This article is written by  Kate Chan, the Senior Foreign Counsel of Grandall Legal Group with Contribution from Dr. Zhan Hao.

This article summarises the time limits that are relevant to the exercise of rights and defences by property insurers in claim-related disputes and in the claim process generally. 

Termination by the insurer for non-disclosure

Article 16[1] of the Insurance Law[2] provides a right to the insurer to terminate an insurance contract for non-disclosure of material facts. The time limit for the exercise of the right by the insurer is 30 days, beginning from the day the insurer has knowledge of the cause giving rise to its right to terminate i.e. the breach of duty to disclose by the applicant for insurance. A contract of insurance cannot be terminated for non-disclosure 2 years after it had been entered into, this is so even in the case where the insurer had only discovered the breach by the applicant less than 30 days prior to the expiration of the 2 year period. Article 13 of the Insurance Law provides that an insurance contract comes into existence when an insurer agrees to underwrite the risk.

The time period prescribed by Article 16 is known as a period of exclusion of right (除斥期), usually such period cannot be extended for any reasons and once it begins to run there is no suspension of the period.

The 30 days and 2 years time limits specified in Article 16 is also applicable to an insurer with a right to terminate a life insurance policy under Article 32 where the applicant had falsely declared the age of the insured.

Limitation of action period of the insured’s or beneficiary’s right to claim payment of indemnity and insurance money

Besides a plead for non-disclosure and that the claim is not within coverage of the insurance contract, the defence that a claim for payment under a policy is time barred is also available to an insurer under the PRC laws.

Article 26 of the Insurance Law provides that for non-life insurance, an insured’s or beneficiary’s right to demand the insurer to pay indemnity or insurance money has a limitation of action period of 2 years, the period begins to run from the day the insured or beneficiary knows or should have known of the insured event. For life insurance, the relevant limitation of action period is 5 years.

The time limit specified in Article 26 is expressly defined as the “limitation of action period”, this period is distinguishable from the time period in Article 16, it may be suspended, discontinued and extended. This description was inserted in the present amendment of the Insurance Law to clarify the confusion over the nature of this time limit in the old law.

A general limitation of action period for civil claims is 2 years[3] as specified in the General Principles of Civil Law (“the Civil Law”). The period begins from the day a claimant knows or should have known that his rights had been violated. This period may be

– suspended (中止)[4], during the last 6 months of the limitation of action period, if a claimant cannot exercise his right due to force majeure (不可抗力) or other obstacles (其他障碍), the limitation of action period shall be suspended. The running of the period resumes when the reason for suspension has disappeared;

– discontinued (中断)[5], the period may be “discontinued” and re-run for a period of a 2 years if (a) a claimant issues proceedings in the court, (b) a claimant requests the potential defendant to perform his obligation; or (c) the party with the obligation to perform agrees to perform his obligation; and

– extended (延长)[6], the court is empowered to extend a period of limitation of action in special circumstances.

The maximum time limit to bring proceedings in a PRC court is 20 years from the date of the infringing act and this maximum period of limitation of action is not subject to the rules for suspension and discontinuance but may be extended by the court.

Time limit for termination after transfer of ownership of the insured property “subject to the insurance contract”

Article 49 of the Insurance Law deals with the transfer of ownership of the insured property. The insured or the transferee of the insured property should notify the transfer of the insured property to the insurer in a timely manner (及时). If the transfer leads to a significant increase of risk, the insurer has the right to increase the premium or terminate the policy in accordance with the policy within 30 days after receipt of the notice of transfer. If the insured or transferee failed to report any transfer to the insurer and an insured event occurred due to the increased risk as a result of the transfer, the insurer shall be not obliged to provide indemnity. Where an insurance contract does not provide for increase of premium or termination upon transfer of the insured property, there are support for the view that if this is the case, the insurer has no right to terminate the contract nor demand additional premium under Article 49[7].

Termination of insurance contract for partial destruction of the insured property

Article 58 provides a right to terminate the policy for partial loss of the insured property. Within 30 days after the insurer had provided indemnity for partial loss of the insured property, the applicant may terminate the policy and unless otherwise agreed in the insurance contract, the insurer may terminate the contract but should give 15 days’ notice to the applicant when exercising its right to terminate.

Other rights of the insurer to terminate an insurance contract that do not have a time limit

In a situation where an insured or beneficiary had lied about the happening of an insured event or intentionally caused the occurrence of an insured event, the insurer under Article 27[8] has the right to terminate the insurance contract and shall not be obliged to provide indemnity for the insured event.

Article 51 provides the insurer a right to demand increase of premium or termination of contract for the applicant’s and insured’s failure to ensure safety of the insured property in accordance with the contract. Disputes regarding this article frequently arise between the insured and the insurer in practice.

Article 52 provides that where there is a significant increase of risk to the insured property during the period of insurance, the insured has a duty to advise the insurer of the increase of risk in accordance with the contract in a timely manner, the insurer may in accordance with the contract increase the premium or terminate the contract.

Time limits for responding to a claim imposed by the Insurance Law

If the readers thought the above time limits are rather short, you may also like to know about the time limits for response and payment in the claim process “recommended”in the Insurance Law:

These time limits are “recommendations” rather than compulsory requirements, insurers could extend these time limits as long as they deem necessary by expressly providing for these time limits in the policy. However, insurers may face challenges from the court who may rule against such extension of time for obvious unfairness to the insured.

[1]Article 16 is within Section I “General Rules” of Chapter 2 “Insurance Contract” of the Insurance Law and is applicable to both life and property insurance contracts.

[2]In force from 1 October 2009

[3] Article 135 of the General Principles of Civil Law. Article 136 of the Civil Law provides a shorter limitation of action period of one year for 4 specific types of claims namely, personal injuries, sales of substandard goods without warning, payment of rent and loss or destruction of property in care of another.

[4] Article 139 of the General Principles of Civil Law

[5] Article 140 of the General Principles of Civil Law

[6]Article 137 of the General Principles of Civil Law

[7] Dr Zhan Hao “The New Insurance Law Interpretation on Practice Highlights and Case Analysis”, Law Press (2010) at page 324

[8] Article 27 is applicable to both life and property insurance contracts.