MNC insurance in China: are you protected?

You may think you know it all when it comes to covering your operations, but think again. Your innocence may astound you

Multinational companies (MNCs) often develop a set of template commercial contracts and operating policies specifically for their business operations and expansions in China. These templates are normally tailored from a PRC law perspective, based on the MNC’s offshore headquarters templates. However, it appears that many MNCs in China tend to use the same insurance provisions and policies that their headquarters use, without tailoring the insurance policy requirements and standards specifically for their China business.

In a recent transaction involving the Chinese subsidiary of an MNC that wanted to engage a Chinese engineering consultant, it only took a few days for this company and the consultant to agree upon the major terms of the consulting agreement. However, the execution of the agreement was delayed for two months, simply because the parties were not able to agree on insurance terms and the company had little discretion to modify the insurance language in the MNC’s template for consulting services agreements. We believe that many MNCs encounter the same problem in China.

Unexpected problems

Not surprisingly, this happens to many MNCs that have global policies for insurance, which require their suppliers – including suppliers of goods and service providers – or contractors to procure insurance coverage according to the types of insurance and minimum amounts set forth in the globally applicable policies. Some MNCs require their suppliers and construction contractors to take out employer’s liability insurance, public liability insurance, professional liability insurance and business automobile liability insurance, along with additional types of insurance depending on the nature of the contract (such as collective casualty/personal accident insurance for construction workers and aircraft liability insurance for construction contractors). The typical amounts of insurance required are in the range of US$1 million.

David Livdahl is a partner, chair and chief representative at the Beijing office of Paul Hastings, and has served on the official arbitrator panel of the China International Economic and Trade Arbitration Commission since 2000. Jenny Sheng is a partner at the Beijing office and Daniel Qin is an associate with the firm in Beijing