ON THE COORDINATED DEVELOPMENT OF PUBLIC NATURE AND COMMERCIAL NATURE OF LIABILITY INSURANCE

Luo Can*0

The practical problem that the development of China’s liability insurance face can be attributed to the contradiction between public nature and commercial nature. Judging from the development history and the four-dimensional attribute of modern insurance, there is no contradiction between the two and the coordinated development has necessity and feasibility. The coordinated development of the insurance transaction fairness and contract freedom, the insurance public policy and operation technology should be the basic standard. In the future, the system will be optimized from straightening out the relationship between the liability insurance law and the tort liability law, innovation of insurance products, moderate expansion of compulsory insurance, the commercial operation of policy insurance and the improvement of insurance regulatory mechanism, etc.

I. INTRODUCTION

‘In modern society, insurance policies are not merely contracts but also are designed to perform particular risk management, deterrence and compensation functions important to economic and social ordering.’1 In China, fully developing commercial insurance, especially the social management function of liability insurance, has long been the basic policy of the Party and the State. The report to the 19th National Congress of the Communist Party of China (CPC) clearly states that ‘adopting a new vision for development’ and the reports to the 17th and 18th CPC National Congress point out to make the commercial insurance play a role in the social security system. The Several Opinions of the State Council on the Reform and Development of the Insurance Industry explicitly requests to vigorously develop liability insurance and improve work safety assurance and emergency response mechanism; The Several Opinions of the State Council on Accelerating the Development of the Modern Insurance Service Industry puts forward that liability insurance plays a part in resolving conflicts and disputes and emphasis shall be laid on the development of liability insurance in the fields such as environmental pollution, food safety, medical liability, medical accidents, internship safety and campus security, which are closely related to public interests. The Integrated Reform Plan for Promoting Ecological Progress issued by the CPC Central Committee and the State Council explicitly proposes to vigorously develop compulsory environmental pollution liability insurance. The China Insurance Regulatory Commission, all departments, local governments and other parties, actively explore and develop the construction of the legal system of liability insurance. In recent years, the China Insurance Regulatory Commission and various departments have jointly issued more than 10 relevant policies and regulations and over 100 regulations and normative documents, such as the Guidelines for the Pilot Projects of Compulsory Environmental Pollution Liability Insurance and the Notice of Actively Promoting Fire Public Liability Insurance and Effectively Improving Fire Accident Prevention and Risk Management. During the Two Sessions at all levels for the past few years, delegates also put forward a number of proposals. For example, insurers should positively conform to social demand, regard the liability insurance market as a strategic focus and offer relevant products and services.

However, the development of China’s liability insurance market faces many problems. The public have great expectations for the public function of insurance but have a negative evaluation of business operations of insurance; such public opinions have affected the judicial stance of liability insurance disputes. In many cases, the court has to deviate from the legal provisions and insurance clauses to protect policyholders and third parties in a weak position; insurance companies and industry could have used the contractual mechanism to guide the court to respect the market, but there are few reflections and actual efforts. As a result, incidents such as the declination of coverage and loss occur frequently. In addition, products with broad social demands are difficult to promote or operate at a loss due to the limitation of operation technology. In this regard, many normative documents put forward the policy opinions on the development of the liability insurance market from the perspective of public nature, but do not elaborate how to deal with the relationship between public nature and commercial nature, which impacts the public nature in practice.

The root of these problems lies in the contradiction between public nature and commercial nature of liability insurance in China. We wonder if there is a true or false contradiction between the two. Can they achieve the coordination? If so, what are the criteria? How to achieve it? Based on this, the paper is divided into four parts. The first part is to sort out the status?quo?of the contradiction between public nature and commercial nature of liability insurance in China; the second part demonstrates the necessity and feasibility of the coordination of public nature and commercial nature of liability insurance; the third part analyzes multiple criteria of the coordination from four dimensions, which are the judicature, public, market and government; the fourth part puts forward proposals for the improvement of relevant legal systems in China.

