Meaning
Financial product issued by an insurance company serves as the mandatory collateral required by a court to freeze a defendant’s assets. Using property preservation guarantee insurance allows a claimant to meet the bond requirement without locking up their own cash for the duration of a lawsuit. This insurance covers the defendant against any losses they might suffer if the asset freeze is later found to be wrongful.
Financial Security
Courts in China are reluctant to freeze bank accounts unless the applicant can prove they have the means to compensate the other party. By purchasing property preservation guarantee insurance, the plaintiff transfers this risk to a professional insurer for a premium fee. The insurer issues a letter of guarantee that the court accepts as a valid form of security in place of a cash deposit.
Court Compliance
Acceptance of these policies has become standardized across the intermediate and high courts to facilitate more efficient litigation. When a lawyer submits an application for an asset freeze, the property preservation guarantee insurance certificate is included as a core part of the filing. This document specifies the maximum liability of the insurer and the period of the coverage.
Premium Cost
Price of the policy is usually a small percentage of the total amount being frozen in the bank account. Because property preservation guarantee insurance is relatively affordable, it has become the preferred method for foreign companies to secure their claims in China. The cost of the premium is sometimes recoverable as part of the legal fees if the plaintiff wins the case.
