[1] The legal nature of the guaranteed insurance contract and the relationship of the payment of insurance proceeds / What constitutes the principal contract which is the premise of the guaranteed insurance contract and how to determine who is the insured

[2] In a case where Company A entered into an installment financing guarantee contract applicable to the installment financing special terms and conditions of installment financing with Company B, etc. while entering into a bus sales contract with Company B, and entered into an installment financing loan agreement with Company A, which is an installment financing company, as security, the case holding that the said guarantee insurance contract is an installment financing loan agreement entered into with Company A, and the insured is the installment company

[3] Whether a guarantee insurance company has a duty to investigate and verify the absence or invalidity of a principal contract subject to guarantee when concluding a guarantee insurance contract (negative in principle)

[1] Article 638 of the Commercial Act, Article 428 of the Civil Act / [2] Article 638 of the Commercial Act, Article 428 of the Civil Act / [3] Article 638 of the Commercial Act, Article 428 of the Civil Act

[1] [3] Supreme Court Decision 2011Da30949 Decided September 25, 2014 (Gong2014Ha, 2094) / [1] Supreme Court Decision 89Meu25912 Decided May 8, 1990 (Gong1990Ha, 1243) Supreme Court Decision 201Da67637 Decided September 4, 2014 (Gong2012Da67559 Decided September 4, 2014)

KNF Life Insurance Co., Ltd. (LLC, Kim & Lee LLC, Attorneys Kang Yong-tae et al., Counsel for the defendant-appellant)

Seoul Guarantee Insurance Co., Ltd. (Law Firm Hongle, Attorneys Landscaping-gu et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2010Na88981 decided September 21, 2011

All appeals are dismissed. The costs of appeal are assessed against each appellant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the Defendant’s first ground of appeal

A. A. The guaranteed insurance policy is a non-life insurance contract, the subject matter of which is the insurer’s acceptance of the compensation for the loss to be borne by the insured (creditors under the main contract) due to a debtor’s non-performance of obligation under a specific legal relationship with the insured, and its formally aims at the same effect as the guaranteed insurance contract with the nature of the debtor’s non-performance of obligation as an insured event. As such, the guaranteed insurance contract is a premise of the legal relationship under the main contract, etc., and is to compensate for the loss to be incurred by the insured due to the failure of the policyholder to perform the obligation under the main contract, etc., within the scope of the amount of the guaranteed insurance contract, and within the scope of the amount of the guaranteed insurance contract. Therefore, if the guaranteed insurance contract takes effect, the main contract, etc. between the policyholder and the insured must exist. And the identity of the insured shall be determined by comprehensively taking into account all the circumstances such as the content of the guaranteed insurance contract and its content, the process and process of the conclusion of the insurance contract (see, e.g., Supreme Court Decision 2014.

B. The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following.

1) The Defendant obtained authorization from the Financial Supervisory Service to handle the installment sales guarantee insurance, and handled only the installment sales guarantee insurance for automobiles that the selling company as the insured under the automobile installment sales contract. Since January 1, 1996, as the government permitted the establishment of a new installment financing company from January 1, 1996, it was necessary to develop a new guarantee insurance product that covers the installment financing obligation of the automobile buyer. As from January 3, 1996, the Defendant created a special terms and conditions of installment financing that provides the installment financing company with the right to claim insurance in addition to the right to claim insurance money and used them in addition to the existing terms and conditions of installment sales guarantee insurance.

2) Article 1 of the General Terms and Conditions of Installment Sales Guarantee Co., Ltd., which the Defendant had previously used, provides that “The damages suffered by the seller (hereinafter “insured”) due to the failure of the policyholder to perform the obligation of installment payment as stipulated in the installment sales contract entered in the insurance policy (hereinafter “principal contract”) and the seller (hereinafter “insured”) shall be compensated for in accordance with the terms and conditions,” and the main text of Article 6(1) provides that “The insurance money to be paid by the company shall be the amount of unpaid installment payment at the date of payment as stipulated in the principal contract.”

Meanwhile, Article 1 of the Special Terms and Conditions of Installment Financing provides that "this Special Terms and Conditions shall apply to cases where a policyholder is paid installment financing from a bank, insurance company, or installment financing company (hereinafter "financial institution") in accordance with the installment sale contract entered into on the insurance policy," and Article 2 provides that "Notwithstanding the provisions of Article 1 of the General Terms and Conditions, a policyholder, who is a buyer, fails to perform the installment financing obligations stipulated in a monetary loan agreement entered into with a financial institution under the installment sale contract entered on the insurance policy (hereinafter "main contract"), thereby compensating for any damage incurred by a financial institution in accordance with the terms and conditions of the insurance policy and the terms and conditions," and Article 3 (2) provides that "the insured" in Article 5 of the General Terms and Conditions of Installment Sales Guarantee Insurance shall be applied to "financial institution", "the main contract" in Article 6 shall be "the monetary loan contract", and "amount to be recovered" shall be substituted for "amount to be recovered" respectively.