II. THE CURRENT CONTRADICTION BETWEEN 

PUBLIC NATURE AND COMMERCIAL NATURE OF 

LIABILITY INSURANCE IN CHINA

Modern liability insurance has become a financial instrument that spreads the risk of the infringing party’s behaviors and ensures the injured party’s  compensation. In particular, China’s product and food safety problems have frequently occurred in recent years and a series of incidence such as problematic vaccine have provoked deep thought of the public. The public function of liability insurance products has been embraced by people gradually. However, the public has negative emotions about the business operations?of insurance. Due to the lack of insurance culture and irrationality of insurance marketing behaviors, etc., the public opinion environment which the insurance industry in China faces is unsatisfactory. The affirmative expectation of the public function of liability insurance and the negative evaluation of the insurance market reflect the contradictory status quo of public nature and commercial nature at the ethical level. It seems that in the public opinion atmosphere, although liability insurance has the attributes of public products, it is difficult to achieve through business operations. In fact, the contradiction between public nature and commercial nature of liability insurance are even prominent at the judicial and market levels, which has become a realistic problem urgent to be solved in the development of liability insurance in China.

A. The Contradiction at the Judicial Level

The negative evaluation of insurance market and the public opinion atmosphere overemphasizing the public nature of insurance have affected the judicial stance of liability insurance disputes. At the judicial level, even though the provisions and contractual stipulations are clear and explicit, the court shows a tendency to deviate from the legal provisions for the protection of policyholders and the third parties. Take the illegal driving risk such as drinking alcohol and driving without a license, etc., as an example. According to article 22 of the Regulation on Compulsory Traffic Accident Liability Insurance for Motor Vehicles of 2006, if the insured has an insurance accident when drinking alcohol, driving without a license, driving the type of vehicle which cannot match the driving license, or not renewing the driving license, the insurance company underwriting the compulsory traffic accident liability insurance for motor vehicles (compulsory traffic accident liability insurance) only pays rescue expenses in advance and undertakes no compensation liability.2 

However, judgments rendered by local courts when applying the article are various. Reviewing the PKULaw database, results in more than 800 cases of compulsory traffic accident liability insurance applying article 22 show that if the insured has an insurance accident when drinking alcohol, driving without a license, driving the type of vehicle which cannot match the driving license, or not renewing the driving license, judgments of the local courts are not unified (Table 1). Among 168 drunk?driving?cases of compulsory traffic accident liability insurance, four types of judgments are as follows: there are 33 cases in which the insurance company only pays rescue expenses in advance, accounting for about 20 percent; there are 110 cases in which the insurance company?compensates personal injuries within the limit of liability, accounting for about 65.5 percent; there are 12 cases in which the insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party, accounting for about 7.1 percent; there are 13 cases in which the insurance company compensates personal injuries and property damage within the limit of liability, accounting for about 7.7 percent. Among 455?cases of driving without a license of compulsory traffic accident liability insurance, four types of judgments are as follows: there are 57 cases in which the insurance company only pays rescue expenses in advance, accounting for about 12.5 percent; there are 351 cases in which the insurance company?compensates personal injuries within the limit of liability, accounting for about 77.1 percent; there are 4 cases in which the insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party, accounting for about 0.9 percent; there are 40 cases in which the insurance company compensates personal injuries and property damage within the limit of liability, accounting for about 8.8 percent. Among 31?cases of drunk?driving?and driving without a license of compulsory traffic accident liability insurance, four types of judgments are as follows: there are 2 cases in which the insurance company only pays rescue expenses in advance, accounting for about 6.5 percent; there are 26 cases in which the insurance company?compensates personal injuries within the limit of liability, accounting for about 83.9 percent; there is 1 case in which the insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party, accounting for about 3.2 percent; there are 2 cases in which the insurance company compensates personal injuries and property damage within the limit of liability, accounting for about 6.4 percent. Among 81?cases of compulsory traffic accident liability insurance in which the type of vehicle cannot match the driving license, or the driving license is not renewed, five types of judgments are as follows: there are 10 cases in which the insurance company only pays rescue expenses in advance, accounting for about 12.3 percent; there are 55 cases in which the insurance company?compensates personal injuries within the limit of liability, accounting for about 67.9 percent; there are 3 cases in which the insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party, accounting for about 3.7 percent; there are 11 cases in which the insurance company compensates personal injuries and property damage within the limit of liability, accounting for about 13.6 percent; there are 2 cases in which the insurance company compensates personal injuries and property damage within the limit of liability and seeks reimbursement from the infringing party, accounting for about 2.5 percent. In more than 80 percent of the cases, the court holds that the liability of the insurance company is not limited to the advance payments of rescue expenses, but should also compensate the injured party for the loss.

