The “flight delay insurance fraud case” was one of the most popular insurance-related cases in 2020. Whether the policyholder’s behaviour of “taking advantage of insurance companies” is a reasonable use of the rules, or a fraudulent crime, is yet to be determined. This article analyses whether the policyholder is entitled to request the insurance company to pay the claims from the perspective of “insurance interests”, and reveals how to interpret “insurance interests” in a judicial manner.
Li, who worked for an airline company, had the means to obtain flight cancellation or delay information in advance. Since 2015, Li used her own ID information, or that of her friends or relatives, to purchase flight delay insurance for a large number of flights that had high delay rates. She also made predictions about whether the flight on which the ticket was ordered might be delayed, by checking the weather forecast.
Based on the information, if Li thought the flight was unlikely to get delayed, she would cancel the ticket and get a refund in advance to reduce loss, and if the flight was more likely to be delayed, she would wait for the delay to file a claim. From 2015 to 2019, Li received a total of more than RMB3 million (US$464,000) for claims from insurance companies. On 29 April 2020, Nanjing police arrested and took criminal measures against Li for suspected insurance fraud.
The dispute was mainly about whether Li, as the policyholder, was entitled to request the insurance company to pay the claims when the flights she ordered were delayed. In this regard, the case should be analysed in light of the subject matter insured, and whether Li had insurance interests in it.
According to article 12.4 of China’s Insurance Law, property insurance is where the property and its related interests are the subject matter of an insurance. Regarding the definition of “property and its related interests”, it is generally believed that it can include property interests, contractual interests and liability interests.
Combined with publicly available information on the case, and the definition of the subject matter insured in similar insurance clauses, it can be concluded that the subject matter of the flight delay insurance is “the loss caused to the insured due to the delay of the flight”, which falls under contractual interests. This means that the policyholder transfers the risks of a delay to the insurance company by purchasing the flight delay insurance.
In this case, Li applied for compensation from the insurer by purchasing a large number of flight delay insurances. For those flights that she didn’t choose to get a refund, Li entered into carriage contracts with airline companies without performing the contracts. As the flight delay insurance is a property insurance, an insured party in a property insurance policy should, at the time of the occurrence of an insured event, have insurance interest in the subject matter of insurance, according to article 12.2 of the Insurance Law.
Here, the time of the occurrence of the insured event should be the time that the flight gets delayed. While Li actually didn’t get on board and take the flight, it was difficult to define the insurance interests she had in “the loss caused to the insured due to the delay of the flight”. In fact, whether the flight is delayed or not, Li will not suffer any loss, nor will there be an increase in time and money expenses.
Article 48 of the Insurance Law provides that: “Where an insured party does not have insurance interest in the subject matter of insurance at the time of occurrence of an insured event, it shall not claim for compensation from the insurer.” As mentioned above, the subject matter insured in flight delay insurance is the “loss caused to the insured due to the delay of the flight”, and Li did not have insurance interest in the subject matter insured, as she didn’t take the flights. Thus, Li’s request for the insurance company to pay compensation lacks a legal basis.
The principle of “insurance interests” is the basic principle of the Insurance Law, which requires the policyholder or the insured to have legally recognised interests in the subject matter insured, on the basis of which the insurer can prevent moral hazard and avoid turning purchase of insurance into a kind of gambling. For the widely discussed flight insurance fraud case, the “insurance interests” principle provided a reference for the interpretation.
However, it is more crucial for the insurance industry to examine and solve the problems that may exist in the current development of China’s insurance industry, such as the deviation of some consumers’ understanding of the function of insurance, and the alienation of insurance into a gambling tool to make profits, or even commit crimes.
Also, some insurance companies have loopholes in the claiming process, and do not verify whether the policyholder or the insured really enjoys the insurance interest, which provides an opportunity for people like Li to apply for claims. For these problems, the insurance industry should pay enough attention to learn their lessons and make insurance more “insured”.
Yang Guang is a partner and Cai Min is an associate at Lantai Partners
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