropped to the normal level in the following two years. The main reason for the surge of number of accepted cases in 2015 is a ship collision, which gave rise to 125 special procedural cases. In the collision between MV Zhoushan and MV Florida, the containers carried by these two ships had been damaged, for which the ship owner and cargo insurers of two ships applied for credit registration and bought credit confirmation suits in this court. (See Graph 1)

ⅱ The Types of Dispute is Relatively Concentrated in Dispute over Insurance Contract and Subrogation

In 752 cases accepted by this court which involved insurers, there are 334 cases of dispute over marine insurance contract, accounting for 44.41%, 291 cases of dispute over subrogation, accounting for 38.4%, 127 cases of special procedural (including 118 cases of credit registration and 9 pre-suit property preservation cases), and accounting for 17.19%. Cases of dispute over subrogation are relatively special, which contains 160 cases of basic cause of action (e.g. dispute over damage of ship contact, dispute over contract of carriage of goods by sea, etc.), and 131 credit confirmation cases. (See Graph 2)

ⅲ Difficulty in Mediation and Withdrawal but High Quality in Judgment

In 625 cases which exclude the special procedural ones, 292 cases are closed by mediation or withdrawal, accounting for 38.82% which is 2.71% lower than the average rate of mediation and withdrawal for cases in first instance over the same period. 266 cases are closed by judgment, accounting for 36.68% which is 6.31% higher than the average rate of judgment for cases in first instance over the same period. 87 cases are appealed after judgment, accounting for 32.71% of the total judgment cases. The above figures have showed the disputes in marine insurance contract cases, and the complexity in these cases has caused difficulty in mediation. In appeal, 28 cases are closed by mediation by the High People’s Court, 13 are withdrawn, 41 are affirmed, 3 are reversed and 2 are in process. The low rate of reversed cases, which is 3.45%, and none of retrial cases, has showed the high quality in trials of these cases.

ⅳ Insurers suffer low chance in winning the case and their claims are relatively concentrated

In 266 cases of dispute over marine insurance contract closed by judgment by this court over the five years, the number of cases which insurer’s suits are supported or partially supported by the court is only 89, accounting for 33.46%. The cases that insurers are claimants can roughly be divided into two categories, dispute over claiming for premium and subrogation. In 108 cases which the insurer claims for premium, despite the clear facts and small disputes, the insurer wins in 76 cases and lost or partially lost in more than 30 other cases. As for the cases of subrogation triggered by basic cause of action after the insurer paid the insured for the loss, the insurers only win in 6 cases. In those cases that the insurer is the defendant, which usually caused by his refusal to pay the indemnity, only 7 cases out of 44 cases which closed by judgment in first instance and without further appeal are supported by the court for the insurer’s refusal defense, showing a low rate of support for this defense.

In 736 cases of dispute over marine insurance closed by this court over recent five years, 224 cases are insurer claiming for premium, accounting for 30.43%, 267 cases are the insured claiming for indemnity, accounting for 36.28%, 102 cases are subrogation claims, accounting for 13.86%. These three types of claims are representative and typical, and closely linked to main obligations and rights of both insurer and insured, thus this report analysis these three typical cases in following passages.

II. Trials of cases of disputes on marine insurance premium

ⅰMain Causes of Disputes

Payment of premium is the main contractual obligation of the insured and closely related to the operation of the insurer. The main causes of disputes on premium are as follows:

1. Premium of marine insurance contract is prone to be effected by upstream industry. The shipping insurance industry is tightly related to the development trend of international trade and shipping industry. When the development of global shipping industry shows a downward trend, operation of ship owners falls into phased dilemma. The reflection of this risk in shipping industry is the relatively high chance of ship owners’ owing premium to the insurers.

2. The insurer and insured have divergence of interpretation of the effectiveness of insurance contract which they have particularly agreed between themselves. Those particular agreements which mainly include deeming the payment of premium as the effectiveness condition of insurance contract, and none payment of premium as the cause for an advanced termination of contract, would impact on the contract effectiveness and decide directly whether the insured should bear payment obligation of premium.

