Study On Issue Of Liability Insurer’s Defense

Liability insurance,the subject matter of which is the insured’s liability for damage of a third party, is important for social and economic development as well as people’s peaceful life. Liability insurer’s defense system is a basic system in the field of liability insurance, but relevant research and practice is only in its infancy and far away from perfection. After analyzing the development trend and functions of liability insurance, the authors believes that China shall establish a system that takes into account the interests of all parties and pays more attention to protecting the interests of the insured and the third party. The author analyzes the relations among the liability insurer, the insured and the third party( victim ) and holds that liability insurer’defense consists of the defense against insurance claims of the insured, the defense against direct claims of the third party, the control over the insured’s defense and settlement (participation) and liability insurer’s duty to defend its insured. The liability insurer’s duty to defend is the main content of the liability insurer’s defense. It should be noted that defending the insured is not only the right but also the duty of the liability insurer.The paper analyses the grounds of the liability insurer’s defense against insurance claims of the insured and indicates their differences from that of general property insurer’s defense in terms of liability scope, insurance coverage as well as time and indemnity limit. The scope of liability includes contractual liabilities, other specific legal liabilities and even some liabilities for malicious damage but excludes the no-fault liabilities for intentional act. As for the insurance accident, on the analysis on four theories on insurance accident in the continental law system, this paper puts forward the viewpoint that defining insurance accident by specific provisions of claims-made basis policy and occurrence basis policy; as for time and policy limit, this paper gives analysis on retroactive date, extended reporting period, policy limit, frequency of accident to further explicit the institutional arrangements of liability insurance.This paper analyses the evolution and current status of the system of the third party’s direct right to claim against the insurer, points that expanding the third party’s right of claim within reasonable limits is an inevitable trend. Meanwhile, analyzing liability insurer’s right to defense against the third party’s right to claim is of the same importance to achieve the balance of interests. There should be limitation of the insurer’s right to defense for protect the third party’s right to claim. However, there are some controversies both in theory and in practice on the issue that whether the insurer shall defend against the third party with its grounds of defense against the insured and policy holder. It should depend on the type of liability insurance, in compulsory liability insurance, for the consideration of protecting the interests of the third party and the public, the insurer’s right to defense should be limited; in general liability insurance, without involvement of public interests, the insurer shall defend against the third party with its grounds of defense against the insured.In order to guard against risk on claim settlement and prevent insurance fraud effectively, participation right of the insurer is usually agreed in contract, that is, after the insurance accident, the insurer is entitled to participate in the determination of liability between the insurer and the third party (victim) in the name of the insured, and to control the process of defense. After research, this paper indicates that the participation right is insurer’s right is easily to be abused and injure the interests of the insured. Therefore, the legislation of our country should refer to the legislation of other countries (regions), require the insurer to be in good faith, with the honest belief and do reasonable care obligation in exercising the participation right. This paper also suggests that the insured should bear the obligation to assist the insurer, that is, he incurs the obligation to notify the insurer timely and provide assistance on survey and the insurer’defense against the third party’claims. After study on the interest conflicts which may arise in the process of the insurer’s defense on behalf of the insured, between the insurer and the insured, the defense lawyer and the insured, this paper holds that in the case of any conflict of interests, the insurer may resolve it by notification, reservation of rights, hiring an independent counsel to defend and some other way.Defending the insured is not only the right but also the duty of the liability insurer. Except for the right to control defense mentioned above, the insurer bears defense duty for the insured’s interests if the third party claims against the insured. This paper further studies the issues on the extent, performance, legal consequence and release of defense duty. Liability insurer’s defense duty requires the insurer to defend the insured against the damage claims within the policy coverage. The defense duty mainly exercised by the insurer’s participating the insured’defense or settlement directly and assuming the insured’s defense costs. Insurer’s defense duty is relieved by exhaustion of policy limits or some other reasons. The insurer shall be liable for the defense costs and damages incurred from the insurer’s breach of the defend duty.