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Recently, the Shanghai Financial Court concluded a dispute case between a Shanghai branch of a property insurance company for a real estate development company in Shanghai. This case is the first contract dispute over potential defect insurance (IDI insurance) in the country. IDI Insurance provides a ten-year insurance coverage for building main structures, which not only implements the warranty obligations of building developers, but also helps protect the rights and interests of disadvantaged owners, and also helps share the pressure on government construction project quality management. From property warranty to the introduction of insurance market mechanisms, the level of quality management of construction projects has been improved. IDI insurance is currently widely implemented in Shanghai, which is closely related to the implementation of government policies and guarantee implementation. The "Shanghai Model" has a strong leading role in the country. Whether the developer and policyholder have the right to terminate the IDI insurance contract in the case is related to the future development and advancement of such insurance contracts, and has attracted widespread attention from the industry and government regulatory authorities. Based on the evolution of Shanghai's policy, the judgment of this case clarified the policy public welfare attributes of IDI Insurance as the right and actual policy, verified the contract terms and the true meaning of the behavior of the parties, maintained the order of the residential development and maintenance market, demonstrated the socialist core values of honesty and trustworthiness, and played a good demonstration role.
Wu Junxue
Appeal Review and Trial Supervision Trial Supervision Trial
Director
Director
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Zhaishuang
Appeal Review and Trial Supervision Clause
Assistant to Judge
3 case Love
Plaintiff (respondent): Shanghai branch of a certain property insurance company. (hereinafter referred to as a Shanghai branch of a property insurance company)
Defendant (appellant): a real estate development company in Shanghai. (hereinafter referred to as the real estate company)
Real estate company is the developer of a project in a certain district of Shanghai. On October 30, 2017, the real estate company paid the property warranty for the project to the housing management bureau in its jurisdiction. On October 30, 2017, the real estate company paid the property warranty for the project to the housing management bureau in its jurisdiction. Because relevant ministries and commissions of the State Council canceled the property warranty in 2017, on July 30, 2018, the housing management bureau in the jurisdiction returned the property warranty (including interest) to the real estate company and asked it to purchase potential defect insurance for construction project quality (hereinafter referred to as IDI insurance).
On August 22, 2018, the real estate company insured IDI insurance from a Shanghai branch of a property insurance company for the construction project. Article 37 of the Insurance Contract stipulates: "After this insurance contract is established, the insured may request the termination of this insurance contract. If the insured requests the termination of this insurance contract, he shall submit a written application to the insurer and a written proof of the insured's payment of the property warranty. This insurance contract is terminated when the insurer receives the written application and proof."
On September 18, 2018, the real estate company submitted application and guarantee materials to the housing management bureau in the jurisdiction, clarifying that the real estate company has purchased IDI insurance as required and applied for thawing the property warranty. After taking out insurance, the real estate company failed to pay the IDI insurance premium as agreed. After the real estate company paid only half of the premium, it was unwilling to pay the remaining premium and proposed to terminate the insurance contract. A Shanghai branch of a property insurance company urged him to file a lawsuit and sued him.
Real estate company believes that Article 15 of the Insurance Law stipulates that unless otherwise provided by the law or otherwise agreed in the insurance contract, the policyholder may request the termination of the contract after the insurance contract is established. Article 37 of the insurance contract involved in the case also has an agreement that the insured can terminate the contract. As for the agreement that the insured person shall submit a certificate of payment of property warranty as a written proof of the conditions for termination of the contract, since the property warranty project is cancelled, an explanation should be made for the contract that is unfavorable to the provider of the standard terms. The condition will automatically expire and the insured may terminate the insurance contract at will.
The first instance court ruled that the real estate company should pay the remaining insurance premiums of a Shanghai branch of a property insurance company.The real estate company filed an appeal, and the Shanghai Financial Court rejected the appeal after trial and upheld the original judgment.
Referee
Shanghai Financial Court held that the termination conditions for IDI insurance were agreed in the 2012 version of the IDI insurance format terms, but when the termination conditions cannot be achieved due to the objective factors of the cancellation of the property warranty system, the contract stipulates how to understand the termination terms and conditions for the termination have aroused controversy.
The key to the above dispute is whether the terms of the disputed contract are interpreted as the policyholder enjoys arbitrary termination right, or whether it is understood that the contract cannot be terminated. If the meaning of the termination right clause cannot be directly determined by the method of interpretation in the text, the contract interpretation method such as overall interpretation, purpose interpretation, habit interpretation, and principle of honesty and trustworthiness should be adopted to comprehensively determine the true meaning of the agreed clause:
First, from the nature of IDI insurance, the insurance is established based on normative documents, and the beneficiary of its contract and the claimant are both the owners, with a strong public welfare nature. Because the construction project involves a wide range of people and has a long risk cycle, it is improper to give the developer policyholder the right to terminate the contract.