In response to the problem mentioned earlier that the criteria of judgment are not unified, the Supreme People’s Court issued the Interpretation on Several Issues concerning the Application of Law in the Trial of Cases on Compensation for Damage in Road Traffic Accidents. According to article 18, if the insured has an insurance accident when drinking alcohol, driving without a license, driving the type of vehicle which cannot match the driving license, or not renewing the driving license, the insurance company underwriting the compulsory traffic accident liability insurance?compensates personal injuries within the liability limit and can seek reimbursement from the infringing party.3 The reason for the change of the provisions is that the compulsory traffic accident liability insurance is a public product and should ensure that the injured party receives compensation in a timely manner, which is the public responsibility that the insurance company should undertake.4 

Reviewing the PKULaw database, the results of 300 cases of compulsory traffic accident liability insurance applied to the article show that the judgments of local courts are different (Table 2). Among 102 drunk?driving?cases of compulsory traffic accident liability insurance, three types of judgments are as follows: there are 28 cases in which the insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party, accounting for about 27.5 percent;5 there are 35 cases in which the insurance company?compensates personal injuries within the limit of liability, accounting for about 34.3 percent; there are 39 cases in which the insurance company compensates personal injuries within the limit of liability and the infringer compensates the deficiency, accounting for about 38.2 percent. Among 149?cases of driving without a license of compulsory traffic accident liability insurance, three types of judgments are as follows: there are 63 cases in which the insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party, accounting for about 42.3 percent; there are 32 cases in which the insurance company?compensates personal injuries within the limit of liability, accounting for about 21.5 percent; there are 54 cases in which the insurance company compensates personal injuries within the limit of liability, and the infringer compensates the deficiency, accounting for about 36.2 percent. Among 20?cases of drunk?driving?and driving without a license of compulsory traffic accident liability insurance, three types of judgments are as follows: there are 5 cases in which the insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party, accounting for about 25 percent; there are 8 cases in which the insurance company?compensates personal injuries within the limit of liability, accounting for about 40 percent; there are 7 cases in which the insurance company compensates personal injuries within the limit of liability, and the infringer compensates the deficiency, accounting for about 35 percent. Among 29?cases of compulsory traffic accident liability insurance in which the type of vehicle cannot match the driving license, or the driving license is not renewed, three types of judgments are as follows: there are 8 cases in which the insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party, accounting for about 27.6 percent; there are 11 cases in which the insurance company?compensates personal injuries within the limit of liability, accounting for about 37.9 percent; there are 10 cases in which the insurance company compensates personal injuries within the limit of liability, and the infringer compensates the deficiency, accounting for about 34.5 percent. 

To sum up the trial thought of the court, it seems that the infringer does not undertake the responsibility when the loss of the injured party does not exceed the limit of liability.6 Only when the loss of the injured party exceeds the liability limit, will the court divide the responsibilities of the insurance company and the infringer.7 With regards to the right of recourse, the court does not hold a positive attitude in the cases and the judgment does not explicitly respond to the issue under most circumstances.8 Certainly, if the insurance company files a lawsuit against the infringer to enforce the right of recourse, it can prevail on the whole.9 In addition, there are also many judgments that clearly deny the insurance company’s right of recourse. ‘In this case, the vehicle (Anhui 12/No.xxxxx) was insured at the Qihe branch in Dezhou of Yongan Property Insurance Company and the company’s obligation to compensate the third party He is a performance of contractual obligations. It has no factual and legal basis to file a claim against Shao Wei and Han Lei for reimbursement, so the court does not uphold the support.’10

Despite the differences in the content of the two articles, the trial thought of the court are similar. In face of the insurance company and infringer, the insurance company should be responsible for the compensation of the injured party as much as possible. Although the judgment results of most cases deviate from explicit regulations of the provisions, it seems to be reasonable from the perspective of protecting the injured party in a weak positon. Protecting the interests of the weak is to demonstrate the public nature of insurance, however, what we have to face is that it objectively causes serious consequences of undermining the principle of insurance technology, which adversely affects the healthy operation of the insurance market.11 The reason is that the public nature and commercial nature cannot coordinate. It seems that people must make a choice between the two and the judge has to evade the legislation and basic discipline of insurance market operation to achieve the former. 

