Research on the System of Obligations in Insurance Contracting Information

Author: Cao Xingquan
Publisher:
Publish Date: 2004-09-01
Features: The prominent phenomenon of unfair transactions in the insurance market makes it necessary to consider how relevant laws address these issues. From a microeconomic perspective of the market, phenomena such as insurers' false advertising and misleading explanations of insurance products, insurers' arbitrary use of the duty of disclosure to resist claims, and the abuse of standard insurance contract terms severely undermine policyholders' insurance expectations. These issues are fundamentally related to information problems in insurance transactions, and the duty of disclosure and the duty of explanation in insurance law are information obligations during the contract formation process. Reasonably defining these obligations directly concerns the realization of fairness in insurance transactions. This paper employs the basic theories of analytical jurisprudence, legal economics, sociological jurisprudence, comparative law, and legal history to examine the issue of information obligations in insurance contract formation within the framework of contract law theory. It aims to clarify the role of law in maintaining transaction fairness and the optimal approach to achieving this, thereby functionally positioning and designing insurance contract formation information obligations. Except for the introduction, this paper is divided into six chapters:
Chapter 1: Modern Issues in Insurance Contract Law. Through theoretical analysis of insurance transaction fairness, empirical examination of the insurance market, and exploration of the evolutionary patterns of insurance systems, the author argues that insurance contract law should prioritize the protection of policyholders' interests.
Chapter 2: Path Selection for Protecting Policyholders' Interests. The principle of contractual freedom should be upheld, as state intervention in contract transactions does not undermine its foundational status. The coordination point between contractual freedom and state intervention lies in the mandatory aspects of contract formation and the adherence to procedural justice in contract procedures. The general theory of information obligations during contract formation has already taken shape, and it should be established that parties have a general obligation to provide relevant transaction information to each other during contract formation. The essence of information obligations is to alter the allocation of attention between parties during contract formation. The theory of transaction attention structure allocation is based on the recognition that transaction freedom remains a fundamental principle of contract law and that the root of transaction problems lies in information asymmetry. It further identifies transaction subjects and types as key factors to consider in reasonably allocating information obligations during contract formation. The protection of policyholders' interests should adhere to a market-oriented approach, reflect the principle of contractual freedom, prioritize procedural justice in contracts, and rely on the system of information disclosure obligations during transactions. Of course, information obligations cannot solve all problems.
Chapter 3: Basic Theories of Insurance Contract Formation Information Obligations within the General Framework of Contract Law Theory. The duty of disclosure and the duty of explanation by insurers are essentially pre-contractual obligations, with their institutional essence being to alter the allocation of transaction attention between parties. The theory of the "utmost good faith" as the basis for the duty of disclosure is no longer appropriate, as good faith cannot be categorized as "utmost" or "lesser," as it suffers from logical flaws in circular reasoning, institutional construction dilemmas, and does not align with the actual needs of insurance system development. The theoretical foundation of the duty of disclosure should be pluralistic, with information asymmetry regarding risks and the need for risk estimation as the factual basis, and the principle of good faith as the theoretical tool to transform this factual basis into institutional construction logic. The duty of disclosure in insurance contract formation is evolving, showing a reverse trend of weakening disclosure obligations and strengthening explanatory obligations.
Chapter 4: Identifying Key Variables for Reasonably Defining the Duty of Disclosure by Analyzing the Constituent Elements of the System. The duty of disclosure system consists of duty subjects, scope of disclosure, constitutive elements of breach, and legal consequences of breach. Among these, the scope of disclosure, constitutive elements of breach, and legal consequences of breach are key variables determining the burden of disclosure obligations on policyholders. The duty of disclosure has certain scope limitations, with three main requirements restricting this scope: materiality of facts, knowledge or reasonableness of knowledge, and exceptions to disclosure. Among these, materiality of facts is the decisive factor and the focus of both theory and practice. Based on different methods and standards for judging the materiality of facts, the scope of disclosure obligations can be categorized as unlimited or limited. From the perspective of the nature of the obligation, the constitutive elements of breach should consider subjective mental states. The legal consequences of breach of the duty of disclosure include two different rules: the automatic invalidity rule and the termination rule. After an insurer terminates an insurance contract, the handling of the insurer's liability for the insurance generally follows two approaches: full exemption or proportional treatment. The insurance guarantee system, due to its strict performance requirements and severe consequences of breach, has become a legal tool for insurers to excessively expand the burden of disclosure obligations on policyholders. It needs to be appropriately controlled by limiting the constitutive elements of insurance guarantees, limiting the constitutive elements of breach of insurance guarantees, and softening the consequences of breach.
Chapter 5: Examining the Reasonable Regulation of the Insurer's Duty of Explanation. The object of the duty of explanation primarily but not exclusively consists of terms drafted by the insurer in advance. It is possible to require insurers to provide varying degrees of explanation regarding procedural and substantive terms. The insurer's duty of explanation does not entirely absolve policyholders of the prudence and attention they should exercise during transactions. The duty of explanation can actually be defined as a duty to remind, explain, and provide truthful answers. When defining the consequences of breach of the duty of explanation, multiple factors must be considered, including the collective nature of insurance, the of insurance contract liability exemption clauses, the formal nature of the fulfillment of explanation obligations, and the characteristics of insurance transactions. The observation period system, which grants policyholders the right to terminate the contract within a certain period, can effectively balance the tension between the collective nature of insurance and the protection of policyholders' interests. The duty of explanation should be coordinated with the principle of adverse construction. By introducing the observation period system, adverse construction can serve as the final line of defense against standardized contract terms. However, substantive explanation may also have exceptions to its application.
Chapter 6: Evaluating and Proposing Improvements to China's Insurance Law's System of Information Disclosure Obligations During Contract Formation. Regarding the duty of disclosure system, the author argues that China's insurance law has established a rule system for the duty of disclosure, but there are still gaps in rules such as whether the insured is a duty subject, measures to prevent insurers from evading disclosure obligations when agents enter into contracts, control over insurance guarantees, policyholders' objections to presumptions of materiality, the cautious insurer standard for judging materiality, the requirement that policyholders know the facts to be disclosed, exceptions to disclosure, and the limitation of gross negligence. For the duty of explanation system, excessive expectations regarding information obligations during contract formation and failure to consider the technological and operational of the insurance system are shortcomings in theoretical understanding; adhering to substantive standards for fulfilling obligations, not stipulating reminder rules, and not granting policyholders the right to terminate within a certain period are shortcomings in institutional design.