3) The Defendant entered into a installment agreement with Codefendants in the first instance trial, Co., Ltd., Ltd., Co., Ltd., Co., Ltd. (hereinafter referred to as “Co.”), and Hyundai Motor Co., Ltd., Ltd. (hereinafter referred to as “Co.”), respectively., through the installment agreement, the Defendant agreed that the Defendant may accept the installment agreement if the Plaintiff, while selling Co., Ltd. and Hyundai Motor Co., Ltd., Ltd., (hereinafter referred to as “Co.”), had the buyer subscribe to the installment sales guarantee insurance, and if the buyer requests the buyer to attach the installment payment to the installment sales guarantee insurance and the installment

4) On November 10, 2006, Jungwon Tourism Co., Ltd. (hereinafter “China Tourism”) concluded a motor vehicle sales contract for the three buses at the time of the judgment of the plaintiff and the plaintiff. On April 30, 2007 and August 7, 2007, it concluded a motor vehicle sales contract for the ten buses at the time of Hyundai Motor and the plaintiff's judgment of the plaintiff.

5) On May 31, 2007, Hanwon Tourism Co., Ltd., a loan brokerage company (hereinafter “Fi Capital”), offered to the Defendant for installment sales guarantee insurance for the bus 10 buses purchased from Hyundai Motor on August 9, 2007. The Defendant concluded each installment sales guarantee insurance contract for the said bus (hereinafter “instant guarantee insurance contract”) in accordance with the Installment Agreement.

At the time, the subscription for the installment sale guarantee insurance submitted by Han-won Tourism to the Defendant was entered as a vehicle selling company, the content of the guarantee was written as a payment guarantee for installment sale, and the installment sales amount and the installment period were stated in the main contract. However, as the purport of applying the installment financing special terms and conditions was stated in the contents of the main contract, it was indicated in the form of installment financing. Moreover, the Defendant issued an insurance policy concerning the instant guarantee insurance contract (hereinafter “instant insurance policy”) with regard to the instant insurance contract, and the Defendant also entered the details of the guarantee as the automobile selling company, as the content of the main contract, as the automobile selling company, as the guarantee amount and the installment period were stated in the main contract, but the form of installment payment was indicated in the form of installment financing as the content of the main contract. In addition, the instant insurance policy was accompanied by the general terms and conditions of the installment sale guarantee insurance and the special terms and conditions of the installment financing.

6) On May 31, 2007, the Plaintiff: (a) concluded an installment financing loan agreement (hereinafter “instant loan agreement”) with respect to the three buses purchased by a bus owner with a flag automobile on May 31, 2007 with the receipt of the instant insurance policy from Hanwon Tourism; (b) concluded on August 9, 2007, with respect to the ten buses purchased by Hyundai Motor; and (c) remitted loans to Geum Capital and Hyundai Motor Vehicle by executing the loan.

C. In light of the following circumstances revealed based on such factual basis, it is reasonable to view that, if an installment financing loan agreement entered into with a financial institution is only a principal contract for the guarantee insurance contract of this case, the agreement can only be the principal contract for the guarantee insurance contract of this case in cases where an automobile sales company entered into an automobile sales contract with a company selling an automobile and received installment financing loan from a financial institution for the payment of the purchase price. The insured is a financial institution which entered into the installment financing loan agreement of this case.

1) In addition to the acquisition of an installment sales guarantee insurance to guarantee the installment sales payment obligation, the conclusion of an installment agreement with the purport of allowing the buyer to use the special terms and conditions of installment financing if the buyer wishes to purchase a motor vehicle, regardless of whether the buyer would make a lump sum payment or not, and where the buyer receives a installment financing loan from the installment financing company and pays the purchase price of the motor vehicle with the loan, it can be deemed that the degree of risk the buyer would take over at the time of guaranteeing the installment financing obligation is substantially the same as the time of guaranteeing the installment sales payment obligation, and further, the object of guarantee is extended to the installment sales contract by expanding the object of guarantee for such installment financing loan agreement.

2) The instant insurance policy states the content of the guarantee as “on-site motor vehicle”, “a car”, and the content of the guarantee as “payment guarantee for installment payments,” respectively, and states the installment payment in the form of installment financing and the purport of applying the special terms and conditions of installment financing. However, the special terms and conditions of installment financing are applicable to a case where an insurance policyholder received installment payments from a financial institution. The special terms and conditions of installment financing stipulate as damages to a financial institution due to nonperformance of installment financing obligations. Where an insurance accident occurs, a financial institution submits a claim document for insurance and claims insurance money, and the insurance money shall be determined as the amount of unpaid claim amount of the financial institution. Therefore, it is reasonable to interpret that the principal contract of the instant guarantee insurance contract subject to the special terms and conditions of installment financing is not the installment sales contract concluded with the Plaintiff, but rather the installment financing loan agreement concluded by the insurance policyholder with the Plaintiff. The insured is a financial institution providing installment financing. The insurance contract in the instant insurance policy can be deemed to be limited to the following guarantee payment guarantee agreement.

