Liability Risk Management: Key to Cross-Border Jurisdictional Challenges
Globalization is both an opportunity and a challenge for each and every country. China is not an exception. In recent years, China’s total overseas direct investment has been expanding steadily. Statistics from the Ministry of Commerce show that in 2014, the cumulative non-financial overseas direct investment from Chinese investors reached 632.05 billion yuan (US$102.89 billion), which is distributed to 6,128 overseas enterprises in 156 countries. Energy and minerals, machinery manufacturing and real estate are the main target industries.
With the strategic vision of "One Belt One Road," China is transforming its role from "inbound investment heaven" to "outbound global investor." While this trend has many positive aspects, it also has challenges. We should not ignore the risks with which Chinese enterprises are or will be faced as they make this transition, especially the complex liability risks that arise out of complex jurisdictional differences. These risks will require our thorough research from different perspectives, including compliance, legal, underwriting, claims and cross-border dispute resolution in order to achieve the effective risk management.
During the process of overseas investment, enterprises are faced with various risks that include politics, war, credit, tax, finance, public health, labor disputes, pollution, natural hazards, property damage, business interruption, personal accident and last but not least, legal liability. Some risks are insurable while others may not be insured. Nevertheless, it is generally believed that third-party liability risk is comparably more complex for global investors.
Chinese overseas investors and their local insurers are faced with major challenges regarding liability risk management:
- Limited reliable information resources, especially in some sanctioned countries or politically sensitive areas
- Complex local legal systems and insurance requirements especially with different policy forms
- Lack of internationally accepted rating for Chinese reinsurers
- Insufficient local supply for high-end liability insurance coverage such as long-term project professional indemnity insurance
- Cross-border claims handling
There is no easy answer to the above challenges. However, an integrated global liability program can be a good risk management solution for Chinese multinational companies.
Such a program will promote compliance with local regulatory requirements and provide consistent coverage globally, coverage that is also applicable to a company’s international counterparts.
One frequently asked question concerns the process for a foreign claimant suing a Chinese party if a claim situation arises and how the foreign party’s insurer can subrogate against a Chinese party (e.g., a Chinese home appliance manufacturer and/or its local insurer). Cross-border litigation can be considered but it may not often be efficient and enforceable. Sometimes, an alternative dispute resolution method, especially arbitration, can be a much better choice in terms of enforceability due to China’s entry into the Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1987.
Those issues were examples of the many discussed at two liability seminars recently hosted by Gen Re in China, themed "Liability Risk Management & Insurance for Chinese Interests Abroad."
Gen Re works with our clients on complex liability risks in several jurisdictions around the world. To find out more or to seek expert advice for your business, don’t hesitate to get in touch.