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Insurance Law

On February 24 2008, after deliberations of more than one year, a legislative subcommittee on insurance laws under the Ministry of Justice made public its draft in relation to revising the insurance laws. If a bill based on this draft is enacted in the Diet, it will be a first amendment to the laws relating to insurance in 100 years.

The draft sets out some important changes to the current insurance rules. For example, it states that the new Law will apply not only to policies issued by insurance stock companies as prescribed in the current Commercial Code but also to policies of mutual insurance associations. Also, with respect to the duty to disclose material information at the time of application, the draft states that such a duty will arise when an issuer makes any inquiry to an applicant; under the current rule, disclosures must be made regardless of whether an inquiry is made by the insurer. This revision to the disclosure duty is in response to consumer criticism that the present scope of the duty is unclear, as some consumers have failed to fully disclose material information and have later been unfairly denied coverage. Furthermore, the draft proposes new rules regarding termination of insurance contracts. An insurer will be able to terminate an insurance contract if the policy holder self-inflicts or attempts to self-inflict damage covered under the policy for the purpose of obtaining insurance proceeds. Currently, termination is allowed if agreed to by the parties, or may be effected as provided by the general rules of the Civil Code. However, it is not clear whether an insurer may terminate in the above situation. The draft's provisions clarify that such termination is allowed.

The draft also contains some additional changes for specific types of insurance contracts. For instance, with regard to accident insurance, it states that a victim who has sustained damages due to another is to be granted a special lien against the insured, and allowed to recover damages on a preferential basis to other creditors. Also, in connection with life insurance, the draft provides that insured persons can change the beneficiaries of the insurance policy in their will or other testamentary declarations. However, such changes may not be asserted against an insurer unless notice is made to the insurer after the declaration takes effect. Furthermore, with respect to life insurance and fixed premium accident and health insurance, the draft introduces new rules for insurance contracts where the policy holder is not the person insured and where consent of the person insured is required for the policy to be effective. Under current law, as interpreted, insured persons cannot terminate contracts once they have consented to the making of such contracts. But the draft provides that such termination will be allowed if material changes regarding the contract have occurred after consent was given.

Completion of specific legislative provisions based on this draft is on the horizon, and a bill is expected to be submitted during the ordinary Diet session this year. Although additional changes to the draft may be made during the Diet's discussion, the final legislation will probably affect the insurance industry in Japan.

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