3. When the insured hadn’t been informed with the transfer of ship during insurance period by the ship owner, sequent collection of premium would be under dispute. For example, when a ship owner sells a ship to a foreign buyer, the rights and obligations under insurance contract cannot transfer with the ship at the same time, disputes would arise from ship owner’s owing premium before transfer. If the ship owner can’t afford compensation which caused by a major marine accident, and the ship is sold by the court through judicial auction, the insurer has to participate in the distribution of auction proceeds by maritime litigation.

ⅱ Matters of disputes

Whether or not the parties are proper, the insurer is right to claim premium and the amount claimed is reasonable have been the matters of disputes in cases of dispute over marine insurance contract which the insurer claims for premium.(See table 1)

Table 1: matters of disputes in cases of disputes on premium of marine insurance contract

Matters of disputes	Defendant’s defences
The party is qualified or not	The defendant is financial lessee of the ship and not the parties to the insurance contract.
The insured shall pay premium or not	There is no seal of the insured in the insurance policy, thus the insurance contract hasn’t been established.
	It is agreed that the contract will become effective upon the insured’s payment of premium. The defendant may not pay the premium, thus the contract is not in force.
	It is agreed that if the insured doesn’t pay premium in time, the insurance period shall be shortened and the contract terminate in advance.
The amount claimed is reasonable or not	The ship was transferred before the end of insurance period and the premium shall be calculated by the date of cancellation of registration of the ownership.
The amount claimed is reasonable or not	The amount claimed by the claimant isn’t well grounded for the interest rate is too high.

ⅲ Relevant Suggestions

Although the insurers enjoy a high chance of win in cases of disputes over insurance premiums, some of their suits weren’t supported by the court. Suggestions are given as follows according to problems arising from these kinds of cases.

First, make sure that the seal or signature of the insured is clear in the insurance policy. According to the Maritime Code, the insurer shall issue insurance policy or other insurance documents in time, which play a key function of evidence in determining whether the contract is established. An established contract is the premise of payment of premium by the insured. Therefore, insurance companies shall perform well in making and keeping policies, and guide salesmen to set up consciousness of standard operation. For example, in PICC Shipping Insurance Operation Center v. Zhejiang Zhoushan Xinhongzhou Ocean Engineering Ltd of dispute over marine insurance contract, the insurer keeps the insurance policy, but it was issued solely by the insurer. The insured has never signed in the policy and denied the conclusion of insurance contract with the insurer. The insurer can’t provide other evidences to prove that the insured has signed the policy, thus the court holds there is no insurance contract between the two parties.

Second, prudently evaluate special articles which may impact on the effectiveness of contract or exempt from contractual obligations. The insurer intents to mitigate or exempt his indemnification duty, but ignores the impact of special articles on the insured’s payment of premium. For example, in CPIC Ningbo Branch v. Ningbo Pacific Shipping Ltd of dispute over marine insurance contract, it was agreed between the parties that the insurance contract shall only come into force after the insured’s payment of premium. However, the court holds that the contract isn’t effective and the insurer isn’t entitled to claim premium because the insured hadn’t paid it. Furthermore, in China Life Property and Casualty Insurance Company Limited Zhoushan Central Branch v. Zhejiang Peninsular Ship Ltd of dispute over marine insurance contract, the parties agreed in the ship building insurance contract that if the insured didn’t not pay premium and still didn’t pay it after notice, the insurance contract shall terminate in advance according to the contract. Therefore, the court holds the insured doesn’t need to pay the premium after termination of insurance contract. Moreover, in China Taiping Insurance Group Ltd Ningbo Branch v. Zhejiang Yonghe Transportation Ltd of dispute over marine insurance contract, the parties agreed that the insurer shall not bear indemnity for insurance accidents occurs before full payment of premium. The court holds that it is against the principle of equity and good faith if the insurer claims premium for uninsured responsibilities, thus the insurer’s claim can’t be supported.

