International Recovery Spotlight: Recovery Rights of Insurers in China for Medical Expenses

international.1The Chinese Insurance Law provides that subrogation rights are not available to the insurer of an insurance policy concerning life or bodily injury, if the insurer has paid the insured or the beneficiary for death, bodily injury or illness suffered by the insured due to a third party’s action. The rationale behind such rule is believed to be that the right of claim relating to the loss of life or bodily injury is specific to the victim and shall not be assigned. Furthermore, the “unjust enrichment” which subrogation is originally designed to prevent (among other things) shall not apply to the loss of life or bodily injury because such type of damages cannot be measured by monetary terms.

It has been an area of controversy, however, whether an insurer may acquire subrogation rights for medical expenses paid to the insured in such context. Due to the lack of specific legal provisions and clear official interpretations, practices vary from locale to locale. In some instances, the insurer’s payment of medical expenses incurred related to death, bodily injury or illness suffered by the insured due to a third party’s action is deemed to be a type of compensation within the nature of “making whole”, and therefore could result in appropriate subrogation rights. Most of the insurance companies, however, would categorize such type of medical expenses as a part of the payment under the insurance concerning life or bodily injury, and exclude them from the benefits of subrogation rights. Such inconsistent practices often result in dispute among parties to an insurance policy as well as dramatically different outcome for lawsuits with similar facts.

Many Chinese scholars are of the opinion, which is supported by some Chinese courts, that if the insured dies or becomes permanently disabled due to an insurance incident caused by a third party’s action, the insured or the beneficiary shall have the right to receive both the insurance payment and the third party’s compensation. Since a person’s life or disability may not be measured by monetary terms and the interests lost due to the death or disability may not be compared with the compensation received, there won’t be unjust enrichment even if the insured or the beneficiary is compensated by both the insurer and the third party tortfeasor. Consequently, the insurer shall not have the subrogation rights. On the other hand, if the insured’s loss is limited to medical expenses or other related expenses, she/he shall not be entitled to compensation by both the insurer and the third party tortfeasor. Accordingly, to prevent possible unjust enrichment, the insurer may acquire subrogation rights after paying such expenses.

Some practitioners go even further on this issue. They believe that even if the insured dies or becomes permanently disabled due to an insurance incident caused by a third party’s action, a case by case analysis is still necessary while determining the availability of subrogation rights. According to these practitioners, if the insurance payment under a life insurance policy is of the nature of “making whole”, subrogation rights shall be available. For example, accident insurance possesses the characteristics of both a life insurance and a property insurance, and the insurance payment thereunder sometimes may be of the nature of “making whole”. Therefore, subrogation rights may be available to insurers of accident insurance policies. Furthermore, although subrogation rights may not be available for death payment or permanent disability payment, the payment for medical expenses and lost work which is made as a part of the compensation for death or permanent disability shall be allowed to be recovered by the insurer using acquired subrogation rights.

In China, the primary source of law is the published laws and regulations and the official interpretations thereof. The prior court decisions are not given precedential authority in China. Therefore, the controversy over subrogation rights on medical expenses payment may continue unless and until a published law (or an official interpretation) clarifies this issue.

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