Liability insurance in China: protect your business in an unfamiliar legal environment.
Why it is important to get liability insurance in China
Running your own business in China is not easy, you may face a lot of challenges. Risks must be taken, such as those associated with innovation, in order to grasp opportunities. Generating cash flow is a way to keep cutting-edge technology on the market. Businesses must have the capability to finance research and development programs to get a better understanding of the market trends. All of these practices are a combination of the old-school way of doing things with modern ways. We cannot control everything; hence disruptions may occur with an adverse impact on the company.
Liability insurance in China is a way to protect against these risks associated with innovation.
Apart from a sound risks management process, liability insurance offers a complementary option to preserve the strong financial capability of a company.
First, let us define the meaning of “liability” and “civil liability”
Liability is the duty to assume the responsibility of one’s own deeds and all consequences resulting therefrom.
Civil liability is the duty to indemnify the prejudice caused to others, following any occurrence of an event created by him/her.
These two concepts are related to the idea of fault, wrongdoing and risks taken which unintentionally resulted in harm. Any acts of intentionally harming others are not covered by liability insurance in China.
Liability insurance protects a person or an organization against litigation initiated from a third party and related to business activities in all aspect.
The main forms of liability insurance available in China are public, product, employer, professional, directors and officers liability.
Data source: Swiss Re, Liability premium by line of business in China
Forms of liability insurance in China
Public liability insurance
Public liability is the most common and basic form of liability insurance that a company in China must take out. Public liability insurance protects businesses against losses which occur while carrying out their activity. It covers risks associated with tenancy of premises, operations of un-registered vehicles such as forklifts, use of equipment and machinery, and other risks related to conducting day to day operations.
Employer liability in China
Employer liability insurance protects employers against claims related to labor accidents.
In China, all employers have the moral duty to help employees in the case of a work accident.
Moreover, the limit of medical expenses covered by the social security is low, and in some cases, not covered at all.
Hence, companies in China have the duty to indemnify job related accidents. Not only medical expenses must be compensated, loss of income too. According to the Article 33 of the Work Injury Insurance Regulations in China, the wages and benefits should also remain the same while the employee is not working.
In the worst-case scenario, if an employee is killed while working, the employer has the duty to pay a compensation to the family.
Product liability in China
Product liability insurance protects against claims arising from use, handling, consuming of products which are manufactured, traded, and sold by the company.
This form of liability is dependent on the party providing the product is at fault or not. As long as there is a direct relationship between the product provider and the user, the product provider will always be held liable for damage done by the product.
This is a liability associated with opportunities of financial gain. The party providing the product has a duty to make sure the product is safe and in good condition.
Most products are complex, made up of many components, in case of an accident; the key issue is to determine the liable party. There are costs associated to this such as legal expenses and fees needed to perform a technical examination of the product to find out the cause of the loss.
Source: AP News, Johnson & Johnson recently received a $300 million verdict on its product litigation due to its baby powder containing asbestos fibers, which are known to cause cancer.
Professional indemnity in China
Professional indemnity protects a company providing services such IT, accounting, legal advices, and other non-physical services. It covers claims arising from errors and omissions, and negligence occurring when providing services.
Like everywhere in the world, in China, regulations become more and more sophisticated. We may miss the latest development of the legal system.
Another issue is copyright, designs, logos and pictures are everywhere on the internet. Designers might be unconsciously inspired by what they have seen on the web. It may turn out to a potential copy-right litigation. Infringement of copy-rights is covered under professional liability insurance.
Directors and officer liability in China
Director and officer liability protects employees who have decision making power that may impact the development of a company, such as managers and directors.
These persons are not only responsible for their own wrongdoing, errors and omission but also of those made by persons under their supervision. In other words, the legal representative, general manager of a company is legally liable for everything occurring in the company. In some case this liability attaches to the decision-maker and not to the company as a legal entity.
Like everywhere, in China the development of the laws and regulations, quick change in economic environment, tough competition may turn today’s sound decisions into tomorrow’s regrets. Shareholders or employees may seek compensation from prejudice suffered from decisions made by managers of a company.
Medical malpractice insurance in China
Medical malpractice insurance protects against any claim arising out of an accident occurring while providing medical treatment. Here the scope of cover is wider than accident related to negligence or errors.
Medical practitioners have the duty of due diligence, not the duty of result, meaning when providing medical services, they must do whatever they can to cure the patients, but they cannot be responsible if the treatment failed.
However, nowadays with the high cost of medical treatments in China, the line between these two duties is thinner and thinner, imposing more and more liability on medical staff.
In China, individual medical practitioners cannot be sued, rather, the medical organization is held accountable. Therefore, medical malpractice insurance must be taken out by medical facilities.
Compulsory liability insurance in China
To our best knowledge, there are a few mandatory liability insurances in China.
First, as most places in the world, motor third-party liability is compulsory. In addition, in some provinces and cities, safety food liability is compulsory, which covers claims from food poisoning. Travel agencies also have compulsory liability insurance in China. Lastly, safety and production liability insurance might be compulsory in some industrial parks especially for highly hazardous activities. It covers damages caused to others, including staff, rescue operation expenses, etc… arising out of an accident identified as a production safety accident by relevant authorities.
Protect your property in China, contact us
Combining more than 40 years of experience, ARSM offers protection to your business against legal actions. We provide innovative products and bespoke solutions that meet your needs.
Our expertise will give you the peace of mind you need to you deserve to build up your business. To find the right form of liability insurance in China, contact us.