Third, strengthen notice and dynamic monitoring of premium payment of the insured ship. It is common that parties of marine insurance contract agreed installment of premium. The insurer is suggested to bring a suit in time or modify relevant insurance articles if the ship owner transferred the ship during insurance period or couldn’t afford the premium because of the arrest and judicial sale of the ship by maritime court. For example, in Ping An Insurance Company Ningbo Branch v. Zhejiang Honglin Ship Engineering Ltd, the insured hadn’t inform the insurer of the transfer of ship during insurance period, the court holds that the premium shall be calculated by the date of cancellation of registration of the ownership, and the insured shall not bear breach responsibility to the insurer for the none performance of inform obligation.

Ⅲ. Adjudication on disputes over insurance settlements

ⅰ Main causes of disputes

Payment of the insurance settlements as agreed is the main obligation for the insurer under an insurance contract, as well as the fundamental purpose for the insured to enter into such a contract, out of which many disputes arise. The main reasons are as follows:

1. The diversity and complexity of marine perils escalate the frequency of such disputes. Comparing to insurance contracts of other fields, marine perils are diverse, thus involve various categories of insurance, such as risk of grounding/stranding, allision, collision, fire, shortage, breakage, sweat, alftoxin, odor, contamination, rust, war, strike, and so on. With the intervention of the above mentioned factors of uncertainty, disputes between the insurers and the insured arise with respect to occurrence of insurance events，ascertaining of causation, whether the perils are covered, etc.

2. Controversy usually arises as to the construction of the clauses and wording of marine insurance contracts. As the provider of standard marine insurance contracts and with the advantage of expertise, the insurer often has disagreements with the insured on the interpretation of clauses like exclusion and special agreement. Such disagreements would directly decide the bearing of insurance liability and give rise to disputes.

3. There is divergence in preserving of proof of insurance events between the insurer and the insured. After the insurance events occurred, since the time and depth of involvement in the investigation by both parties, as well as the resources they rely on are usually different, they may come to different conclusion. In some cases, the parties are negligent in inspection of subjects insured and ascertaining of loss, which would also give rise to disputes.

ⅱ Focuses of disputes

The liability of insurance payment is the paramount obligation of the insurer under a marine insurance contract, and the insurer usually declines partial or all of the payment on the grounds of subject qualification, conditions of settlement and rationality of loss claimed(see table 2). Focuses of disputes in such cases are as follows:

Table 2: List of focuses of disputes as to insurance payment

Focuses of disputes	Defence
Whether the subjects to the disputes are qualified	The claimant is in absence of insurance interest
Whether the subjects to the disputes are qualified	The insurance contract has been terminated since the insured failed in payment of insurance premium due when the incident occurs
Whether the conditions of settlement are qualified	Perils covered have not happened
	Lack of causation between incidents happened and loss
	The loss does not fall within the cover of insurance or applies to exclusion
	The insured is in breach of the marine insurance contract
Whether the losses claimed by the plaintiff are rational	The plaintiff fails to prove the rationality of loss
	Legal costs、travelling expenses do not fall within the coverage of insurance
	Payment of lower value applies in the absence of agreement of insurance value
	Disapproval of cargo value, wreck removal costs, cargo residue or their calculation

(Ⅲ) Relevant suggestions

In terms of the disputes arise from divergence of both parties in the following aspects such as evidence adoption, construction and interpretation of contract, facts determination and application of law, we suggest as follows:

