DeHeng successfully defends insurance company against claim 

of damages caused by wrongful application of property preservation



Recently DeHeng has received a second instance trial court judgment which decides that, regarding the lawsuit brought by a construction company against an insurance company for damages arising from application of property preservation, the insurance company has no liability and all of the construction company's claims are dismissed.


Background information of the case: Construction company A signed a supply contract with trade company B, according to which B shall supply steel products for A and A shall pay for the goods. The supply contract has provisions about the payment for goods, the time of delivery and the "advancement fee" for steel products  (which provides that A should pay "advancement fee" RMB3.5 yuan per ton pay day of the steel cargo). Because construction company A failed to pay as scheduled, trade company B sued A to court, demanding for the unpaid sales money and the "advancement fee". During the court proceeding, trade company B applied for property preservation against construction company A and required insurance company C to provide property preservation insurance. In this case, the court only supported part of the claims of company B. More specifically, the court found the "advancement fee" is in nature of damages for delay of payment of the sales price of the cargo and its amount is too high; therefore, the court made significant adjustment to trade company B's claim for the "advancement fee". Later construction company A filed a lawsuit against insurance company C, claiming that insurance company C should share the liable for wrongful application of property preservation together with trade company B.

After appointed by insurance company C, DeHeng put together a team to study the case. The team was headed by Mr. Peng Xianwei, partner of DeHeng Beijing, and mainly participated by laywers including senior lawyer Wu Yanan. The project team searched similar judgments made in recent years on wrongful application of property preservation in detail and wrote a comprehensive defense. After the first and second instance trials, the court ruled that there is no wrongful application of property preservation and insurance company C bears no liability.

According to the Civil Procedural Law of the People's Republic of China, when the plaintiff applies for property preservation, he/she shall provide counter-guarantee against possible liabilities for wrongful application. Before the preservation insurance was available in the market, the counter-guarantee often came in the form of cash or real estate with the amount equivalent to the subject matter, which may cause great difficulties to the applicant. The preservation insurance offers a perfect solution for counter-guarantee. Insurance companies are deep-pocketed and courts are willing to accept their letter of guarantee. It may bring certain risks for insurance companies to provide preservation insurance, since in judicial practice Chinese courts have different standards for determination on issue of wrongful application of property preservation (such as how to determine whether the preservation application is malicious or not), Given the short history of preservation insurance in PRC courts, there are few cases directly against insurance companies, not to mention second instance trial judgments. This case is thus of positive reference value for the preservation insurance business.


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