Table 1:            

[Results of 809 C

to Article 22 of t

for Motor Vehiclases of Compulsory Traffic Accident Liability In

he Regulation on Compulsory Traffic Accident L

es of 2006surance A

iability In

ccording

surance

Cause of Action and NumberResultNumberPercentDrunk driving,

168 casesThe insurance company only pays rescue expenses in advance and undertakes no liability.3319.6The insurance company?compensates personal injuries within the limit of liability.11065.6The insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party.127.1The insurance company compensates personal injuries and property damage within the limit of liability.137.7]

[Driving without a license,

455 casesThe insurance company only pays rescue expenses in advance and undertakes no liability.5712.5The insurance company?compensates personal injuries within the limit of liability.35177.1The insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party.40.9The insurance company compensates personal injuries and property damage within the limit of liability.408.8The insurance company compensates personal injuries and property damage within the limit of liability, and seeks reimbursement from the infringing party.30.7Driving without a license and drunk driving,

31 casesThe insurance company only pays rescue expenses in advance and undertakes no liability.26.5The insurance company?compensates personal injuries within the limit of liability.2683.9The insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party.13.2The insurance company compensates personal injuries and property damage within the limit of liability.26.4The type of vehicle cannot match the driving license, or the driving license is not renewed, 

81 casesThe insurance company only pays rescue expenses in advance and undertakes no liability.1012.3The insurance company?compensates personal injuries within the limit of liability.5567.9The insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party.33.7The insurance company compensates personal injuries and property damage within the limit of liability.1113.6The insurance company compensates personal injuries and property damage within the limit of liability, and seeks reimbursement from the infringing party.22.5]

Table 2:                

[Results of 300 Cas

Article 18 of the In

the Trial of Caseses of Compulsory Traffic Accident Liability Insur

terpretation on Several Issues concerning the App

on Compensation for Damage in Road Traffic Acance Acc

lication o

cidents ofording to

f Law in

  2012Cause of ActionResultNumberPercentDrunk driving,

102 casesThe insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party.2827.5The insurance company?compensates personal injuries within the limit of liability.3534.3The insurance company compensates personal injuries within the limit of liability, and the infringer compensates the deficiency.3938.2Driving without a license,

149 casesThe insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party.6342.3The insurance company?compensates personal injuries within the limit of liability.3221.5The insurance company compensates personal injuries within the limit of liability, and the infringer compensates the deficiency.5436.2Driving without a license and drunk driving,

20 casesThe insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party.525.0The insurance company?compensates personal injuries within the limit of liability.840.0The insurance company compensates personal injuries within the limit of liability, and the infringer compensates the deficiency.735.0The type of vehicle cannot match the driving license, or the driving license is not renewed,

29 casesThe insurance company compensates personal injuries within the limit of liability and seeks reimbursement from the infringing party.827.6The insurance company?compensates personal injuries within the limit of liability.1137.9The insurance company compensates personal injuries within the limit of liability, and the infringer compensates the deficiency.1034.5]