Firstly, the insurers should explain and interpret the clauses to the insured when entering into contract. Judicial practice has made it clear as to the controversy of interpretation of clauses, which is that the insurers shall make reminders on the insurance application, insurance policy or other insurance certificate to the extent of attracting the insured’s attention when concluding the contract, and give specific and clear explanations to the insured orally or in writing, otherwise such clauses shall not be enforceable. For instance, in the case of Lijun V. PICC Property and Casualty Company Limited Zhoushan Branch, PICC Property and Casualty Company Limited Shengsi Branch, a case of dispute over marine insurance contract, where the insurer subscribed the insurance application in the name of the applicant, the court ruled that the insurer was in breach of the obligation of making specific and clear explanations, and the clauses related were thus invalid. In addition, the insurers shall not be deemed to have fulfilled the obligation of explanation merely by letting the applicant subscribe the insurance application, they should also make the insured explicitly aware of the content of the insurance, especially for the clauses of exclusion and coverage, fixing which in ‘visible’ ways like video, and making which acknowledged by the judges or arbitrators. Otherwise, the insurer’s defense of explanation are hard to be adopted.

Secondly, the insured shall perform the obligation of disclosure in good faith when concluding the contract. The insured are obligated to make a full and accurate disclosure when contracting, infringement of which shall entitle the insurer to terminate the contract. Where the insured intentionally conceals facts, or does not perform his/her obligation of making a full and accurate disclosure, or negligently fails to perform such obligation to the extent that it would materially affect the insurer's decision whether or not to underwrite the insurance, the insurer shall bear no obligation for making any indemnity or payment of the insurance benefits for the occurrence of the insured event which occurred prior to the termination of the contract. However, for the stuff which the insurers have or should have already known in their usual business, where the insurer has not inquired, the insured is in no need of disclosure. It is a mechanism of protecting the insurers, as well as preventing them from using the insured’s obligation of disclosure as “technical defense ” to avoid the obligation of insurance payment. In the case of Wenzhoushi Chifeng Metal Materials Company Ltd. V. PICC Property and Casualty Company Limited Shanghai Branch, a case of dispute over marine insurance contract, although the ship was over loaded, the insurer had already known about the name of ship , the amount and packages of her loading, thus the court ruled that the insured was not in breach of the obligation of disclosure.

Moreover, instances where the insurers are not careful enough or the insured underestimate the risk of the subject insured occur often. For instance, in the case of Ningbo Star of Sea Overseas Fishing Company Ltd., China Fishing Products Zhoushan Ocean Fishing Company Ltd. V. Yong’an Property Insurance Company Ltd., Yong’an Property Insurance Company Ltd. Ningbo Branch, a case of dispute over marine insurance contract, the insurer argued that the ship owner concealed the age of the ship and constituted infringement of disclosure, the court ruled that age of ship belonged to the stuffs that should be known by the insurer and the defense posed by the insurer shall not be upheld. In order to lower the chance of being rejected of insurance payment, the insured are suggested before contracting to perform his/her obligation of disclosure by the criteria of whether the insurer would accept to underwrite insurance or adjust the premium.

Thirdly, prior to entering into a contract, parties involved should attach importance to identification of the other party to the contract. It is of crucial importance to identify parties to a marine insurance contract; however, it is quite difficult in making it in the following circumstances: separation of ownership and management, fake registration and ownership by shares, fake records of cargo owners in trading documents, complex relationship between insurance agents/brokers and the insurers, and where the insurance policy is issued by a insurance company while the business was managed as well as the premium was collected by its branch. Hence, it is suggested the insurer and the insured clearly agree and write down “parties to the contract” in the insurance contract to make parties to the contract easily identified by a third party, which matters not only for smooth undergoing of subsequent insurance payment, but also for concentrated determination of focus of disputes, precise holding of “attack and defense” against the other party and promoting of efficiency in litigation when the obstacles for payment appear.

