Dispute over Contract for Ship Repair Between Dalian Lvshun
Binhai Shipping Building and Repairing Co., Ltd. and PICC
Property and Casualty Company Limited Dalian Branch
Business Office, PICC Property and Casualty Company Limited
Dalian Branch
Case Summary
Ⅰ. Case Information
A. Basic Information
Cause of Action: Ship repair liability insurance dispute
Case Number: First instance：No. 629 [2016], First, Civil Division, 72, Liaoning; Second instance: No. 400 [2018], Final, Civil Division, Liaoning
Plaintiff: Dalian Lvshun Binhai Shipping Building and Repairing Co., Ltd.
Defendants: PICC Property and Casualty Company Limited Dalian Branch Business Office; PICCProperty and Casualty Company Limited Dalian Branch
Judgment Time: First instance: December 26, 2017; Second instance: June 28, 2018
B. Facts
Dalian Lvshun Binhai Shipping Building and Repairing Co., Ltd. (hereinafter referred to as“Binhai Company”) signed a Liability Insurance Agreement for ship repair (hereinafter referred toas “Agreement”) with PICC Property and Casualty Company Limited Dalian Branch BusinessOffice (hereinafter referred to as “Dalian PICC Business Office”), stipulating that Dalian PICC
Business Office shall underwrite the liability insurance for ship repair of Binhai Company. OnDecember 25, 2010, Binhai Company undertook the routine maintenance and overhaul project of“JIE SHENG 6” of Zhejiang Jiesheng Channel Project Ltd. (hereinafter referred to as “Jiesheng
Company”), and an accident occurred before the final inspection and acceptance, resulting in thedamage to “JIE SHENG 6”. The claim center of PICC Property and Casualty Company LimitedDalian Branch (hereinafter referred to as “Dalian PICC Company”) sent a notice of insurance refusal to Binhai Company, refusing to pay compensation on the grounds that the accident did not warrant insurance liability.
Ⅱ. Disputed Issues
The case is about whether the damage to the main engine machine itself, caused by the “JIESHENG 6” engine damage accident, falls within the insurance scope agreed upon in Article 3(1) of the Agreement.
Ⅲ. Court’s Opinion
Article 3(1) of the Agreement stipulates the following: “According to the ship repair contract,relevant agreements, and legal provisions, the insured shall be responsible for direct losses causedby accidental fire or damage to the ship due to negligence of ship repair workers or technicians;however, the insured is not responsible for the damage to the machine itself.” Binhai Companyclaims that this clause is a Standard Term, so it should therefore be interpreted in favor of the insured.Dalian PICC Business Office and Dalian PICC Company claim that Article 3(1) of the Agreementis not a Standard Term. However, the above-mentioned Agreement for ship repair was drawn up in advance and intended for repeated use by the PICC Company. Dalian PICC Business Office and Dalian PICC Company claimed that they had consulted with Binhai Company when they entered into the Agreement, but they were unable to provide evidence to prove this. The Agreement belongs to Standard Contract, and the first item regarding the scope of insurance in Article 3 of this Agreement belongs to Standard Term.
Article 30 of the Insurance Law of the People’s Republic of China stipulates that, where thereis any dispute between the insurer and the insured over any clause of an insurance contractconcluded using the Standard Terms of the insurer, the clause shall be interpreted as it is commonly understood. If there are two or more different interpretations of the clause, the people’s court shall interpret the clause in favor of the insured and beneficiary. “But it is not responsible for the damage to the machine itself,” since what is stipulated in the Agreement can be interpreted in two ways: (1) the repair of the damage caused by the machine shall not be compensated; (2) the original damage to the repaired ship machine existed before repair and the damage caused by the inherent material defect of the machine alone or in combination with other factors shall not be compensated. The parties have two different interpretations of the proviso, both of which are reasonable. Article 3(1) of this Agreement is a Standard Term because the Agreement is a Standard Contract provided by Dalian PICC Business Office, which shall be interpreted in favor of the insured, Binhai Company. That is, the clause that states “But it is not responsible for the damage of the machine itself” shall be applied to the second explanation. The machine damage accident in this case resulted from an operational error by the repair staff of Binhai Company, which resulted in the damage to the main engine machine, and that falls within the insurance scope agreed upon in Article 3(1) of the Agreement. The clause “But it is not responsible for the damage to the machine itself,” which was proposed by Binhai Company, belongs to the exemption clause, and Dalian PICC Business Office has not fulfilled its obligation to present and clearly explain the exemption clause, which leads to invalidation of the clause. In the liability insurance for ship repair, the insurer may underwrite all of the insured’s liability for ship repair, or they can underwrite just part of the liability for ship repair. The scope of liability insurance for ship repair shall be stipulated in the agreement between the insurer and the insured. In this case, the first item of Article 3 of the ship repair liability insurance agreement is about the agreement on the scope of insurance compensation liability. The clause “But it is not responsible for the damage of the machine itself” is the condition for defining the scope of insurance liability, and it does not belong to the exemption clause.
Ⅳ. Summary
With the steady development of China’s marine economy, the number of ships is increasing.When a ship repair accident happens, ship repair liability insurance is widely used as an effectivemeasure for ship repair enterprises to avoid accident risk. In the event of an insurance accident, theinsurer and the insured often have different understandings of the insurance clauses, which usuallyinvolve the confirmation of Standard Terms and exemption clauses.
The focus of the dispute in this case is whether the damage to the main engine, caused by the“JIE SHENG 6” engine damage accident, is within the scope of the insurance liability agreed uponin Article 3(1) of the Agreement. The focus of the dispute involves three issues: 1. Whether theagreed scope of insurance liability as stipulated in Article 3(1) of the Agreement is a Standard Term. According to the second paragraph of Article 39 of the Contract Law of the People’s Republic of China on the Standard Contract, combined with the analysis of the header name, seal and content of the Agreement, it is determined that the Agreement is a Standard contract that was prepared by the company in advance and intended for repeated use. 2. Understanding of the contract clause “no responsibility for damage to the machine itself”. In cases where the insurer and the insured have different understandings of the Standard Terms, the clauses should be interpreted in favor of the insured, as long as his/her understanding is reasonable and common. 3. Whether “not responsible for the damage of the machine itself” belongs to the exemption clause. This clause is listed in Article 3(1) of the Agreement, which is the agreement regarding the scope of insurance. “Not responsible for the damage to the machine itself” is the condition for defining the scope of insurance liability, and it does not belong to the exemption clause. After analyzing this case, it is clear that the majority of ship repair enterprises should pay close attention to the insurance clauses when purchasing insurance coverage, such as the scope of insurance liability, so as to avoid disputes and better protect their legitimate rights and interests.
Case provider: WANG Min,
Judge of Maritime Division of Dalian Maritime Court
FROM《Marine Law and Policy》 Volume 2021 Number 3（Quarterl）