B. The Contradiction at the Market Level

With regard to the trial thought of deviating from provisions to protect the weak, the insurance company and the insurance industry could have taken advantage of the contractual mechanism to guide the court to respect the market, but there are few consideration and actual effort. The most typical representation is the duty of disclosure, which refers to that where the insurer makes an inquiry when entering into an insurance contract, the insurance applicant shall tell the truth. According to article 16 of the Insurance Law of China, whether the insurance applicant is intentional or negligent and whether the uninformed or concealed fact has an impact on the insurer, the insurance applicant will confront severe consequences of rescinding the contract and refusing indemnification when identified as the violation of duty. Under the rigid provision, the court must make a choice between full indemnity and no indemnity. In judicial practice, to protect the insurance applicant and maintain the public nature of insurance, the court tends to deviate from provisions and neglect to identify the violation of insurance applicant, leading to the insurance company’s defeat in many cases. In this regard, the insurance company can completely mitigate the unfavorable situation through the design of insurance clauses. For example, if the violation situation of insurance applicant is not serious, the insurance company will not refuse to insure when knowing the truth, but change some clauses or increase the premium. The insurance company cannot terminate the contract but it can be considered that relevant clauses have been changed, or can request the insurance applicant to pay the premium retroactively, or indemnify in accordance with the ratio of actual paid premium and premium that shall be paid. It can ease the deadlock of unitary consequence of violating article 16 and the court can have more choices to seek the balance between public nature and commercial nature more rationally.12 Regretfully, few insurance companies put it into practice.

Moreover, the formulation of insurance liability in many insurance clauses has limitations, which leads to the difficulty in promoting various types of insurance with broad market space to a large extent. The market coverage rate of directors and officers liability insurance introduced in 2002 was only 5 percent. Apart from the defective legal system of civil liability, another important reason is that the design of insurance liability clause is unscientific. Taking the insuring clauses of most insurance companies as an example, it stipulates in the section of the liability of the spouse, heirs, agent or trustee of the insured that any claim first brought against any insured person’s spouse arising from a management act committed by the insured person during the insurance period by the third party, will be covered by the policy to the same extent as if the claim had been brought against the insured person. Any claim brought against any insured person’s heirs and legal representatives following the death, incapacity or bankruptcy of the insured person during the insurance period by the third party, will be covered by the policy to the same extent as if the claim had been brought against the insured person. A natural person is unable to go bankrupt according to the Enterprise Bankruptcy Law of China. In addition, the reimbursement liability of the insured company stipulates that if the insured company is requested by law or articles of incorporation to compensate the insured person for loss within the insurance liability in article 3, then the insurance company will pay such loss. However, the Company Law does not stipulate the reimbursement system of the company. Additionally, the design of the exemption clause may incur paradox and it is difficult to realize the reimbursement. The liability for the compensation of directors and senior executives of listed companies to shareholders and investors is mainly divided into two types: one is the liability for investors caused by insider trading behaviors; the other is the liability for investors’ loss caused by making false statements. According to the provisions of the Securities Law, both of them are illegal behaviors and basically classified as the exemption clause. As a result, the actual effectiveness of directors and officers liability insurance is quite limited, which greatly hinders the promotion effect. Another example is the environmental liability insurance. Since the pilot work began in 2007, it has basically been promoted by the government and enterprises have been reluctant to insure, causing lawsuits with the environmental protection departments frequently. In 2015, the amount of insurance fell by 20 percent.13 Due to the limitations of professional knowledge and technology, the product experience is not good, and the enterprise is not satisfied with the underwriting plan, claim procedures and loss ratio. For example, many insurance companies request the accident identification issued by the environmental protection department at or above the county level to continue the claim procedure. Many enterprises where minor accidents occurred have to abandon the indemnity for the fear of undertaking liability. The food safety liability insurance that started the pilot work in 2015 also suffered from awkwardness. From the perspective of its coverage, it is limited to the civil liability caused by the negligence or force majeure of the food enterprise and the liability risk of intentional illegal acts is excluded, which precisely requires decentralized management by insurance mechanism. In addition, some insurances with relatively good promotion effects also face operational difficulties, such as public place liability insurance, medical liability insurance, public liability insurance for natural disaster, animal liability insurance, etc., insurance companies are negligent in underwriting and even deny coverage. 