Secondly, from the background of the policyholder's contract termination rights set in the insurance terms, the property warranty funds are simultaneously in parallel when the 2012 version of the insurance terms involved are submitted for filing. The construction unit pays the property warranty and the insurance IDI insurance functions are duplicated. Therefore, the format terms give the developer the right to pay the property warranty or insured IDI insurance contract, which is specifically reflected in the IDI insurance contract that the insurance contract can be terminated after paying the property warranty funds. In the subsequent 2016 IDI insurance clause, it is directly stipulated that the insured shall not terminate the insurance contract. It is explained that the purpose of setting the IDI insurance termination right clause is to choose one of the property warranty and insurance, and it is not that the insured has arbitrary termination right.
Third, judging from the true intention of the parties, in July 2018, the district housing management bureau refunded the property warranty paid by the real estate company, but the funds were frozen. In September 2018, the real estate company submitted a certificate of application and insured IDI insurance to the housing management bureau in the jurisdiction, requesting to unfreeze the corresponding property warranty. Combined with normative documents and the expression of intentions of various parties' behaviors, the system design concept is clear. The purpose of real estate companies to replace the protection function of paying property warranty by insured IDI insurance should be wisely aware of the obligation attributes that the property warranty is subject to insured IDI insurance. Therefore, the real estate company terminates the IDI insurance contract after obtaining the property warranty, which does not meet its intention to repeatedly apply for it, which violates the principle of integrity.
Fourth, from the perspective of the constraints of normative documents, the 2019 edition of Shanghai's "Implementation Opinions on Promoting the Quality of Potential Defects Insurance of Commercial Housing and Affordable Housing Projects" (hereinafter referred to as the "Implementation Opinions") "Implementation Rules of Shanghai's "Implementation Rules"" (hereinafter referred to as the "Implementation Rules") has made specific provisions on the insurance scope of IDI insurance contracts signed before November 1, 2017, from November 1, 2017 to March 13, 2019, and after March 14, 2019, respectively, explaining that the effectiveness of the 2019 "Implementation Rules" should be related to the insurance contract signed in the above three time periods. The insurance contract in this case has a ten-year performance period after the signing of the insurance contract in August 2018, and the 2019 "Implementation Opinions" and "Implementation Rules" should be applied.
In summary, if the real estate company proposes that there are more than two explanations of the standard terms, it should make a reason that is unfavorable to the provider of the standard terms. Because the true meaning of the terms can be obtained through the above contract interpretation method, there are no more than two explanations, and this reason is not valid. If the real estate company has obtained the returned property warranty on the grounds of insured, it should be determined that the insured does not meet the conditions for the termination of the IDI insurance contract involved.
Review Analysis
1. Background introduction—Policy history of IDI insurance policyholders’ right to terminate the right
Inherent Defects Insurance (IDI) refers to insurance that is insured by the construction unit of a construction project, and the insurance company fulfills its maintenance and compensation obligations for damage to the insured building caused by potential defects in the quality of the project that occurs within the insurance scope and insurance period according to the insurance terms. Before the implementation of IDI insurance, the quality problems that arise after the completion of the project in my country were mainly repaired by property warranty. The warranty period is up to two years, and the quality problems that arise after the expiration of the house cannot be covered. In contrast, the insurance period of IDI insurance is longer, and the insurance company will pay first and then claim compensation from the responsible party, which can better protect the interests of the majority of owners.
Figure 1: The components of IDI insurance
China has been piloting IDI insurance since 2002, and the property warranty system and IDI insurance are in parallel during the transition period. Until 2017, relevant ministries and commissions of the State Council canceled the property warranty and issued the "Notice on Carrying out the Pilot Work of Project Quality and Safety Tips Action", requiring nine regions including Shanghai, Jiangsu, Zhejiang to pilot project quality insurance, and some provinces and cities will carry out semi-mandatory promotion of the insurance in the form of local government normative documents. As the earliest city in China to pilot this type of insurance, Shanghai has continued to explore and promote the pilot application of IDI insurance since 2012. By issuing normative documents, IDI insurance is used as a prerequisite for real estate development, which has improved the management and service level of the quality of commercial housing and affordable housing construction projects in Shanghai, and has gradually formed the "Shanghai model" of IDI insurance. Before the Implementation Opinions were issued from 2012 to 2016, Shanghai IDI insurance was in the pilot stage. The insured can cancel IDI insurance but need to pay additional property warranty; after the Implementation Opinions was issued in 2016 to the Implementation Opinions in 2019, Shanghai will implement IDI insurance in some regions and affordable residential projects and stipulate that IDI insurance within the mandatory scope shall not be lifted in accordance with regulations. Developers outside the pilot scope still need to choose one of the property warranty and insured IDI insurance. The "Implementation Opinions" was issued in 2019. Shanghai City implements IDI insurance for all residential properties within the city and stipulates that policyholders are not allowed to terminate IDI insurance.
Figure 2: Three stages of the development of the "Shanghai Model"
2. Problem arises - Can IDI insurance policyholders exercise the right of arbitrary termination during the policy transition period?
