I. Common Criminal Offenses Encountered in Insurance Claims
Common types of criminal conduct seen in insurance claims include fraudulently obtaining indemnity payments, misappropriating surrender or reduction refunds due to policyholders, or under the guise of surety insurance defrauding banks and other financial institutions.
At the application stage, an applicant may fabricate the subject-matter of insurance or falsify underwriting documents. When a loss occurs, the insured may invent a non-existent event, concoct a fictitious cause, or intentionally bring about the loss. During the adjustment phase, the claimant may collude with “claim-hustlers” to inflate damages, forge loss certificates, or bribe adjusters, surveyors and property-valuers to supply false reports. On surrender or reduction of coverage, insiders may exploit the policyholder data and policy files under their control to embezzle the refund proceeds.
II. How to Handle the Criminal–Civil Interface in Insurance-Claim Cases
When an insurance claim is intertwined with suspected criminal conduct, Chinese courts usually adopt one of three approaches:
1.Separate Proceedings
Article 1 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Economic Disputes Involving Suspicions of Economic Crime (2020 Amendment) provides:“Where the same natural person, legal person or unincorporated organization is involved in both an economic dispute and a suspicion of economic crime on the basis of different legal facts, the economic-dispute case and the criminal-suspicion case shall be tried separately.”
Article 10 provides，“When a people’s court, in the course of trying an economic dispute, discovers clues or materials indicating a suspicion of economic crime that are related to the case but do not concern the same legal relationship, it shall refer such clues or materials to the competent public-security organ or procuratorial organ for investigation and prosecution, while the economic-dispute case shall continue to be tried.”
Article 128 of the Minutes of the National Conference on Civil and Commercial Adjudication provides，“Where the same party is involved in both a civil or commercial dispute and a suspected criminal offense on the basis of different facts, the civil or commercial case and the criminal case shall be tried separately. The following are typical situations: (1) The principal debtor under the main contract is suspected of a crime or has been convicted of a crime, and the creditor seeks to hold the guarantor civilly liable; (2) The act of an individual who, in the name of a legal person, unincorporated organization, or another person, enters into a contract is suspected of a crime or has been convicted of a crime, and the other party to the contract seeks to hold that legal person, unincorporated organization, or other person civilly liable; (3) The official act of a legal representative, person in charge, or other employee of a legal person or unincorporated organization is suspected of a crime or has been convicted of a crime, and the victim seeks to hold the legal person or unincorporated organization civilly liable; (4) The tortfeasor is suspected of a crime or has been convicted of a crime, and the insured, beneficiary, or other indemnity claimant requests the insurer to pay the insurance proceeds; (5) The victim seeks to hold civilly liable a party other than the individual suspected of the criminal offense.”
As the foregoing provisions make clear, separate handling of civil and criminal cases is premised on the two proceedings involving different legal relationships or different legal facts.
Whether the circumstances constitute the “same fact” is to be determined—according to opinions expressed by Justices of the Supreme People’s Court and established judicial practice—by examining three elements: the actor and the counterparty, the legal relationship and the act itself.
Judged from the standpoint of the actor and the counterparty. The term “same fact” refers to an act committed by the same person; acts carried out by different persons do not constitute the same fact. For example, if a legal representative, person-in-charge or other employee commits a crime but the legal person itself is not held criminally liable, the subjects of the criminal act and of the civil act are different; consequently, the situation will generally not be deemed the “same fact.”
Determination from the perspective of the legal relationship. If the victim in the criminal case is also the counterparty in the civil legal relationship, the facts will generally be regarded as the “same fact.” For instance, the tortfeasor is suspected of a crime, and the insured, beneficiary or other indemnity claimant requests the insurer to pay the insurance money; or the principal debtor under the main contract is suspected of a crime, and the creditor seeks to hold the guarantor civilly liable. Because these situations involve different legal relationships, neither constitutes the “same fact.”
Determination from the perspective of the constitutive facts. Only when the facts disputed in the civil case are also the constitutive facts of the criminal offence will they be deemed the “same fact.” In an insurance-claim dispute, the facts usually contested between the policyholder and the insurer are whether the insurance contract was validly concluded and whether the insurer is obliged to indemnify. If an employee of the insurer is suspected of embezzling funds, the facts at issue in the criminal case are generally whether the suspect was an employee, whether he or she took advantage of the position, and whether the funds were misappropriated for profit or personal use and not returned for more than three months. The disputed facts are therefore not identical.
2.Criminal Proceedings First
Article 11 of 2020 Amendment stipulates，“Where a case accepted by the people’s court as an economic dispute, after trial, is found not to be an economic dispute but to involve suspicions of an economic crime, the court shall rule to dismiss the action and refer the relevant materials to the public-security organ or the procuratorial organ.”
Understanding and Application of the Minutes of the National Conference on Civil and Commercial Adjudication by the Supreme People’s Court states，“Where a case is filed as a civil or commercial dispute but is ultimately determined in substance to be a criminal offence, and no genuine civil or commercial legal relationship exists between the parties to the civil action, the court shall rule to dismiss the action and refer the entire case to the public-security organ or the procuratorial organ.”
