Viewpoint. An analysis of the insurance value in the insurance contract -- take a sea loss insurance claim as an example.
Published:
2022-08-12
Brief description of case Company A has a batch of aluminum ingots that need to be sold to Company B by sea. Company A has signed the Supply Contract with Company B and the Shipping Contract with Company C. Company A, as the insured, is insured by Company C and Insurance Company D. After the ship ran aground and sank in the sea during transportation, all aluminum ingots were damaged and soaked in the sea. Before the accident, Company B had already paid Company A the full price and transportation expenses of the aluminum ingots and entrusted Company A to handle the transportation. Company A has also issued a special VAT invoice to Company B. focus of controversy Company A, as the insured, negotiates compensation with Insurance Company D. When both parties reach an agreement on compensation in advance, there are disputes over the amount of compensation, mainly in the following two aspects: How to calculate the insurance value of the goods when the insurance value is not clearly agreed in the (I) insurance contract; (II) if compensation for the VAT portion should be included in the total insured amount. Legal provisions and views of lawyers (I) on the determination of the insured value of the goods. China's Insurance Law and Maritime Law have provisions on the value of cargo insurance and the amount of insurance. Article 55 of the Insurance Law stipulates: "If the insured and the insurer agree on the insurance value of the subject matter of the insurance and state it in the contract, the agreed insurance value shall be the standard of compensation calculation in the event of loss of the subject matter of the insurance. If the insured and the insurer have not agreed on the insured value of the subject matter of the insurance, the actual value of the subject matter of the insurance at the time of the insurance accident shall be the standard for the calculation of compensation in the event of loss of the subject matter of the insurance. The insured amount shall not exceed the insured value. If the insured value is exceeded, the excess shall be invalid and the insurer shall refund the corresponding insurance premium. ......" Article 219 of the Maritime Law stipulates: "The insured value of the subject matter of insurance shall be agreed between the insurer and the insured. If the insurer and the insured have not agreed on the insurance value, the insurance value shall be calculated in accordance with the following provisions: ...... The insurance value of the (II) goods is the sum of the invoice price of the goods at the place of shipment at the beginning of the insurance liability or the actual value of the non-trade goods at the place of shipment and the freight and insurance premiums;...... ". Article 220 stipulates: "The insured amount shall be agreed between the insurer and the insured. The insured amount shall not exceed the insured value; if it exceeds the insured value, the excess shall be null and void." As can be seen from the above-mentioned legal provisions, the value of insurance is agreed from the agreement. In the case where the insurance contract only stipulates the amount of insurance and does not agree on the value of the insurance. First of all, it should be based on Article 1 of the Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Maritime Insurance Disputes: "The trial of maritime insurance contract disputes shall be governed by the provisions of the Maritime Law; if the Maritime Law does not provide for it, the relevant provisions of the Insurance Law shall apply; if the Maritime Law and the Insurance Law do not provide for it, the provisions of the Civil Code and other relevant laws shall apply". Priority shall be given to the relevant provisions of the Maritime Law on the insured value of the goods, I .e. the invoice price of the goods at the place of shipment at the beginning of the insurance liability. Specifically in this case, there is no agreement on the separation of price and tax in the Insurance Contract, and the policyholder C Shipping Company is insured at the invoice price including tax and should be paid in full. In addition, from the point of view of the transaction process, the Supply Contract stipulates that the seller will handle the carriage on behalf of the buyer, so that when the seller completes the consignment procedure (I. e. the goods are delivered to the carrier), the ownership of the subject matter has been transferred and the value of the subject matter has been fixed. Subsequent parties A, C and D agree on the subject matter of insurance based on the Insurance Contract, the insured value of which shall also be the total price of the goods including tax. (II) whether the VAT component should be included in the total insured amount 1. Analysis from the perspective of tax law The sales between Company A and Company B have been completed and a special VAT invoice has been issued for the other party. If Insurance Company D does not bear the VAT amount, Company A needs to issue a red-letter special VAT invoice again. However, Article 1 of the Announcement of the State Administration of Taxation on Issues Related to the Issuance of Red-letter VAT Invoices stipulates that the issuance of red-letter special VAT invoices is aimed at the case of incorrect invoicing or return, and A company in the sales behavior has been completed and the goods sink in the sea, the actual operation, the tax authorities have not allowed the seller to issue a red letter VAT special invoice. Company B has become the owner of the goods from