Insurance companies must inform when household vehicles are converted to commercial use

[3] Compiled from: Qingdao Laoshan District Court, Workers' Daily

Case Review

On the evening of June 12, 2021, Wang drove his private car out to work as a ride-hailing driver. At around 1 a.m. the next day, when Wang returned to the underground garage of his residential community, he collided with a vehicle driven by Liu. It was determined that Wang bore full responsibility for the accident.

[5] Previously, the vehicle driven by ride-hailing driver Wang was insured with compulsory traffic insurance and commercial insurance at Insurance Company A, while the vehicle driven by Liu was insured with compulsory traffic insurance and commercial insurance at Insurance Company B.

After the accident occurred, Insurance Company B paid Liu over 130,000 yuan for vehicle repair costs. Subsequently, the insured Liu issued a motor vehicle insurance rights transfer letter, transferring the subrogation rights for the compensated portion to Insurance Company B. Insurance Company B then filed a lawsuit against ride-hailing driver Wang and Insurance Company A, demanding that they pay the advanced insurance compensation of over 130,000 yuan plus interest. Wang argued that at the time of the accident, his vehicle was in a parking lot, with only the vehicle owner on board and no paying passengers, and the vehicle was registered as a non-commercial vehicle. Therefore, the compensation liability should be borne by Insurance Company A, with which he had insurance coverage.

Insurance Company A, however, argued that under the terms of the policy, the insurer is not liable for compensation where the insured motor vehicle has changed its use. On the night of the accident, Wang was engaged in commercial operations, which changed the vehicle's use. Therefore, with respect to the losses claimed by Insurance Company B, Insurance Company A only agreed to assume liability within the RMB 2,000 property damage limit of the compulsory traffic accident liability insurance.

Court Opinion

The Laoshan District Court held after trial that the focus of this case is whether Wang changed the vehicle's usage nature at the time of the accident, thereby significantly increasing the risk level of the insured vehicle.

The ride-hailing platform's order records show that Wang began operating as a ride-hailing driver at 7 p.m. that evening and was involved in a traffic accident in the residential community garage at 1:26 a.m. the next day while returning home. His return home was an inevitable act following the completion of his ride-hailing operations and should therefore be regarded as a continuation of the ride-hailing business rather than being entirely for personal family use.

Therefore, since Wang failed to fulfill the obligation to notify Insurance Company A in advance when engaging in ride-hailing operations, the vehicle's risk level was significantly higher than for personal family use, and Insurance Company A should not bear liability under the commercial vehicle insurance.

In summary, the court ruled that Insurance Company A should bear liability for compensation of 2,000 yuan within the scope of compulsory traffic accident insurance, and the remaining portion should be borne by Wang, meaning Wang should compensate Insurance Company B over 128,000 yuan.

Insurance Law of the People's Republic of China

Article 52

During the term of the contract, if the risk level of the subject matter insured significantly increases, the insured shall promptly notify the insurer in accordance with the contract terms. The insurer may increase the premium or terminate the contract as stipulated. If the insurer terminates the contract, it shall refund the premium collected after deducting the portion due from the start of insurance liability to the date of termination, as per the contract.

If the insured fails to fulfill the notification obligation as specified in the preceding paragraph, the insurer shall not be liable for compensation for any insured event caused by the significant increase in risk level of the subject matter insured.

[4] Author's Opinion

Vehicle owners must always inform the insurance company whether their vehicle is for personal use or for profit purposes during daily use, to ensure timely updates to the contract terms and payment of premiums matching those for commercial vehicles, thereby avoiding potential losses in the event of an accident.

In this case, Wang changed his private car from "personal use" to "commercial use," which significantly increased the risk of a traffic accident involving the motor vehicle. However, because he failed to fulfill his duty of disclosure to the insurer, he ended up in this situation.