Study On The Application Of Unfavorable Interpretation Principle In Insurance Contract

Insurance assumes the risk-sharing function against social incidents and future contingencies, while considering commercial insurance, insurance contract plays an important role in determining the rights and obligations of the policyholder, the insured and the beneficiary against the insurer. With the generalization of insurance practices in modern society, disputes arising due to the deviation of apprehending insurance contract provisions have been on the increase as well, that is why an impartial and reasonable interpretation of such insurance contract provisions becomes not only a research emphasis of those specialists and scholars in insurance laws, but also a focus of public attention.Interpretation of insurance contract refers to, when any party to an insurance disagrees with or has any different opinion on apprehending any provision in the insurance contract, the process of interpreting and defining such provision by the court or the arbitration agency in accordance with the laws or customs. Most contracts widely applied in commercial insurance activities are in standard form and with high specialization and technicality. It can save contracting cost and improve transaction efficiency as the rights and obligations of the parties have been reflected in the form contracts pre-drafted. However, during the practices, the insurer is apt to make use of their advantages at the time of preparation of standard contracts to introduce some escape clauses, so as to exempt from or limit their liability, laying more liabilities and responsibilities upon the counter parties. To balance the interests of all the parties and especially to protect the legitimate rights and interests of such counter parties in a weak position against the insurer, nowadays, the Unfavorable Interpretation Principle has been well-acclaimed by the legislators in most countries of the world, while corresponding definite elaboration on such principle also can be found in the Article 30 of China’s "Insurance Law". In China’s insurance practices, Unfavorable Interpretation Principle plays a positive role in protecting the interests of the counter parties against the insurer, but from time to time, there are demerits in application of such principle during judicial practices, which cause damage to the interests of the insurer.In order to balance the interests of all parties to the insurance, it seems much necessary to carry out theoretical perspectives on the Unfavorable Interpretation Principle.In view of the above, this paper attempts and proposes to, aiming to the unfavorable interpretation of insurance contract as the object of study, with such factors as the application premise and sequence, applicable provisions and identities of the counter parties against the insurer in terms of unfavorable interpretation as the cut-in points, discuss, demonstrate and summarize the exceptional circumstances during the application of the Unfavorable Interpretation Principle, at the same time, learn from the advanced experiences of insurance industry from aboard and put forward feasible suggestions on how to apply and improve this principle in relevant legislation and judicial practices of China’s insurance laws, with the expectation to build a necessary tension force among the parties to the insurance, so as to reasonably balance their respective interests and promote the normal development of China’s insurance industry.This paper is divided into four parts.In the first part, it principally investigates into the connotation and the legislative origin of the Unfavorable Interpretation Principle, and based on the particularity of insurance clauses, analyze the reasons for the introduction of such principle into China’s insurance law; in the second part, it discusses the general principles for interpretation of contentious provisions in the insurance contract, and elaborates the relationships between the Unfavorable Interpretation Principle and other general principles as well as the sequential order of application, defining the application sequence of the Unfavorable Interpretation Principle; in the third part, it mainly analyzes under what circumstance and to which kind of insurance disputes the Unfavorable Interpretation Principle can be applied, and meanwhile provides some theoretical basis for the future improvement of standard contract in china in this regard; in the fourth part, through presenting the existing problems in regards of such principle in China’s legislation and judicial practices, theoretically proposes some methods to solve those problems and explores the right way to improve the standard insurance terms with divergent interpretation in China.