the time of payment and delivery to the carrier, but it is not the insured. Article 237 of the Maritime Law stipulates: "After the loss caused by an insurance accident, the insurer shall pay insurance compensation to the insured in a timely manner", at which time Company A has the right to claim compensation from the insurer in accordance with the insurance contract and the above-mentioned legal provisions, and can also be regarded as claiming the value of the loss on behalf of Company B. Since the purchase price paid by Company B in the sales contract is the full amount including tax, Insurance Company D should also pay the total amount of insurance including tax at this time. If Insurance Company D claims that Company B can avoid losses by deducting tax after receiving a special VAT invoice, our lawyers believe that it is not feasible from a tax point of view. Because from the analysis of the principle of taxation, value-added tax is a transfer tax levied on the new value or added value of goods in many links of commodity production, circulation and labor services. In the case of the goods have been damaged, the goods in question can no longer be circulated downstream, the VAT chain has been broken, at this time the VAT will be substantially converted into the final cost of the goods borne by Company B, so it is reasonable for Insurance Company D to pay the full VAT. At the same time, according to the provisions of paragraph (II) of Article 10 of the interim regulations on value-added tax in the People's Republic of China, the input tax shall not be deducted from the output tax for the purchase of goods with abnormal losses. According to Article 24 of the Detailed Rules for the Implementation of the Provisional Regulations on Value-Added Tax, abnormal losses refer to losses caused by theft, loss, mildew and deterioration due to poor management. The above provisions are listed. Although the sinking of the goods in question into the sea does not belong to the listed situation and can be deducted from VAT on the surface, the main premise for the application of the above provisions is that the goods are purchased in substance, and the purchased goods not only have legal ownership, but also need to exist and be managed. Otherwise, there is no basis and premise for "mismanagement" in the above provisions. Since the goods involved have been lost, the special VAT invoice received by Company B is not allowed to be deducted according to the tax law, so it is reasonable for Insurance Company D to pay the full amount of VAT. 2, from the perspective of civil and commercial law analysis. Company A has three legal relationships in this transaction, one is the "supply contract" relationship with Company B, the other is the "shipping contract" relationship with Company C shipping company (Company A handles shipping on behalf of Company B), and the third is the "insurance contract" relationship with Insurance Company D. (1) Supply contract relationship Article 224 of the Civil Code states: "The creation and transfer of a right in rem in movable property shall take effect upon delivery, unless otherwise provided by law." The Contract of Supply stipulates that the seller handles the carriage on behalf of the buyer, so that when the seller completes the consignment formalities (I. e. to the carrier), the ownership of the subject matter has been transferred. The seller's sales link has been completed at this time, so the VAT amount should be paid as part of the insurance value. (2) Maritime contractual relationship After the completion of the transaction between Company A and Company B, Company A has the obligation to handle the transportation on the basis of the Supply Contract, which is already another legal relationship. The value of the goods transported by Company A is the total purchase price including tax (at this time, the price and tax are combined), and Company B also purchases the goods including tax. From this point of view, D insurance company should also pay in full. (3) Insurance contract relationship Company A entered into an insurance contract with Insurance Company D based on the need to ship the goods, and paid the full premium for the total insured amount based on the total price of the goods including tax. The aim is to be able to get the insurance company's full payout in the event of an insurance event. Therefore, in the event that the insured amount does not exceed the insured value, the D insurance company is obliged to perform the full payment obligation in accordance with the insured amount agreed with the bidder and the insured. Conclusion In general insurance claims, if the insured and the insurer have not agreed on the insured value of the subject matter of the insurance, the actual value of the subject matter of the insurance at the time of the insurance accident shall be the standard of compensation calculation. In the case of maritime insurance, the relevant provisions of Articles 219 and 220 of the Maritime Law shall be applied in preference to the calculation of the insured value of the goods in the light of the actual circumstances of the loss of the goods. Regarding the question of whether VAT should be compensated, our lawyers believe that under the premise that the transaction link has been completed and the insurance contract does not stipulate the separation of price and tax to exempt part of the compensation for VAT on the loss of goods, the goods cannot be transferred downstream due to the loss of goods, and the purchaser becomes the final consumer at this time and cannot deduct this part of the tax, and the insurance company shall pay full compensation to fill in the loss.