The problems as mentioned earlier have already been attached importance in China’s policy and legislation. However, most of the existing policy and legislative documents only stipulate the public functions of liability insurance explicitly, but lack specificity and feasibility in how to achieve the coordinated development of public nature and commercial nature. Taking environmental liability insurance as an example, the Ministry of Environment reviewed and approved in principle the Measures for the Administration of Compulsory Liability Insurance for Environmental Pollution (Draft) on May 7, 2018, which further clarified the legal status of compulsory liability insurance for environmental pollution. Article 52 of the Environmental Protection Law stipulates that ‘The State shall encourage the purchase of environmental pollution liability insurance.’ It is determined as a policy insurance by local regulations or remains vagueness on account of no regulation. Moreover, what policy guarantees should be provided by government departments is not very clear. Another example is the fire public liability insurance. The Fire Protection Law stipulates that the State encourages enterprises to purchase and insurance companies to underwrite. The Notice on Actively Promoting Fire Public Liability Insurance and Strengthen Fire Prevention and Risk Management also proposes that government departments and insurance companies have duties and obligations to promote the fire liability insurance, but how to perform their duties and obligations is uncertain, and most of the regulations issued by local governments force to implement the insurance. The chaotic relationship between compulsory insurance and policy insurance, coupled with the lack of effective guidance and support from the government, further restrict the promotion and operation, which in turn causes the public function to be not fully realized.

Moreover, the relatively mature compulsory insurance also faces the contradiction between public nature and commercial nature at the policy level. The main performance is that the compulsory traffic accident liability insurance once confronted huge losses and is also required to increase the indemnity limit. Since its implementation, the compulsory traffic accident liability insurance has faced huge losses from 2006 to 2012.14 It has further caused problems that insurance companies violate legal requirements and refuse to insure high-risk vehicles such as buses, business trucks, motorcycles, tractors and trailers, etc. As for the direct cause of the loss of compulsory traffic accident liability insurance, the most criticized one is the unified formulation mechanism of premium rates. According to the current operating model, the government requires insurance companies to unify premium rates, prices and clauses and they have no right to decide. The ‘one size fits all’ approach is not fit for different actual situations and there is a disconnection with different actual risks. From this perspective, relying on investment has indeed eased the giant pressure on operating losses, but it has not really faced and solved the root causes of losses. Meanwhile, extremely low indemnity limit for compulsory traffic accident liability insurance has drawn particular criticism. According to the previous regulations, the indemnity limit for compulsory traffic accident liability insurance is only 60,000 yuan. From February 1, 2008, the indemnity limit for compulsory traffic accident liability insurance will be increased to 122,000 yuan. Specifically, if the insured motor vehicle is responsible for road traffic accidents, the indemnity limit for death and disability is 110,000 yuan, the indemnity limit for medical expenses is 10,000 yuan and the indemnity limit for property damage is 2,000 yuan. If the insured motor vehicle has no responsibility in the road traffic accident, the indemnity limit for death and disability is 11,000 yuan, the indemnity limit for medical expenses is 1,000 yuan and the indemnity limit for property damage is 100 yuan. Such indemnity level cannot meet the actual demand and call for increasing the limit upsurges.

Behind such contradictions is the dilemma that the public function of compulsory traffic accident liability insurance is difficult to achieve through commercial operations. At the government level, although it is hoped that compulsory insurance such as compulsory traffic accident liability insurance will perform powerful functions to maintain economic order and social stability as much as possible, the operation problems will still be solved by the market itself. In the long run, the lack of rational understanding of the latter tends to restrict the smooth development of the former.

III. THEORETICAL PROOF OF THE COORDINATION BETWEEN PUBLIC NATURE AND COMMERCIAL NATURE

From the above, it seems that contradiction between the public nature and commercial nature of China’s liability insurance are difficult to coordinate. We wonder if the relationship between the two remains so. Is it possible to achieve the coordination between public nature and commercial nature? If the answer is positive, is coordination a necessity? Is it feasible at the realistic level?

A. Noncontradiction between Public Nature and Commercial Nature

To clarify the relationship between public nature and commercial nature, we must first clearly define the connotation of public nature and commercial nature of liability insurance.

The commercial nature of liability insurance has no special meaning. As a member of the insurance family, liability insurance is a for-profit business operation, just like personal insurance and property insurance, which the commercial nature refers to. From the origin of liability insurance, the first ship owners’ mutual protection association founded in the UK in 1855 implementing the carrier liability insurance is actually a business behavior that gathers the liability risks of individual carriers and uses professional knowledge and technology to achieve profitability behavior. It includes various market links such as insurance actuary, clause design, marketing and risk management. It is also the operating principle of modern liability insurance.

