With foreign investors testing ingenious ways in which to circumvent the regulatory burdens and scrutiny associated with a foreign owned Chinese insurance company, an interesting question has come to light; is it possible for an insurance policy between a domestic insurer and a Chinese manufacture to have a foreign element. The foundation of this question is rooted in the uncertainty surrounding the enforcement and validity of an arbitration clause designating a foreign jurisdiction for a case which is purely domestic (China).

Article 304 of the Opinions of the Supreme People’s Court on Some Issues Concerning the Application of the Civil Procedure Law of the People’s Republic of China (Opinions of the Supreme Court on the Application of the Civil Procedure Law) states:

Civil cases in which one party or both parties are foreigners, stateless persons, foreign enterprises or organizations or the legal facts for establishment, alteration or termination of a civil legal relationship between the parties concerned take place at abroad, or the subject matter of an action is located at abroad shall be the civil cases involving foreign elements.

As it appears both parties of the insurance contract are domestic and the contract was negotiated and signed in China, the first impression leads to the conclusion that this is a purely domestic contract. Further, if there is no issue as to insured property outside of China, the purely domestic nature is further enforced. From this view, alternative dispute resolution could not take place outside of China.

An alternative is to suggest that if a domestic manufacturer’s insured products are sold outside of China, potentially leading to insurance claims in foreign jurisdictions, Chinese law should treat any dispute related to such as activity as involving a foreign element; regardless of the insurance contract involving only domestic parties.

Based on the current state of the law, the prevailing view among the courts and legal community is this type of activity involves a foreign element. Thus the possibility of utilizing a non-Chinese forum for dispute resolution remains a real possibility.