For example, in Supreme People’s Court case (2020) Zui Gao Fa Min Shen No. 6324, a furniture company took out comprehensive property insurance with an insurer for, inter alia, its showroom on the second floor of a commercial complex in Gulou District, Fuzhou. On the evening of 14 May 2015, a fire broke out in the complex, causing a total loss of the insured property. After the incident the furniture company promptly notified the insurer of the fire. However, a third party reported to the public-security authorities that the fire had been started deliberately by Zhou, the furniture company’s legal representative. Zhou was first placed under criminal detention and then released on bail. According to the case file and investigation report submitted by the Gulou Sub-bureau of the Fuzhou Public Security Bureau to the courts of first and second instance, Zhou had been subjected to criminal detention and bail on suspicion of arson, and the bail was lifted on 25 October 2016. The criminal investigation is continuing because other suspects have not yet been apprehended. Zhou, as the legal representative of the policyholder and insured furniture company, remains suspected of intentional arson and insurance fraud, and Huang Jiefeng’s claimed insurance rights had been assigned by the furniture company. Given these circumstances, whether the basis for the property-insurance dispute exists and whether the case is in truth an economic dispute could not be determined. The court of first instance therefore held that the fire and the resulting insurance claim were still tainted by criminal suspicion, and, pursuant to Article 11 of 2020 Amendment, dismissed Huang Jiefeng’s action.
With respect to mass-scale economic crimes such as fundraising fraud or the illegal acceptance of public deposits, the large number of victims, their wide geographic dispersion, the exceptionally high monetary amounts involved, and the extensive social impact seriously affect social stability. Where victims file a civil action against the suspect or criminal defendant based on the same facts, the people’s court shall rule not to accept the case and shall refer the relevant materials to the investigative organ, the procuratorate or the court that is trying the criminal case. Protection of the victims’ civil rights shall be achieved through criminal confiscation and restitution. If a people’s court trying a civil or commercial case discovers clues of any of the above mass-scale economic crimes, it shall promptly refer the clues and related materials to the investigative organ. Before the investigative organ decides to open a criminal case, the civil court shall suspend the proceedings; after the decision to open a case is made, the civil court shall dismiss the civil action. If the investigative organ fails to open a case in a timely manner, the court may, when necessary, report the matter for coordination.
3.Civil Proceedings First
Some procuratorates have proposed that, in handling insurance-fraud cases that straddle the criminal–civil divide, the approach of “civil first, criminal second” should be adopted to ensure the criminal case is correctly resolved.
For instance, Jian, head of a courier-branch outlet, and Han, formerly an employee of the same outlet, were involved in an accident. A light-duty box truck registered in Suzhou was owned by Jian but affiliated with Suzhou Vegetable Basket Produce Distribution Co. Ltd., which, as policyholder and insured, took out both compulsory and commercial motor insurance with an insurer.
On 16 February 2017, Han, driving the truck on Jian’s instructions, struck and fatally injured a pedestrian. Fearing the insurer would invoke the exclusion clause “operation of a commercial vehicle without a transport-administration permit or other requisite certificate,” Han and Jian agreed to submit a forged Road-Transport Practitioner’s Qualification Certificate (purportedly issued by the city transport office but bearing no seal). Relying on that document, the insurer paid RMB 262,754.40 in commercial-insurance compensation to the victim’s family.
During a later audit the insurer discovered the certificate was fake and reported the matter to the police, who opened a criminal investigation for suspected insurance fraud. In March 2019 the police transferred the case to the procuratorate, recommending indictment of Jian and Han for insurance fraud.
While the procuratorate was reviewing the file, the affiliated company “Vegetable Basket” filed a civil action against the insurer on 8 May 2019, arguing that the above-quoted exclusion clause was invalid. It sought the same RMB 262,754.40 that the police claimed had been fraudulently obtained. The court of final instance held that the insurer had failed to give the notice and explanation required for an exemption clause; therefore, the clause was ineffective and the insurer remained liable. It reversed the first-instance judgment and ordered the insurer to pay the RMB 262,754.40.
With respect to this case, the People’s Procuratorate took the view that:
- (1) Under criminal-law theory, an “impossible attempt” denotes conduct that objectively creates—nor can ever create—any danger to a legally protected interest; in other words, it poses no threat to the specific social relationship safeguarded by the criminal norm. Because such conduct lacks the essential characteristic of social harm, it cannot constitute a crime.
- (2) In “criminal–civil crossover” matters where the facts are clear, but the legal relationships are complex or the technical issues difficult to resolve, the civil adjudication—confirming rights and delineating legal relationships—may serve as the prerequisite for the criminal proceeding, thereby ensuring coherence of the legal order. Here, the court has already held that the insurance-exclusion clause is ineffective, and that the insurer’s denial of coverage is groundless; consequently, Jian and Han could not have inflicted any substantive detriment on the insurer’s interests.
III. Conclusion
In sum, when an insurance-claim case straddles the criminal–civil divide, courts may adopt any of three approaches—simultaneous separate trials, criminal-first, or civil-first. From the insurer’s standpoint, however, especially where the claim is allegedly fraudulent, an employee has misappropriated client funds, or the policy is merely a vehicle for some other crime, insurance companies would prefer the civil action to be stayed while the public-security or procuratorial authorities handle the criminal side first. Such sequencing can both cure the insurer’s information asymmetry and clarify the underlying facts; moreover, if victims obtain partial restitution through criminal confiscation, the insurer’s own liability may be reduced or extinguished.
To minimize the emergence of criminal cases in the first place, insurers are advised to scrutinize claim documents rigorously, maintain close communication with insureds to squeeze out “claim-scalpers,” and strengthen compliance training and internal controls for their own staff.
