Proposal for the Introduction of a Proportionate Remedy System for Gross Negligence in Insurance Contract Law

The proportionate remedy system for gross negligence is a developed theory that moves away from the principle of “all or nothing” (Principle of All or Nothing, Alles oder Nichts-Prinzip). This discussion has become a well-established system in most European countries and China. However, in Japan, discussions at the government level were halted, and in South Korea, it has been nearly 20 years since academic research on the topic began, there has been no indication that the discussion will continue. Under insurance contract law, the principle of all or nothing refers to the exemption of an insurer from liability when the policyholder or insured causes an insurance incident intentionally or through gross negligence, or violates a legal obligation, leading to the insurer's exemption from liability as a result of the breach. This principle is also applied in the Commercial Act, Chapter 4 on insurance, in Articles 652, 653, and 659, where it is applied in cases of breach of the duty to notify of risk alteration or increase, the duty to disclose, the duty to maintain the risk, and when an insurance incident is caused by intention or gross negligence, resulting in the insurer being fully exempt from liability. Here, the principle of all or nothing is applied. However, according to this principle, both intention and gross negligence, which are subjective issues concerning liability, are treated equally. This raises the question of whether it is justifiable to treat equally the failure to reduce the insured risk intentionally and the failure to reduce the insured risk due to a violation of the duty of care in an insurance contract. It is clear that if the insured risk is not reduced due to intention or malice, the insurer should be discharged from liability. However, in the case of gross negligence, the liability should not be treated the same as intention or negligence, given the degree of liability involved. Therefore, a systematic separation of intention and gross negligence must be established. Additionally, gross negligence should not be treated uniformly; it must be handled according to its degree. Therefore, a proportionate remedy system based on the degree of gross negligence should be implemented. Since there is no explicit provision that systematically distinguishes gross negligence as a requirement for proportionate remedy, reliance on case law and legal literature is necessary. The primary consideration should be to determine the objective elements that define the degree of duty and whether it meets the criteria for criminal composition under the relevant laws. Subjective standards should also be referred to when determining the reduction rate, leading to the final outcome. Here, both the objective and subjective elements of gross negligence must be distinguished. This is not an easy task. However, the difficulty of classification should not justify failing to distinguish between intention and gross negligence. Treating intention and gross negligence as the same, without distinction, is advantageous only to the insurer, disadvantageous to the insurance consumer, and is not absolutely fair from a legal perspective.