The public nature of liability insurance mainly exists in the special context of its expanding function. At first, liability insurance mainly entered the market in order to spread the risk of the behavior of the insured. With the gradual improvement of the tort liability system, this kind of commercial behavior is emerging and takes effect in protecting the injured party with high efficiency at the realistic level. The biggest difference from the property insurance is that although it nominally provides services for the insured, ultimately the injured party acquire the insurance coverage. With the gradual enhancement of such function, liability insurance has gradually entered into the field of social governance, because protecting the injured party in a weak position is the indispensable requirement to maintain the basic order of society. The US is the most developed country in the liability insurance market. ‘Liability insurance pervades economic life in the US. Before Americans buy a cottage or a company, counsel a patient or a parishioner, design a product or provide a service, serve on the board of a corporation or a child-care center, drive a car or discipline a subordinate, we habitually consider both the possible attendant legal liability and how to insure against it.’15 With the rise and development of environmental liability insurance, food safety liability insurance, public liability insurance, etc., the public function of modern liability insurance has been continuously expanded. From a macro perspective, it has become a necessary tool to assist and replace the government’s management of social risks. As the consensus reached by American scholars, we have gradually realized that living in such an era, private insurance organizations are playing a role of government.16

In short, the public nature of liability insurance refers to the public demand for social risk dispersion and management. Its commercial nature mainly refers to the service supply that shares the loss. Commercial nature and public nature are not opposite. However, the key issue lies in how to make liability insurance perform the original social public function while maintaining long-term development of commercial profit. In fact, the development history of liability insurance is also precipitated with the expansion of public nature and improvement of commercial nature.

B. Necessity of Coordinating Public Nature and 

Commercial Nature of Liability Insurance

As a young member of the insurance family, the growth of liability insurance is quite circuitous, but the growth rate is rapid. Unlike personal insurance and property insurance, the history of liability insurance is questionable and controversial, but is also a legend with rapid development. The discipline behind is exactly that public nature and commercial nature are not contradictory and the coordination between the two is a necessity.

Liability insurance gives rise to a dispute over legality in the beginning. Opponents hold that it will weaken the civil liability function and trigger the crisis of the tort law. Before the 1780s, liability insurance was once in an illegal state. Then, with the US Breeden case establishing the validity of the liability insurance contract, the legitimacy of liability insurance system was gradually recognized by all parties. The reason is that policy is an effective way for the injured to receive compensation quickly and conveniently, just as the trial thought of the Missouri Supreme Court judge in this case. The insurance contract aims to achieve the fair value of legal system. Regarding doubts that lead to the employer’s bad behavior, it is impossible to simply conclude that the policy will definitely result in the negligent behavior of the actor. Actually, there is no clear evidence that moral hazard will be triggered. From the initial protection of the infringer to the current protection of the victim, the coordination between the public function and commercial operation of liability insurance is a significant basis for the legitimacy of such a system.

Then, the necessity of coordinating public nature and commercial nature is the basic driving force for the rapid development of the market in the past 100 years. Many modern insurances, such as environmental liability insurance, food safety liability insurance, safety production liability insurance, vaccine liability insurance, etc., have become financial instruments for the country to deal with important issues, because it involves not only the civil legal relationship at the micro level but also the national management issue at the macro level in many fields. The significance is not to solve infringement problems between the perpetrator and the victim, but more to conduct as an economic approach assisting the government in managing through the market operation. The characteristic of social public management of liability insurance has become more and more intense. Although it is a commercial operation that transfers risks for specific actors, it has already played a strong part in sharing responsibility for the national government. Daily life without liability insurance is beyond imagination.  In the US, ‘some cities closed jails and suspended police patrols until insurance coverage was obtained. Parks and forest preserves were closed. Fourth of July celebrations were cancelled because of concerns over uninsured liability.’17

To explore the development history of liability insurance, it is not difficult to find that the coordination between public nature and commercial nature is essential and of great significance. It not only determines the legal existence and development of liability insurance, but also the key that the government uses the mechanism to manage social risks and maintain social stability.

