Background Facts: On September 15, 2012 and September 22, 2013, Huawei Shipping Company Limited (hereinafter referred to as Huawei Company) was entrusted by Dalian Jinyang Shipping Company Limited (hereinafter referred to as Jinyang Company), for the ship “SaeByol” which Huawei Company rented from Jinyang Company, to insure all risks of the ship from 2012 to 2013 and from 2013 to 2014 with Ping An Property Insurance Co. Ltd. Tianjin Branch (hereinafter referred to as TJ Company). Both applications indicated that the premium was paid in three installments, and TJ Company issued an insurance policy with installment payment. On December 27, 2012, and May 28, 2013, HUAWEI Company paid the ship’s insurance premium for the first two periods of 2012-2013. In December 2013,TJ Company urged Huawei Company to pay the third installment insurance premium of 2012-2013 and the first installment insurance premium of 2013-2014. On December 29, 2013, “SaeByol” ran aground and sank in the sea area near Dalian. After the accident took place, Huawei Company and Jinyang Company claimed compensation from TJ Company. TJ Company refused to pay compensation for the following reasons: the insured failed to pay the premium on time; the marine department’s report determined that the insured failed to equip the ship with sufficient qualified crew members; the insured failed to provide enough paper chart data according to the ship operating route, which constituted the unseaworthiness of the ship.Jinyang Company then filed a lawsuit and requested TJ Company to pay USD 960,000 (RMB5,858,304) and the corresponding interest.
Summary of Judgment: The Court held that the insured ought to pay insurance premium immediately after the conclusion of the contract according to the law. Before the insured paid the insurance premium, the insurer could refuse to sign and issue the insurance policy. After the insurance liability began, neither the insured nor the insurer could terminate the contract. Although the insured did not pay the insurance premium, TJ Company had signed and issued the insurance policy, and therefore the insurance liability had begun. The insurer should still perform the obligation of paying indemnity or insurance benefits in a timely manner for accidents that took place within the insurance period. The stipulation in the “Payment Arrangement” of the insurance policy that the insurance liability should be borne according to the premium collection proportion was inconsistent with the stipulation in the insurance clauses on the reverse side of the insurance policy of the ship, which was “if the insurer agrees, the premium may also be paid in installments. However, in the event of total loss of the insured ship within the period covered by the insurance, the outstanding premium shall be paid promptly.” Furthermore, after the conclusion of the insurance contract, the insurer had the right to claim from the insured the due premium. Whenever the insured paid the premium, his obligation to pay the premium was fixed and unchanged. Corresponding to the obligation of payment, the right to claim insurance coverage was also fixed. The “Payment Arrangement” was an agreement under which the insurer enjoyed the right to charge insurance premiums but undertook no or less obligation of insurance compensation. The clause violated the principle of fairness and was also a standard term which failed to follow the principle of fairness to determine the rights and obligations of the insurer and the insured, which should be null and void. The seaworthiness of a ship should be the state before and at the time of sailing. A ship should be deemed seaworthy when it was manned with sufficient crew members and navigational data related to the voyage plan. Neither the captain’s arrangement of the crew members’ work nor the use of charts should be considered as the basis of determining whether the ship was seaworthy. The maritime department’s analysis of the cause of the accident was made from the perspective of the safe production in ship operation, which cannot be totally equated to the liability determination in civil litigation. To sum up, Jinyang Company, as the applicant andthe principal of the insured, should have the right to claim indemnity against TJ Company for the insured event. After the insured accident, the ship was seriously damaged and completely lost its original shape and effectiveness. The actual total loss occurred. The Court sentenced TJ Company to pay USD 960 thousand (at the exchange rate as of December 30, 2013) and the corresponding interest to Jinyang Company. After the judgment by the Court of the first instance was pronounced, TJ Company appealed. Under the auspices of Liaoning High People’s Court, the two parties reached a mediation agreement. TJ Company paid RMB5,858,304of insurance compensation to Jinyang Company, which was converted from USD960 thousand.
Typical Significance: The case puts forward a clear legal view on the issue of whether an insurance company can refuse to pay insurance compensation because the insured fails to pay the insurance premium in full after the issuing of the insurance policy, which has strong guiding significance to insurance practice. First, the law entitles the insurer to refuse to issue an insurance policy before receiving the premium. Once the policy is issued, the liability begins.The rights and obligations of the insured and the insurer should be equal. In the installment plan, the underwriter has the right to collect the insurance premium but does not bear any obligation to pay the insurance compensation, which is contrary to the principle of fairness. In addition, the investigation report made by the maritime department does not necessarily have the certifying effect. The court should still analyze and determine the rights and obligations of the parties based on the facts determined by investigation.
