Appellate Court Awards CNY 500,000 Despite Drunk Driving Exclusion
In a significant ruling on insurance law, an appellate court in Eastern China City ordered an insurer to pay CNY 500,000 in third-party liability coverage to a policyholder who was driving drunk at the time of a fatal accident. The court found that the insurer failed to properly explain the drunk driving exclusion in the policy, rendering the exclusion void. The decision reversed a lower court judgment that had denied coverage based on the illegal nature of drunk driving.
Mr. Feng purchased a motor vehicle insurance policy from China Dadi Property Insurance Co., Ltd. (Eastern China City Branch) on January 12, 2009. The policy included compulsory traffic accident insurance and commercial third-party liability insurance with a limit of CNY 500,000, along with a waiver of deductible clause. On July 29, 2009, Mr. Feng drove his insured car while intoxicated and collided with Mr. Lu, who was riding an electric bicycle. Mr. Lu died from his injuries. The traffic police determined that Mr. Feng was driving under the influence and that both parties bore equal responsibility for the accident. In a separate civil action, Mr. Lu’s family obtained a judgment requiring Mr. Feng to pay 60% of the losses exceeding the compulsory insurance limit, totaling CNY 501,303.79. Mr. Feng paid that amount and then sought reimbursement from his insurer under the commercial policy.
The insurance policy contained a standard exclusion clause in Article 6, which stated that the insurer would not be liable for any third-party damages if the driver consumed alcohol. During the trial, it was established that the signature on the policy’s “applicant declaration” was written by the insurer’s sales agent, not by Mr. Feng himself. The trial court ruled against Mr. Feng, holding that drunk driving is a serious illegal act and a matter of common knowledge, so the insurer was not required to provide a specific explanation of the exclusion. Mr. Feng appealed, arguing that the insurer had failed to fulfill its legal duty to explain the exclusion clause.
The appellate court reviewed the case and confirmed the facts found by the lower court. The court then applied Article 17 of the Insurance Law of the People’s Republic of China, which requires an insurer to clearly indicate and explain any exemption clauses in standard-form insurance policies. The court held that the drunk driving exclusion in Article 6 was clearly a clause that exempted the insurer from liability. Since the insurer could not prove that it had provided Mr. Feng with the required prompt notice and clear explanation, the clause did not take effect. The court rejected the argument that the illegal nature of drunk driving or its status as common knowledge relieved the insurer of its statutory duty.
The appellate court emphasized that the insurer’s obligation to explain exemption clauses is a strict requirement under Chinese insurance law. Even though drunk driving is widely recognized as illegal and dangerous, the law does not create an exception for such conduct. The insurer must still give the policyholder a meaningful opportunity to understand the exclusion. Without proper disclosure, the exclusion cannot be enforced against the policyholder. The court found that the lower court had erred by relying on the policyholder’s presumed knowledge of the law to bypass the insurer’s duty.
The appellate court reversed the trial court’s decision and ordered the insurer to pay Mr. Feng CNY 500,000 in insurance proceeds within ten days. The insurer was also ordered to bear all court costs for both the trial and appeal. This case serves as a reminder that insurers must strictly comply with their duty to explain exclusion clauses, even when the excluded conduct is clearly illegal. Policyholders who face denial of coverage based on exclusions that were not properly explained may have grounds to challenge such denials in court.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.