C. Feasibility of Coordinating Public Nature and 

Commercial Nature of Liability Insurance

The future of liability insurance has broad development space, and it is even regarded as a key growth point for the future insurance market. The reason is that in the past, the coordination between public nature and commercial nature was not only a necessity, but also has long-term feasibility in the present and the future. According to the statistics and prediction of Swiss reinsurance agency, although the US is not the birthplace of liability insurance system, it has already led the global market and will retain the lead position of the largest liability insurance market in the future. One of the important reasons is that the insurance coverage of public demand can be progressively expanded to risk fields that are closely related to the public interest, which is both a challenge and an opportunity for market operation. For a country, the development degree of liability insurance market will affect the development of the entire insurance market. Taking the US as an example, the US liability insurance market has seized the opportunity to achieve a leap-forward development, makes a breakthrough step by step in various fields such as motor vehicle liability, environmental liability, safety production liability, food safety liability, medical liability, and public liability. Since 2012, premiums (excluding employer liability insurance, third party liability insurance for the motor vehicle) have accounted for more than 30 percent of total commercial insurance premiums. The prosperity of the entire insurance market is closely related to the contribution of liability insurance. Looking back at China, although liability insurance has started for less than 40 years, it has already become the ninth largest liability insurance market in the world, and will further make a breakthrough in the future.18 It is also because China has taken many feasible measures to achieve the coordination of public nature and commercial nature in recent years and has strengthened and made a breakthrough in the security fields such as food, product, environment, fire, infrastructure, etc., providing a strong booster for the future development. 

Professor Kenneth Abraham, an American scholar, proposed that modern insurance has four-dimensional concepts, which are contract, public welfare supervision, product and government governance. ‘The contract conception understands insurance as a voluntary agreement between an individual policyholder and an insurer, subject to the constraints and rules of construction that are ordinarily placed on such agreements by the law of contracts. This conception supplies the literal view of insurance to which the other conceptions, understood as metaphors or analogies, contrast themselves. Under the public welfare supervision conception, contracts are a mere tool for bringing the regulated relationship into existence. On this view, insurance is a cartelized industry selling a good sufficiently essential that it requires government regulation in the public interest. The product conception sees insurance as resembling a tangible good more than a promise to perform financial services and therefore appropriately subject to rules analogous to those that govern defectively designed products. The tort rather than the contract is the therefore core paradigm in this conception. Finally, the governance conception views insurance as a surrogate for the government in controlling behavior and protecting against misfortune, as well as an organizational arrangement among policyholders. These governance relationships create the risk of abuse by the insurer for its own ends and for the ends of the majority of policyholders at the expense of the minority. Ultimately, adopting a particular conception of insurance is no substitute for making or rejecting the normative choices that each conception entails. Going back at least to the legal realists, we have understood that it is not our concepts, but our political, economic and social values that underlie and underwrite legal doctrines and practices.’19 It is especially true for liability insurance.

It can be said that the coordination between public nature and commercial nature is the indispensable requirement of the insurance system itself and can be realized through arrangements of the specific legal system, which also directly determines the development pace of future liability insurance. However, due to the serious lack of a legal system for liability insurance in China, the aforementioned contradiction has been further aggravated. The Insurance Law of China has only four provisions on liability insurance, which is far from meeting the realistic need of coordinating the relationship between public nature and commercial nature. The Interpretation IV on Several Issues concerning the Application of the Insurance Law has specific provisions on this, but there are still limitations. For example, there is a dispute over that ‘the insured is negligent in requesting’.20 According to article 15, as long as a third party can file a lawsuit, the court can regard that the insured is negligent in requesting. The provision indicates that if the people’s court accepts the case, it can be determined that the insured is negligent in requesting and the insurer will participate in the lawsuit. Although it can provide convenience for a direct claim of the third party, demonstrating the public nature to safeguard the rights and interests of the injured party, but brings a big challenge to business operation of the insurance company in practice. Therefore, how to make coordination of the two feasible is a major problem that must be solved in the future legal system.