Fourthly, both parties to the marine insurance contract should actively participate in adjusting, ascertaining and making payment of loss covered. The insured shall notify the insurer in a timely manner of the occurrence of any insured event, take reasonable measures to mitigate loss. The insured should bear the burden of proof for loss, and the insurer is responsible for the proof of exclusion; the apportion of burden of proof has been clarified in judicial practice of trial over marine insurance contracts, and should be the starting as well as settling point for both parties when collecting evidences. Both parties should attach importance to collect case-deciding evidences, such as survey report on water traffic accidents, navigation log, meteorological reports, and adjusting reports, evidences of such species are crucial for deciding of nature of incidents, amount of payment and causation. In avoidance of the insured mediate with the third party unilaterally or increase of burden of indemnity borne by the insurer, where claims of liability insurance are involved, it is suggested that the insurer participate in the process of defense against the third party, and the insured be cautious to the claim of the third party prior to the insurer’s consent.

ⅣJudgements of insurers in subrogation dispute cases

ⅰMain causes of disputes

By analyzing the cases of insurer's subrogation disputes accepted by our court in the past 5 years, the main causes of such cases are as follows:

1.The insufficiency of the insurer's evidence of damage.The insurer would get subrogation right after compensation according to law, because the responsible party of the basic legal relationship has not participated in the insurance indemnity settlement, the responsible party often disagrees the amount of insurance indemnity. As the insurer didn’t collect and preserve relevant evidence in time, and the basis of the claim amount is insufficient, it’s quite hard for insurers to realize subrogation right.

2.Lack of professional knowledge of maritime law. The responsible party in maritime disputes may have statutory exemption such as limitation of liability for maritime claims and carrier's exemption. The claims of the insurers may easily be often refused because lacking of professional knowledge of maritime law, and the substantive or procedural negligence will affect the result of the claim.

3.The impact of special procedures such as the establishment of limitation fund for maritime claims liability. The goods is vulnerable to damage when collision occurs because marine transportation is risky. The insurer obtains the right of subrogation in accordance with the goods insurance covered by the insured, but the insurer can only apply to the maritime court for registration of creditor's rights according to procedures for constituting a limitation fund for maritime claims liability, and then bring an action for affirming rights and participate in distribution.

ⅱ Focus of controversy

The basic legal relations involved in maritime insurance subrogation disputes are complex, involving many causes of maritime disputes. Among them, the disputes in the contract of carriage of goods by sea and the disputes in collision liability for damage account for the largest proportion and the focus of controversy are as follows:

Table 3: focuses of controversy on insurance subrogation disputes based on carriage of goods by sea

focuses of controversy	defense reasons from defendant
Litigants is qualified or not	The insurer doesn’t obtained evidences such as letter of subrogation, bill of lading, etc.
	The insurer has no right to claim to the defendant because the party receiving the compensation isn’t a party of contract of carriage.
	The defendant is not the carrier and there is no contract for carriage of goods by sea between parties.
The defendant should be liable for damages or not	The insurer is unable to prove that the damage of goods occurred during the carrier's liability.
	The carrier may quote exemption clauses according to law, such as defect in the quality of the goods or latent defects of a ship, and the exemption of the crew from fault, etc.
	Shippers are responsible for the extended losses if he fails to fulfill its obligation to reduce the damage.
The amount of damage claimed by the plaintiff is true or not	The insurer's claim for damage is insufficient.

Table4: focuses of controversy on insurance subrogation disputes based on collision liability for damage

focuses of controversy	defense reasons from defendant
Litigants is qualified or not	The insured has only partial shares, and the plaintiff is defective.
Litigants is qualified or not	If the insured have no ownership of damaged property, the plaintiff is not qualified.
The defendant should be liable for damages or not	Defendant has the right of limitation of liability for maritime claims
The defendant should be liable for damages or not	The plaintiff should be partly liable for the accident.
The amount of damage claimed by the plaintiff is true or not	The amount of loss is unreasonable.
others	The insurer has lost his right because he failed to apply for registration of creditor's rights during the schedule time according to the law.

