The 2024 Legal Insurance Seminar Forum was successfully held

BEIJING, Oct. 17, 2024 /PRNewswire/ -- At the 2024 Legal Insurance Seminar held by Everybody Property & Casualty Insurance, the guests also had an in-depth discussion on the legal application of independent letters of guarantee and insurance certificates.

An independent letter of guarantee on demand

The letter of guarantee is not a product of the natural development of commercial activities in the mainland, but a "foreign product" that has been gradually introduced with the deepening of foreign exchanges. Letters of guarantee, especially independent guarantees, have important functions such as transaction guarantee, credit confirmation, and financing support, and have become indispensable and common financial guarantee tools.

Through its unique documented terms, the independent letter of guarantee reduces the risk of both parties to the transaction in the underlying transaction. If the guarantor has a dispute over whether the beneficiary has the right to claim compensation and whether the guarantor is in breach of contract, it can be resolved through litigation after the guarantor has paid. This mechanism protects the legitimate rights and interests of both parties to the transaction to the greatest extent and promotes the efficient progress of the transaction.

The existing laws of the mainland do not clearly stipulate the independent guarantee system. From the perspective of judicial practice, it mostly refers to the Provisions on Several Issues Concerning the Trial of Cases Involving Disputes over Independent Guarantees (hereinafter referred to as the "Provisions") issued by the Supreme People's Court on November 18, 2016.

Article 1 of the "Provisions" clearly points out: "The independent letter of guarantee referred to in these Provisions refers to the commitment of a bank or non-bank financial institution as the issuer to the beneficiary in writing, agreeing to pay a specific amount to the beneficiary or to make payment within the maximum amount of the letter of guarantee when the beneficiary requests payment and submits documents that meet the requirements of the letter of guarantee." ”

It is precisely on the basis of this provision that the insurance industry has room to exert its strength in the field of independent guarantees. "Local financial institutions are not allowed to open independent letters of guarantee, such financing guarantee companies can only entrust banks to open, insurance institutions because they can directly open independent letters of guarantee have certain advantages, and financing guarantee companies through the bank will inevitably increase transaction costs." Zhou Gen, director of the Guarantee Legal Professional Committee of the Shenzhen Lawyers Association, said.

As to whether the issuer of the letter of guarantee can recover after the settlement of the main creditor's rights dispute, in the case that the insurance company provides guarantee through "guarantee insurance + counter-guarantee measures", Zhou Gen believes that under the framework of the Insurance Law and the Guarantee Law, if the insurance relationship and the guarantee relationship are both established, the insurance company still has the right of recourse from the legal level.

Of course, the problems of independent guarantees do not stop there, and the experts at the meeting generally believed that it is precisely based on the existence of the problem that insurance companies should carefully weigh the relationship between the independent guarantee and the underlying transaction when dealing with independent guarantees, because the "pay-as-you-go" nature of independent guarantees makes it very convenient for beneficiaries to make claims, but it is also easy to cause fraud and needs to be handled prudently.

In the field of engineering and law, surety insurance is becoming an emerging form of guarantee

In the field of engineering construction, bid guarantees, performance bonds and quality guarantees are a common safeguard measure, and they are being replaced by engineering guarantee insurance.

In 2019, the Ministry of Housing and Urban-Rural Development, the National Development and Reform Commission, the former China Banking and Insurance Regulatory Commission and other six departments issued the "Guiding Opinions on Accelerating the Implementation of the Project Guarantee System for Housing Construction and Municipal Infrastructure Projects", which clearly stated that "banking financial institutions, engineering guarantee companies, and insurance institutions should be supported to carry out project guarantee business as project guarantee guarantors".

With the government's vigorous promotion of the participation of guarantee insurance products in the engineering field, engineering guarantee insurance products have gradually entered the public's field of vision. In recent years, the growth rate of performance guarantee insurance premiums, including bid guarantee insurance, completion performance guarantee insurance, project advance payment guarantee insurance and migrant workers' wage payment guarantee insurance, has accelerated significantly, and it has become a key non-vehicle product for property insurance companies.

From the perspective of the insurance industry, engineering guarantee insurance is a type of guarantee insurance, and industry entities also emphasize the difference between it and letter of guarantee, believing that the certificate of insurance or letter of guarantee issued by themselves under the guarantee insurance contract is not an independent letter of guarantee that is "pay-as-you-go".

However, the main body of the construction industry believes that as a product of the development and innovation of the project guarantee system, there is no essential difference between engineering guarantee insurance and bank guarantee or guarantee company guarantee.

Therefore, in the field of construction engineering, guarantee insurance, which is similar to the independent letter of guarantee to some extent, has brought many contract disputes to insurance institutions. Zhou Gen also said frankly in the forum: "If the nature of guarantee insurance is not clearly determined, it will involve a series of issues, such as the insurer's right of recourse after payment. In addition to legal proceedings, non-financing guarantee insurance has also been widely used in the engineering field, and in many cases it has also replaced the functions of independent letters of guarantee and security deposits. ”

In the context of legal proceedings, guarantee insurance has become the choice of more and more parties. Where a civil litigant applies for property preservation in litigation, it is generally necessary to provide a guarantee. On the one hand, the property preservation security system is to prevent the parties from abusing their rights, and on the other hand, it is also to ensure the smooth realization of the respondent's claim for losses in the case of erroneous preservation.

The Provisions of the Supreme People's Court on Several Issues Concerning the Handling of Property Preservation Cases by the People's Courts (Implemented in 2016 and Amended in 2020) clearly stipulate that two new types of guarantees, namely the letter of guarantee issued by the insurer in accordance with the property preservation liability insurance contract and the independent letter of guarantee of the financial institution, are effective property preservation guarantees.

There are many types of letters of guarantee from insurance companies and their design is quite different from bank guarantees, and the legal relationships involved are more complex, because the essence of insurance is luck. Zhou Gen explained that taking the continued enforcement of legal insurance as an example, when the guarantee is provided, the secured claim has not yet been established, that is, the guarantee is established before the main claim, but whether the main claim can be established ultimately depends on whether the main debt will arise.

It is worth noting that the continued enforcement of insurance, which can play a huge role in the litigation process, is a new type of insurance that has only been introduced in the insurance market in recent years. For example, the property insurance of Dajia Insurance, which is deeply involved in legal insurance in the industry, was only born in 2019. However, in the five years of development, this type of insurance has played a huge role in the process of speeding up the enforcement of the law by the courts.

Regarding the liability logic of continuing to enforce insurance, Zhu Wenlin, from the liability insurance department of property and casualty insurance, said that in order to continue to promote the continued enforcement of the case, the applicant for enforcement needs to provide an enforcement guarantee to the court, and the continued enforcement guarantee insurance can provide a guarantee for the applicant for enforcement, and give certain compensation to the person subject to enforcement, outsiders and other interested parties when the application for enforcement is wrong.

At present, the development of legal insurance is still at the starting point, but compared with traditional guarantee methods, this type of insurance mechanism is lower cost and more efficient, and can give full play to the economic leverage of insurance, effectively combat the abuse of enforcement objections and delay in enforcement procedures, and effectively provide insurance assistance for "solving the difficulty of enforcement".

Among the many insurance companies engaged in legal insurance, we have gradually established industry-leading competitiveness by virtue of our proprietary legal review team, intelligent legal review system, informatization of the whole process of guarantee, and complete product matrix, and its continuous cultivation in this field has not only further improved the legal insurance product system in mainland China, but also made unremitting efforts to enhance judicial credibility and efficiency.