Brief description of case
Company A has a batch of aluminum ingots that need to be sold to Company B by sea. Company A has signed the Supply Contract with Company B and the Shipping Contract with Company C. Company A, as the insured, is insured by Company C and Insurance Company D. After the ship ran aground and sank in the sea during transportation, all aluminum ingots were damaged and soaked in the sea.
Before the accident, Company B had already paid Company A the full price and transportation expenses of the aluminum ingots and entrusted Company A to handle the transportation. Company A has also issued a special VAT invoice to Company B.
focus of controversy
Company A, as the insured, negotiates compensation with Insurance Company D. When both parties reach an agreement on compensation in advance, there are disputes over the amount of compensation, mainly in the following two aspects:
How to calculate the insurance value of the goods when the insurance value is not clearly agreed in the (I) insurance contract;
(II) if compensation for the VAT portion should be included in the total insured amount.
Legal provisions and views of lawyers
(I) on the determination of the insured value of the goods.
China's Insurance Law and Maritime Law have provisions on the value of cargo insurance and the amount of insurance. Article 55 of the Insurance Law stipulates: "If the insured and the insurer agree on the insurance value of the subject matter of the insurance and state it in the contract, the agreed insurance value shall be the standard of compensation calculation in the event of loss of the subject matter of the insurance.
If the insured and the insurer have not agreed on the insured value of the subject matter of the insurance, the actual value of the subject matter of the insurance at the time of the insurance accident shall be the standard for the calculation of compensation in the event of loss of the subject matter of the insurance.
The insured amount shall not exceed the insured value. If the insured value is exceeded, the excess shall be invalid and the insurer shall refund the corresponding insurance premium. ......"
Article 219 of the Maritime Law stipulates: "The insured value of the subject matter of insurance shall be agreed between the insurer and the insured.
If the insurer and the insured have not agreed on the insurance value, the insurance value shall be calculated in accordance with the following provisions: ...... The insurance value of the (II) goods is the sum of the invoice price of the goods at the place of shipment at the beginning of the insurance liability or the actual value of the non-trade goods at the place of shipment and the freight and insurance premiums;...... ".
Article 220 stipulates: "The insured amount shall be agreed between the insurer and the insured. The insured amount shall not exceed the insured value; if it exceeds the insured value, the excess shall be null and void."
As can be seen from the above-mentioned legal provisions, the value of insurance is agreed from the agreement. In the case where the insurance contract only stipulates the amount of insurance and does not agree on the value of the insurance. First of all, it should be based on Article 1 of the Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Maritime Insurance Disputes: "The trial of maritime insurance contract disputes shall be governed by the provisions of the Maritime Law; if the Maritime Law does not provide for it, the relevant provisions of the Insurance Law shall apply; if the Maritime Law and the Insurance Law do not provide for it, the provisions of the Civil Code and other relevant laws shall apply". Priority shall be given to the relevant provisions of the Maritime Law on the insured value of the goods, I .e. the invoice price of the goods at the place of shipment at the beginning of the insurance liability. Specifically in this case, there is no agreement on the separation of price and tax in the Insurance Contract, and the policyholder C Shipping Company is insured at the invoice price including tax and should be paid in full. In addition, from the point of view of the transaction process, the Supply Contract stipulates that the seller will handle the carriage on behalf of the buyer, so that when the seller completes the consignment procedure (I. e. the goods are delivered to the carrier), the ownership of the subject matter has been transferred and the value of the subject matter has been fixed. Subsequent parties A, C and D agree on the subject matter of insurance based on the Insurance Contract, the insured value of which shall also be the total price of the goods including tax.
(II) whether the VAT component should be included in the total insured amount
1. Analysis from the perspective of tax law
The sales between Company A and Company B have been completed and a special VAT invoice has been issued for the other party. If Insurance Company D does not bear the VAT amount, Company A needs to issue a red-letter special VAT invoice again. However, Article 1 of the Announcement of the State Administration of Taxation on Issues Related to the Issuance of Red-letter VAT Invoices stipulates that the issuance of red-letter special VAT invoices is aimed at the case of incorrect invoicing or return, and A company in the sales behavior has been completed and the goods sink in the sea, the actual operation, the tax authorities have not allowed the seller to issue a red letter VAT special invoice.
