Meaning
Specialized insurance coverage indemnifies policyholders against financial losses resulting from wrongful legal actions or litigation counter-claims. In Chinese commercial practice, litigation insurance primarily provides asset preservation security, where an insurer issues a policy to back a plaintiff’s court application for freezing a defendant’s property. The instrument functions under rules set by the Supreme People’s Court, allowing litigants to initiate preservation measures without locking up liquid cash reserves.
Underwriting Review
Insurers conduct legal risk evaluations to assess cause of action strength before underwriting coverage. Applicants seeking litigation insurance submit trial evidence, court filings, and financial records to insurance underwriters. Insurers calculate premium rates based on dispute complexity, respondent solvency, and litigation success probabilities.
Preservation Attachment
Courts evaluate policy certificates submitted by applicants to determine security sufficiency. Attaching litigation insurance to a preservation application satisfies court security obligations under Civil Procedure Law provisions. If the court finds the underlying asset freeze was wrongfully issued and caused operational losses to the defendant, the insurer pays court-ordered damages directly to the defendant up to policy limits.
Financial Protection
Plaintiffs minimize capital lockup risks while preserving recovery prospects against insolvent defendants. Using litigation insurance frees commercial enterprises from transferring cash guarantees into court escrow accounts during lengthy judicial proceedings.
