Chapter II. Insurance Contracts
Section 1. General Provisions
An insurance contract shall be made in the form of a policy or a binder.
(Agreement of the Insurer)
An insurance contract is to be signed and executed by the insurer after it agrees to an application submitted by the proposer.
Any interested party may request a copy of the insurance contract from the insurer.
(Contract for the Benefit of a Third Party)
A proposer may, without having been mandated, enter into an insurance contract for the benefit of another person. Should there be any doubt as to the beneficiary, it will be presumed that the proposer entered into the contract for its own benefit.
(Enter into Contract by Agent)
If an insurance contract is entered into by an agent [on behalf of another], a statement to such effect shall be made in the insurance contract.
(The Effectiveness of Agent Contract)
If an insurance contract is entered into by one or several partners or co-owners for the benefit of all the partners or co-owners, a statement to such effect shall be made in the insurance contract.
(Co Insurance Clause)
An insurer may stipulate in the contract that loss to a portion of the subject matter insured arising from risk shall be borne by the proposer.
When the type of stipulation set forth in the preceding paragraph is made, the proposer may not enter into an insurance contract with another insurer for the portion that has not been insured.
(Method for Making Contract and Raise a Plea)
Except in the case of insurance of the person, an insurance contract may have either a specified or an unspecified beneficiary.
The insurer may raise against the assignee of an insurance contract the same defense that it may raise against the proposer.
(Valued and Unvalued Insurance Contracts)
Insurance contracts are classified into unvalued and valued insurance contracts.
An unvalued insurance contract is an insurance contract which expressly states that the value of the subject matter insured must be estimated after occurrence of the insured risk.
A valued insurance contract is an insurance contract that expressly states a definite value for the subject matter insured.
(Effectiveness of Occurred or Ceased to Exist Risk)
If the risk associated with the subject matter insured has already occurred or ceased to exist at the time an insurance contract is entered into, the contract shall be void, provided that this rule does not apply when neither of the contracting parties is aware of the occurrence or cessation of existence.
If, at the time an insurance contract is entered into, only the proposer knows that the risk has already occurred, the insurer is not bound by the contract.
If, at the time an insurance contract is entered into, only the insurer knows that the risk has ceased to exist, the proposer is not bound by the contract.
(Determination of Beneficiary)
When an insurance contract is entered into for the benefit of another person, if that person has not yet been determined at the time the contract is entered into, the proposer, or such beneficiary as may be determined in accordance with the content of the insurance contract, shall enjoy the benefit.
(Insurer’s Right of Subrogation)
If an insured has a right to claim indemnification from a third party due to occurrence of loss for which the insurer bears insurance liability, the insurer may, after paying indemnification, be subrogated to the insured's right of claim against the third party. However, the amount of the subrogated claim may not exceed the amount of the indemnification.
If the third party referred to in the preceding paragraph is a family member or employee of the insured, the insurer has no right of claim by subrogation. However, this rule is not applicable when the loss has resulted from the willful misconduct of such third party.
(Effectiveness of Compulsory Provisions and Interpretation of Insurance Contracts)
Compulsory provisions of this Act may not be modified by contract. However, this restriction does not apply to modifications favorable to the insured.
Interpretation of insurance contracts shall seek the true intent of the parties, and may not adhere blindly to the language employed. Where there is doubt, interpretations should in principle be favorable to the insured.
(Conditions for Voidance of the Contract)
If an insurance contract contains any term or condition as follows, and such term or condition would have been obviously unfair under the circumstances at the time of signing, such part of the contract shall be void:
1. A term or condition that exempts the insurer from or diminishes its obligations under this Act.
2. A term or condition that causes the proposer, beneficiary, or insured to waive or limit any right they enjoy under this Act.
3. A term or condition that increases the obligations of the proposer or the insured.
4. Any other term or condition that is materially disadvantageous to the proposer, beneficiary, or insured.
Section 2. Basic Provisions
Except where otherwise provided in this Act, an insurance contract shall specify the following particulars:
1. Names and domiciles of the contracting parties.
2. The subject matter insured.
3. The type of risk insured.
4. The date and hour from which the insurance liability commences and the period of insurance.
5. The insured amount.
6. The premium.
7. Causes for voidance of contract or loss of rights.
8. The date the contract is entered into.
(Notification for Modification and Reinstatement of an Insurance Contract)
When an insurance contract is modified or a suspended contract is reinstated, failure by the insurer to reject the modification or reinstatement within 10 days from receipt of notification shall be deemed acceptance. However, where this Act has special provisions for insurance of the person, such provisions shall govern.
