Can a borrower claim for the compensation of commercial third-party liability insurance for motor vehicles

In 2011, Mr. Zheng brought commercial third-party liability insurance for motor vehicles (“CTLI”) for his car. One day, Mr. Zheng lent the car to his friend Mr. Pan, unfortunately, a traffic accident happened, Mr. Pan was identified with full responsibility. The victim appealed to the court against both Mr. Zheng and Mr. Pan, the court made the decision that Mr. Pan should undertake the compensation of 130,000 Yuan, and Mr. Zheng was not liable. As per the court decision, Mr. Zheng and Mr. Pan claimed compensation from the insurance company. However, the insurance company said that because the insured Mr. Zheng was not liable, it would not pay the compensation according to CTLI. Mr. Pan appealed to the court, finally, the court made the decision that the insurance company should pay the compensation within the scope of CTLI.

It is a hot controversy in practice whether the borrower can claim for the compensation under CTLI, when the borrower drives a car and involves in an accident. Firstly, the insurance company drafts the contract in accordance with “The Clauses for Motor Vehicle Insurance” drafted by China Insurance Regulatory Commission, which has stipulated that where the insured vehicle has been involved in an accident when driven by the insured or the authorized driver, …… for the compensation that the insured has right to be obtained, …… The insurer shall pay for the compensation. Secondly, “Tort Liability Law” comes into force on July 1, 2010, which has stipulated that the owner shall be liable for compensation corresponding to his/her fault. In practice, many insurance companies may refuse to pay such compensation with the following reasons: (1) the contract has stipulated that the insurer only compensate to the insured because the owner has no fault and shall not be liable for the compensation. (2) the borrower is not the party of the contract(which means he/she is not the insured), so he/she has no right to claim for compensation.

However, more and more courts have negative attitude in the judicial practice on this issue. Through the analysis of relevant cases, we find that the court will roughly demonstrate via the following two aspects:

Firstly, the scope of the insured has been expanded. The reasons are as following:

“Insurance Law” Article 12 has stipulated that the term “insured” means the person whose property or whose own person him/herself is protected by the insurance contract and who has the right to claim insurance proceeds. The proposer may be the insured. Therefore, the proposer and the insured can be different persons. Where the borrower is a qualified driver whom obtains authorization from the owner, his/her action related to the vehicle shall be regulated by the insurance contract between the owner and the insurance company, including the application of exempted liabilities and the rights to claim for compensation in case of dangerous condition, in a word, the borrower should be covered as the insured when he/she uses the vehicle.

Meanwhile, “The Clauses for Motor Vehicle Insurance” has stipulated 6 provisions on the conditions of the exemption of liabilities, but the legitimate lending is excluded, so the insurance company should not be exempted from the liabilities.

Moreover, the compulsory traffic accident liability insurance and CTLI are both the insurance of liabilities, the scope of the insured shall not be different, “Regulation on Compulsory Traffic Accident Liability Insurance for Motor Vehicles” Article 42 has stipulated that the insured should include the owner as well as the authorized driver. So the scope of the insured under CTLI shall include the authorized driver.

In fact, some local judicial departments have released clear regulations “Memo of the High Court of Jiangsu Province on Several Issues about the Trial of Cases Concerning Disputes of Insurance Contract” Article 22 has stipulated that when the vehicle has been involved in the accidents related to insurance after it has been lent to the others, if the borrower or the driver assigned by the borrower has the qualified license and the insurer refuses to pay the insurance payment by insisting that the insured (the owner) is not liable to the third party, the court should not sustain the insurance company.

Secondly, in an individual case, if the insurance company fails to present and explain the terms in formatted contract, the courts may decide that the relevant items are invalid, and require the insurance company to undertake the compensation liabilities.

To sum up, when facing such cases, the two aspects hereinabove can be used to verify the legitimacy and rationality of claims of the owner or borrower.