THE VALIDITY OF INSURANCE CONTRACT WHEN INSURANCE PAYMENT DUE LATE
On February 25, 2020, the Chief Justice of the Supreme People’s Court issued Decision No. 50/QD-CA publishing the Precedent No. 37/2020/AL (“Precedent 37”), along with 07 other precedents, ratified by the Council of Justices of the Supreme People’s Court. Precedent 37 comes from the Cassation Decision No. 28/2018/KDTM-GĐT dated June 26 of the Superior People’s Court of Ho Chi Minh City on the commercial case “Insurance Contract Dispute” in Dong Nai Province between Limited Liability Company N (“N”) as the plaintiff and Insurance Company P (“P”) as the defendant
Precedent No. 37 focuses on the validity issue of a Property Insurance Contract in case where the insured pays insurance premiums after the insurance premium payment term has already expired.
1. Facts and background
N is in charge of operating the steam boiler system for S Paper Joint Stock Company (“Paper Company”). N and P1 Insurance Company (“P1”), subsidiary of P, signed into 05 insurance contracts, including the Boiler Insurance Contract No. P-15/DNI/XCG/3201/0006 dated March 26, 2015 (“Contract No.6”) and Public Liability Insurance Contract No. P-15/DNI/XCG/3303/0010 dated March 26, 2015 (“Contract No.10”).
The steam boiler system consists of 03 boilers with a total working capacity of between 25 and 30 tonnes. It was around 12:30 PM, November 13, 2015, when the incident occurred.
Boiber No.3 blew up, claiming two lives from the group of N workers that were working on the boiler operation at the time. The explosion caused severe damage to the surrounding areas and set off fires. Following the incident, provincial leaders, relevant authorities and the company have implemented remedial work and the Investigation Police Department of Ba Ria – Vung Tau Province has investigated into the cause of the blast and come to the conclusion that the explosion happened in the first place due to technical problems, reported no signs of crime.
The explosion not only caused damage to N’s properties, but also damaged the assets of the Paper Company. The damaged properties at the Paper Company are in the scope of cover under insurance contracts which are Contract No.6 and Contract No.10. However, when N filed a formal request to P to claim insurance for such loss, P rejected the claim, reasoning that Contract No.6 and Contract No.10 were invalid.
P denied the validity of Contract No.6 and Contract No.10 for the reason that N did not manage to pay the insurance premium as scheduled. The deadline for premium payment is Jan 5, 2015 but N only transferred the premium payment to P on May 7, 2015. P claimed that the contracts had terminated on May 1, 2015, before the incident which later took place on Nov 13, 2015. P rejected any insurance responsibilities relating to the financial losses caused by the explosion (under the Contract No.6) and or any insurance responsibilities relating to N’s liability to third parties in the boiler explosion (under contract No.10).
N argued that after receiving the premium payments from N, P never mentioned that the payments were late and there were also no written notice stating that late premium payments would invalidate the insurance contracts from May 1, 2015. Nonetheless, P still received the premiums, issued VAT invoices and declared tax on these two premium payments made by N. Thus N claimed that it was their legitimate right to be insured by P for such losses under Contract No.6 and Contract No.10.
The Superior People’s Court of Ho Chi Minh City ruled that according to Article 287 of the Civil Code 2005 (Article 354 of the Civil Code 2015): “The obligor may postpone the performance of the obligation only if the obligee consents. The performance of the civil obligation in this case of postponement shall be deemed to be performance in a timely manner.”
P failed to make any kind of notice to N mentioning that the Contract No.6 and Contract No.10 were invalid from May 1, 2015 due to pate premium payments. P even issued VAT invoices and declared tax for these payments. With these actions, P had automatically acknowledged the premium payments as legitimate, “consenting” to N’s postponement of paying premiums.Thus, N deemed to have fulfilled their obligation in a timely manner.
Therefore, when the insurance event occurs, P is responsible for the compensation as initially agreed by both parties under the Contract No.6 and Contract No.10.
– Articles 285, 287 of the Civil Code 2005 (Articles 278, 354 of the Civil Code 2005);
– Articles 15, 23 of the Law on Insurance Business (amended in 2010)
In case where the insured pay the insurance premium to the insurer later than the payment expiry date, if the insurance company fails to communicate or send any written notice to the insured about the termination of the insurance contract while still receives the payments, issues invoices and reports tax on such payments then when the insurance event occurs, the insurance contract would still take effect. The insurer would be held responsible for compensating losses to the insured party.
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