DeHeng Successfully Defends Insurance Company

 in the Second-instance of Provincial Higher People's

Court regarding "Property Preservation Insurance"

2020-01-20

Recently, DeHeng received the second-instance judgment from Heilongjiang Provincial Higher People's Court, which decided that, regarding the alleged claim for wrongful application of property preservation by Mr. Fei, the involved property preservation is not wrongful, and the Insurance Company represented by DeHeng would not need to assume any compensation liability. 

Case summary: 

In 2014, Mr. Fei et al. and Mr. Geng signed an Equity Transfer Agreement, which provided that Mr. Fei et al. shall transfer 100% of Company A's equity to Mr. Geng. For that reason, Mr. Geng issued an IOU (I Owe You) for the transfer amount, affixed with the special financial seal of Company A. Then Mr. Geng became the shareholder and legal representative of Company A. Since Mr. Geng did not repay the equity amount, Mr. Fei filed a lawsuit, demanding Mr. Geng and Company A to repay him the equity amount jointly. In order to avoid irreparable damages, Mr. Fei applied to the court and the court preserved Company A's factory inventory.

Afterwards, in the case of equity transfer disputes, the court of first-instance held that Mr. Geng and Company A shall repay the transfer money to Mr. Fei jointly. However, this judgment was reversed by the court of second-instance, which rejected Mr. Fei's claim against Company A and held that only Mr. Geng was responsible for the repayment. Then, Company A sued Mr. Fei and the Insurance Company, demanding them to bear the losses caused by the wrongful application of property preservation. Regarding this wrongful property preservation lawsuit, the court of first-instance decided that Mr. Fei's application for preservation was wrongful and held that Mr. Fei shall compensate the property loss caused by his wrongful application, and the Insurance Company shall be liable for Company A's losses jointly and severally. The reason of the court of first-instance was that Mr. Fei, at the time of the application, did not pay reasonable and prudent attention to the facts he claimed and the evidence he held, which caused wrongful property preservation against person not liable (Company A).

Commissioned by the Insurance Company, DeHeng put together a project team headed by Peng Xianwei, partner of its Beijing office, and Wu Yanan, etc., main participant lawyers, to look into the case. They searched the judgments of similar cases made in recent years on wrongful application of property preservation in detail and wrote a comprehensive petition for appeal. Eventually, after the trial of the second-instance, the Higher People's Court of Heilongjiang Province reversed the judgment of the court of first-instance, which held that there is no wrongful application of property preservation and the Insurance Company would not need to bear the joint and several compensation liability.

In recent years, many insurance companies launched property preservation insurance, which facilitates litigants in applying for property preservation, while at the same time exposes themselves to a relatively high risk of wrongful preservation. Given the novelty of such kind of insurance, cases with the insurers being sued directly were rare, and among which insurers managed to win the appeal in the second-instance of the Provincial People's High Court were even rarer. So, this case has positive reference value for the business of preservation insurance.