Meaning
Insurance products provide a guarantee for the potential damages a defendant might suffer if an asset preservation order is later found to be wrongful. When a plaintiff applies to a Chinese court to freeze the bank accounts or properties of a defendant, they must typically provide security. A litigation bond insurance policy replaces the need for a cash deposit, allowing the plaintiff to maintain liquidity while the case is pending.
Financial Security
The premium paid for the policy represents a fraction of the total amount of the frozen assets. By issuing a guarantee letter to the court, the insurer agrees to indemnify the defendant if the preservation is ruled improper.
Damage Indemnity
Compensation under the policy covers the actual losses incurred by the defendant due to the inability to use their assets during the freeze. If a bank account was wrongly frozen, the insurer might pay the interest lost or other documented financial harms. The scope of the litigation bond insurance is strictly limited to the damages caused by the preservation order itself.
Approval Timing
Courts must review the wording of the insurance policy before accepting it as valid security. Most specialized insurers in China have pre-approved templates that the courts recognize, which speeds up the process of securing an asset preservation order. This efficiency is helpful when there is a risk that the defendant will hide assets before the trial begins.
It provides a standard path for domestic and foreign plaintiffs.