ⅲ Suggestions

Since the counterparty in the case of subrogation dispute in marine insurance is not the counterparty of the insurance contract, we suggest to the insurer as follows:

First, the insurer should collect relevant materials and evidence from the insured in time, such as payment vouchers, letter of subrogation, bill of lading and so on. If an insurer brings an insurance subrogation action, he shall submit to the court documents such as the certificate of payment of insurance compensation and the letter of subrogation according to the law, or the subrogation claim will be dismissed. For example, the case of the People's Property Insurance Co., Ltd. Hefei Branch v. CMA CGM shows that, if the insurer fails to provide evidence of letter of subrogation, his claim for compensation would dismissed by the court.

Second, the insurer should be as comprehensive and objective as possible when determining the damage. The insurer should collect the evidence of loss at the first time after the accident and reflect the state of the damaged goods after the accident. We suggest that on-the-spot inspection be carried out jointly with the person responsible for the claim, to improve the acceptance rate of evidence and the inspection report related to the loss. For example, the case of the People's Property Insurance Co., Ltd. Daishan Branch v. Zhang Minger shows that, the insurer claims that the goods should be compensated as the constructive total loss, but only provided relevant photographs and the owner's statements alone, the court of first instance and appeal both considered that the insurer should bear the burden of proof when lacking of the evidence. And the case of the Chinese People's Property Insurance Company Limited Taizhou Branch v. Mariana Express Lines Pte Ltd shows that, the consignee unilaterally entrusted the inspection institution to inspect after he discovered the damage, and there are other defects in the inspection report, so the court finally dimissed the insurer's claim.

Third, the insurer shall urge the insured or the interested parties to apply for registration of creditor's rights in time. The carrier shall be entitled to have limitation of liability for maritime claims in accordance with the law while loss of goods arising from the operation of the ship. Once the carrier establishes a limitation fund for maritime claims, the creditor shall apply for registration of maritime claims within 60 days from the date of the announcement, and the overdue date shall be regarded as a relinquishment of their rights. For example, in the case of the People's Property Insurance Co., Ltd. Xiangtan Yuetang Branch v. Malei etc. , the court held that the announcement made by the maritime court after accepting the application for a limitation fund for maritime claims was targeting all creditors, and of course presumed to be known by the relevant parties. As a rational creditor, the insurer should urge the creditor to pay active attention to the announcement issued by the court after the accident, sign the relevant legal documents of the court in time, and apply for registration of creditor's rights related to the maritime accident during the announcement period.

Forth, insurers should focus on business training and research. While improving the legal literacy of business personnel, you should timely sort out and revise the existing format of insurance contracts, draw nutrients from typical cases, and create a trustworthy business atmosphere of maritime insurance. As the low winning rate of the case of subrogation of insurers, the basic theory of law, the relevant provisions of insurance law and maritime law, abbreviation of adjudication of maritime courts and the latest developments in maritime judicial practice should be the necessary courses for the relevant training in the maritime insurance industry. You should strengthen the study of maritime judgments, regard judgments as mirrors, perfect the flawed contract terms and practices, integrate the value orientation pursued by law and judgment with the commercial philosophy of insurance, treat the low rate of winning cases in a dialectical perspective, and strive to create a long-term "commercial spring" for the maritime insurance industry.

Ⅴ Conclusion

With the advancement of the marine economic powerful nation strategy and the national strategy is gradually landing in Zhejiang, Ningbo has established the only professional shipping insurance legal entity in China. The maritime insurance industry will enter a new era of development and show more new features. In addition to the traditional typical marine insurance disputes, new maritime insurance disputes, Foreign-related maritime insurance disputes involving Hong Kong, Macao and Taiwan, Internet-related maritime insurance disputes will continue to increase in the future. Our court will take fair protection of the rights and interests of the participants in the domestic and foreign marine and shipping insurance market, give full support to the innovation of marine insurance industry, and enhance international competitiveness as the goal, pay attention to the development frontier of marine insurance actively, constantly sum up maritime trial experience, lifting maritime judicial capacity. We will provide powerful and precise judicial service for the healthy and orderly development of maritime insurance industry of our province.