Company B has become the owner of the goods from the time of payment and delivery to the carrier, but it is not the insured. Article 237 of the Maritime Law stipulates: "After the loss caused by an insurance accident, the insurer shall pay insurance compensation to the insured in a timely manner", at which time Company A has the right to claim compensation from the insurer in accordance with the insurance contract and the above-mentioned legal provisions, and can also be regarded as claiming the value of the loss on behalf of Company B. Since the purchase price paid by Company B in the sales contract is the full amount including tax, Insurance Company D should also pay the total amount of insurance including tax at this time.
If Insurance Company D claims that Company B can avoid losses by deducting tax after receiving a special VAT invoice, our lawyers do not consider it feasible from a tax point of view. Because from the analysis of the principle of taxation, value-added tax is a transfer tax levied on the new value or added value of goods in many links of commodity production, circulation and labor services. In the case of the goods have been damaged, the goods in question can no longer be circulated downstream, the VAT chain has been broken, at this time the VAT will be substantially converted into the final cost of the goods borne by Company B, so it is reasonable for Insurance Company D to pay the full VAT.
At the same time, according to the provisions of paragraph (II) of Article 10 of the interim regulations on value-added tax in the People's Republic of China, the input tax shall not be deducted from the output tax for the purchase of goods with abnormal losses. According to Article 24 of the Detailed Rules for the Implementation of the Provisional Regulations on Value-Added Tax, abnormal losses refer to losses caused by theft, loss, mildew and deterioration due to poor management. The above provisions are listed. Although the sinking of the goods in question into the sea does not belong to the listed situation and can be deducted from VAT on the surface, the main premise for the application of the above provisions is that the goods are purchased in substance, and the purchased goods not only have legal ownership, but also need to exist and be managed. Otherwise, there is no basis and premise for "mismanagement" in the above provisions. Since the goods involved have been lost, the special VAT invoice received by Company B is not allowed to be deducted according to the tax law, so it is reasonable for Insurance Company D to pay the full amount of VAT.
2, from the perspective of civil and commercial law analysis.
Company A has three legal relationships in this transaction, one is the "supply contract" relationship with Company B, the other is the "shipping contract" relationship with Company C shipping company (Company A handles shipping on behalf of Company B), and the third is the "insurance contract" relationship with Insurance Company D.
(1) Supply contract relationship
Article 224 of the Civil Code states: "The creation and transfer of a right in rem in movable property shall take effect upon delivery, unless otherwise provided by law." The Contract of Supply stipulates that the seller handles the carriage on behalf of the buyer, so that when the seller completes the consignment formalities (I. e. to the carrier), the ownership of the subject matter has been transferred. The seller's sales link has been completed at this time, so the VAT amount should be paid as part of the insurance value.
(2) Maritime contractual relationship
After the completion of the transaction between Company A and Company B, Company A has the obligation to handle the transportation on the basis of the Supply Contract, which is already another legal relationship. The value of the goods transported by Company A is the total purchase price including tax (at this time, the price and tax are combined), and Company B also purchases the goods including tax. From this point of view, D insurance company should also pay in full.
(3) Insurance contract relationship
Company A entered into an insurance contract with Insurance Company D based on the need to ship the goods, and paid the full premium for the total insured amount based on the total price of the goods including tax. The aim is to be able to get the insurance company's full payout in the event of an insurance event. Therefore, in the event that the insured amount does not exceed the insured value, the D insurance company is obliged to perform the full payment obligation in accordance with the insured amount agreed with the bidder and the insured.
Conclusion
In general insurance claims, if the insured and the insurer have not agreed on the insured value of the subject matter of the insurance, the actual value of the subject matter of the insurance at the time of the insurance accident shall be the standard of compensation calculation. In the case of maritime insurance, the relevant provisions of Articles 219 and 220 of the Maritime Law shall be applied in preference to the calculation of the insured value of the goods in the light of the actual circumstances of the loss of the goods.
Regarding the question of whether VAT should be compensated, our lawyers believe that under the premise that the transaction link has been completed and the insurance contract does not stipulate the separation of price and tax to exempt part of the compensation for VAT on the loss of goods, the goods cannot be transferred downstream due to the loss of goods, and the purchaser becomes the final consumer at this time and cannot deduct this part of the tax, and the insurance company shall pay full compensation to fill in the loss.
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