On The Duty To Notify The Significant Increased Risk Under Chinese Insurance Law

The obligation of informing risk increasing revised in2009turns to define theincreased risk to the significant increased risk of insurance object, adding the elementof significance into the aggravation. The duty to notify the significant increased riskrefers to the following situation: during the insurer’s liability period, when the risklevel of insurance object is increasing greatly, the applicant or the insured mustpromptly notify the insurer. Meanwhile, the insurer has the right to increase thepremium or withdraw the contract in order to control the risk. Unlike promissorywarranty applied in common law system countries, the duty to notify the significantincreased risk, based on the utmost good faith principle, doctrine of changedcircumstance and the theory of balance on price, has become the main theory tocontrol the risk during the liability period in civil law system countries. The theory ofthe duty has been rapidly developing and gradually mature accompanied byinsurance’s prosperity and development, which consists of complete regulations inlegal system. For example, the element of risk increased should be of significance,duration and unpredictable. Except the property insurance, the life insurance is alsoapplied under the provisions of the duty. The subjects who fulfill the obligation arethe applicant or the insured who are relative to the insurance object closely. The waysto fulfillment are not limited in writing. On the performing time, some civil lawcountries prefers to set different performing period commensurate with the reasonsthat caused the increased risk, while the main principle is the time upon the subjectsknowing the changed situation. As the legal consequences of the duty, the right oftermination has become gradually mature in most countries.Although the revised provision of obligation of informing risk focus on thesignificant of risk level, however it stills exists the following problems: it only limitedin property insurance and the subjects lacks the insured; the legal nature, performingtime and legal consequences of rescission right of contract remain vague and obscureaccording Insurance Law of P. R. China; once the insured event occurs beforewithdraw the contract, the insurer’s liability lacks when the applicant or the insured fulfill the duty to notify the risk increasing; the exception situation of fulfillmentshould be added into the clauses.The aim of this paper is to discuss and make clear of the disputes, controversiesand conflicts of the obligation of informing the increased risk in theory and inpractice. And the author also puts forward some legal suggestions on basis ofanalyzing Article52of Insurance Law of P. R. China.Though the method of comparative studies, value analysis and economical studyand via the clues of cases, the author focuses on the discussing the theory disputesand therefore forms the following points.Firstly, except the utmost good faith principle and the theory of balance on price,doctrine of changed circumstance also are unique part of the duty‘s legislationreasons.The significant increased risk has affect the basis of the contract resulting inthe failure of aim or contract performing, which is the essence of he doctrine ofchanged circumstance. In additional, on the point of economic study, the theory ofasymmetrical information also points out that in order to avoid moral risk and ensurethe well development of insurance industry, the obligation of informing thesignificant risk should be set up to reduce the cost of acquiring information.Secondly, to judge the significant increased risk, whether the risk match thehigher insurance fee would be the key. Except describing the specific cases in thecontract previously, the applicant or the insured make their own decision after the riskincreasing. However, when the courts take consideration of the applicant or theinsured’s predication ability, the judge should refer to the normal reasonable group todiscriminate his subjective situations and make different conclusions commensuratewith the severity of his fault.Thirdly, the obligation of significant increased risk should also be applied to thelife insurance. As the contract’s party, the insured is liable to perform the duty. Theways to fulfillment are not limited in writing. The exception situation of fulfillmentshould be added into the clauses.Fourthly, unlike dividing the increased risk into subjective and objective andstipulating different legal consequences according to different type of the obligation in traditional theory, author propose using the aggravation level and whetherperforming the duty or not to divide the different legal consequences.Fifthly, the insurer should be entitled to withdraw or terminate the contract and itwould be better to apply right to withdraw contract in Chinese legislation. The rightto withdraw is the type of statutory dissolution and only exists one month in effectand has retrospective effect. Once the insured event occurs before terminating thecontract, the insurer’s ability depends on different situations. If the applicant or theinsured fulfills the duty promptly or breaches the duty based on ordinary negligence,the insurer shall be entitled to reduce his benefits payable commensurate with theseverity of the applicant or the insured’s fault. However, the insurer shall not be liableif the policyholder intentionally or grossly negligent breached his duty.