Whether the insured has the right to arbitrarily terminate the IDI insurance contract is related to the future development and promotion process of such insurance, and has attracted the attention of the housing development management department, the insurance industry and the financial regulatory department. Article 15 of the Insurance Law grants the insured the right to terminate any statutory and agreed circumstances. However, in the IDI insurance field, if the insured is granted the construction unit to arbitrarily terminate the contract, it will lead to the insurer's beneficiary who will move in the future that the owner and other beneficiaries cannot request compensation for the damage to the building, and the owner's house use and maintenance rights will not be protected, which poses a risk hazard. In 2019, Shanghai issued the "Implementation Opinions", which clearly stipulates that construction units are not allowed to terminate IDI insurance contracts. However, there is a dispute over whether construction units can arbitrarily terminate insurance contracts during the transition period before the issuance. In addition to affecting the rights and interests of developers and insurance companies in this case, there is also a risk of imbalance between the developers (insured) and the owner (beneficiary).
3. Referee analysis - a review standard for restricting the right of arbitrary termination of IDI insurance policyholders
The review of the right of arbitrary termination of IDI insurance policyholders should focus on four aspects: binding force of normative documents, purpose of setting the format terms, nature of IDI insurance contract, and real expression of intention of the policyholder.
(I) Binding Review of Normative Documents
When hearing IDI insurance disputes, pay attention to the identification of legal norms. The defendant argued that the contract was signed in 2019 and the 2019 "Implementation Rules" should not be applied, and the policyholder enjoys the right of arbitrary termination according to the "Implementation Opinions" at that time.From the perspective of the scope of normative documents, from 2012 to 2019, Shanghai issued a number of "Implementation Rules" and "Implementation Opinions" on the promotion of IDI Insurance. The provisions in 2012 and 2016 are based on the coexistence of property warranty and IDI Insurance. The regulations require developers to choose one of two, which means that developers are not allowed to use their own credit as a guarantee for future housing quality. Until the 2019 "Implementation Rules" stipulate the insurance scope of IDI insurance contracts signed before November 1, 2017, from November 1, 2017 to March 13, 2019, and after March 14, 2019. Explain that the scope of effectiveness of the 2019 "Implementation Rules" is not only an insurance contract signed after the issuance of the provisions, but also an IDI insurance contract that is in the insurance period when the document is released. Through the review of the internal logic of normative documents, it can be concluded that the 2019 "Implementation Rules" and "Implementation Opinions" are binding on contracts signed after November 1, 2017, and the IDI insurance policyholders cannot terminate the contract arbitrarily during this period.
(II) Review of the setting purpose of format terms
When hearing IDI insurance disputes, pay attention to the substantive review of the setting purpose of the format terms. From the perspective of setting the policyholder's contract termination right, there are currently two versions of the IDI contract, namely the 2012 edition and the 2016 edition. The 2012 edition of the insurance clause is based on the effective implementation of the property warranty during 2012. In order to avoid the construction unit paying the property warranty and insured the duplication of the IDI insurance function, the 2012 edition of the insurance clause sets the standard clause of the insured to enjoy the IDI insurance contract termination right after paying the property warranty, but does not give the insured unconditional contract termination right. Because the premium of IDI insurance is far lower than the property warranty, there is basically no possibility that the enterprise will surrender the insurance and transfer the property warranty. The 2016 edition directly stipulates that the insured has no right to terminate, which is consistent with the provisions of the later "Implementation Opinions". Therefore, the purpose of setting the standard terms for contract termination rights in the IDI insurance involved in the case is not to give the insured the right to terminate the contract, but to limit the arbitrary nature of the insured when termination of the contract, so that they can choose one of the IDI insurance or property warranty funds to cooperate with the policy transition and effectively protect the legitimate rights and interests of the owners.
(III) Review of the nature of altruistic public welfare contracts
The hearing of IDI insurance disputes should also conduct a comprehensive review in combination with the attributes of the altruistic public welfare contracts of IDI insurance. Judging from the subject matter and beneficiary attributes of IDI insurance, IDI insurance is an altruistic public welfare insurance. Through the evolution of relevant normative documents in Shanghai, it can be seen that in order to protect the legitimate rights and interests of the house owner and reduce the loss of property warranty in the construction unit, the developer's warranty obligations for construction projects are scattered by the insurance products through IDI insurance, which reflects the essential attribute of IDI insurance that has public interest protection. At the same time, the insured person of the IDI insurance contract is the construction unit, the beneficiary and claimant are the owners, which are altruistic insurance. When the construction unit requires a refund and promises to warrant the house with its own credit, the interests of the owner will be directly affected, so the insured's right to terminate the insurance should be restricted.
(IV) The insured's true intention review
When hearing an IDI insurance dispute, the insured's true intention of exercising the right of termination should be reviewed. Judging from the true intention of the parties, the insured person involved in the case applied for a refund of the property warranty by insured. Knowing that the protection function of purchasing IDI insurance instead of the property warranty, he received the returned property warranty and asked to terminate the IDI insurance contract, which violated the principle of integrity, infringed on the interests of the insurance company and many small owners, and had certain social harm. The reasons for his litigation should not be supported.
Case No.: (2020) Shanghai 74 Civil Final No. 1162
Colonial Panel Members: Wu Junxue Fan Dehong Sun Qian
Source | Shanghai Financial Court
Editor in charge | Zhang Qiaoyu
Statement | Please indicate from the "Shanghai High Court"