(Rescission of the Contract for Failing to Provide a Notification)
Except when due to a force majeure event, the failure of a party to an insurance contract to provide a required notification of any matter to another party, whether intentional or unintentional, may be cause for rescission of the contract by the other party.
(Obligation to Notify the Insurer of the Occurrence of Risk)
When a proposer, insured, or beneficiary experiences an event for which the insurer bears insurance liability, such party shall notify the insurer within five days from becoming aware of the occurrence, except where otherwise provided in this Act or stipulated in the contract.
(Obligation to Notify the Insurer of Increased Risk)
A proposer required to serve notice of circumstances that increase risk as stated in the insurance contract shall notify the insurer upon becoming aware of the circumstances.
If the increase in risk is caused by an act of the proposer or the insured, and the risk is increased to the extent that the premium should be increased or the contract terminated, the proposer or the insured shall serve prior notice to the insurer.
If the increase in risk is not caused by an act of the proposer or the insured, the proposer or the insured shall notify the insurer within 10 days of becoming aware of the increase in risk.
When risk is diminished, the insured may request the insurer to adjust the premium.
(Effect of Increased Risk)
In the event of circumstances referred to in the preceding article, the insurer may terminate the contract or propose revision of the premium. If the proposer does not agree to the premium adjustment, the contract is terminated forthwith. However, where the contract is terminated on account of circumstances stated in paragraph 2 of the preceding article, the insurer may also claim compensation if it has sustained any loss.
An insurer that continues to accept the premium after becoming aware of an increase in risk, or that pays a claim after occurrence of the risk, or that otherwise expresses intent to maintain the contract, loses the rights stated in the preceding paragraph.
(Exception from Obligation to Notify the Insurer of Increased Risk)
The provisions of Article 59 does not apply to an increase in risk under any of the following circumstances:
1. Where the occurrence of damage does not affect the burden of the insurer.
2. Where the act is done to protect the interests of the insurer.
3. Where the act is done to fulfill a moral obligation.
(Free of Obligation of Notification)
A party shall be free of obligation of notification with regard to any matter enumerated below:
1. A matter of which the other party is aware.
2. A matter of which the other party should be aware by paying normal attention or for which it would have no excuse for being unaware.
3. A matter of which the other party has stated that no notice need be served.
(Liability for Failing to Notice)
A proposer or an insured who fails to serve notice within the time limit stated in Article 58 or Article 59, paragraph 3 shall be liable for loss sustained by the insurer as a result.
(Proposer’s Obligation to Make Truthful Representations)
At the time a contract is entered into, the proposer shall make truthful representations in response to the written inquiries of the insurer.
If the proposer has made any concealment, nondisclosure, or misrepresentation, and such concealment, nondisclosure, or misrepresentation is sufficient to alter or diminish the insurer's estimation of the risk to be undertaken, the insurer may rescind the contract; the same shall apply after the risk has occurred, provided that this provision does not apply where the proposer proves that the occurrence of the risk was not based upon any fact that it did or did not represent.
The right to rescind as stated in the preceding paragraph shall be extinguished if not exercised within one month of the time the insurer knows of the cause for rescission. Once two years have elapsed after the contract is entered into, the contract may not be rescinded even if cause for rescission exists.
(Statute of Time Limitations)
Any right arising out of an insurance contract shall be extinguished if not exercised within two years from the day when it becomes possible to exercise the right. If any of the following circumstances exists, the two-year time period commences as set forth in the following subparagraphs:
1. If there is concealment, non-disclosure, or misrepresentation on the part of the proposer or insured in the disclosure of risk, the period commences from the day on which the insurer becomes aware of the situation.
2. If, after a risk occurs, an interested party can prove that its lack of awareness was not due to negligence, the period will begin from the day on which it becomes aware of the situation.
3. If the claim of a proposer or insured against an insurer arises out of the claim of a third party, the period will begin from the day on which the proposer or insured is presented with the third-party claim.
Section 3. Special Provisions
A special provision is a provision whereby the parties represent and warrant performance of a special obligation apart from the basic provisions of the insurance contract.
(Matters of a Special Provision)
All matters, whether past, present, or future, that relate to an insurance contract may be stipulated by a special provision.
(Effectiveness for Breaching a Special Provision)
When a party to an insurance contract breaches a special provision, the other party may rescind the contract. The same rule also applies after the risk has occurred.
The provisions of Article 64, paragraph 3 apply mutatis mutandis to the circumstances in the preceding paragraph.
(Effectiveness of any Special Provision Relating to Future Matters)
With regard to any special provision relating to a future matter, if the related risk has already occurred before the time for performance of the provision has commenced, or performance of the provision is impossible, or the provision has not been performed because it is illegal in the place where the contract was entered into, the insurance contract does not for that reason become void.