3) The scope of application of the special terms and conditions of installment financing included in the instant insurance policy is determined as losses suffered by financial institutions due to failure to perform the installment financing obligations stipulated in the money loan agreement entered into with the financial institution “under the installment sale agreement entered in the insurance policy,” which is to compensate for losses incurred by the purchaser of the said insurance policy. As seen earlier, the special terms and conditions of installment financing are based on the following: (a) the degree of risk assumed at the time of guaranteeing the installment financing obligation in a case where the buyer takes over the installment financing loan to pay the purchase price is in fact the same as the time of guaranteeing the installment payment; (b) there is no difference between the payment of the purchase price of the automobile and the date of payment; (c) where the buyer pays the purchase price by using the installment financing loan, it can be generally concluded and expressed as a close combination between the sales contract and the installment financing loan agreement; and (d) it can be said that the automobile insurance agreement was concluded with the financial institution and the insurer, regardless of the terms and conditions of the installment financing loan agreement entered into with the insurance policy.”

Therefore, the court below is justified in its conclusion to the effect that, based on the installment sales contract, the instant guarantee insurance contract is a new type of guarantee insurance contract aimed at taking over the risks arising from a contractual relationship closely combined with a monetary loan contract, and thus, it is inappropriate for the court below to deem the insurance accident as "the policyholder to be "non-performance of obligations stipulated in the instant guarantee insurance contract entered into with a financial institution for the payment of installment payment based on the installment sales contract entered into with the financial institution for the installment sales contract stipulated in the insurance policy." However, the court below is justified in its conclusion to the effect that the instant guarantee insurance contract exists because the main contract of the instant guarantee insurance contract exists between Jung Tourism and Hyundai Motor Vehicles, and thus, the instant insurance claim based on the instant guarantee insurance contract exists. Contrary to what is alleged in the grounds of appeal, the court below did not err

Meanwhile, the lower court rejected the Defendant’s assertion that the instant guarantee insurance contract is null and void, on the grounds that, on the grounds as indicated in its reasoning, it is difficult to deem that there is a difference between the prime contract stipulated in the instant guarantee insurance contract and the actual sales contract, even if there is a partial difference between the prime contract and the sales contract, and that the insurable interest, such as acceptance of risks caused by nonperformance of installment financing obligations under the installment sales contract, is likely to be evaluated to have lost its substantial identity. However, the instant guarantee insurance contract was stipulated as the condition of payment of 15% advance payment, etc. out of the purchase price, but it cannot be said that there was an installment sales contract as stipulated in the instant

Furthermore, the lower court rejected the Defendant’s assertion that the instant guarantee insurance contract was null and void under Article 10(1) of the General Terms and Conditions on the ground that it cannot be deemed that there was a fraud of modern automobiles in the process of concluding the instant guarantee insurance

Although the reasoning of the lower court was somewhat insufficient, it was eventually justifiable to have rejected the Defendant’s assertion. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by recognizing facts contrary to logical and empirical rules, or by misapprehending the legal doctrine on advance payment, etc.

2. As to the defendant's second ground for appeal

A. Upon entering into a guarantee insurance contract, a guarantee insurance company does not have the duty to investigate and verify the absence or invalidity of a main contract subject to general guarantee. However, in special circumstances, such as where there is a discovery of the absence or invalidity of a main contract subject to guarantee submitted by a policyholder, such as a guarantee insurance subscription form, etc., the said duty to investigate and verify is not exempted (see Supreme Court Decision 2011Da30949, Sept. 25, 2014).

B. As seen earlier, the installment financing loan agreement can only be the main contract of the Guarantee Insurance Contract only in the case where the Jung-gu Tourism concludes a car sales contract with a Abandoned Motor Vehicle and receives installment financing loans from a financial institution for the payment of the purchase price. Therefore, if there is a doubt that, at the time of concluding the Guarantee Insurance Contract, it constitutes a document concerning the previous automobile sales contract, which was submitted by the Han-gu Tourism, as if it were a document concerning the new automobile sales contract requiring installment financing loans, it constitutes a special circumstance to suspect the non-existence or invalidity of the main contract subject to the Guarantee, and the Defendant is not exempted from its duty to investigate and confirm it.

In light of the aforementioned legal principles and records, the lower court was justifiable to have determined that the Defendant breached its duty of care, based on the circumstances stated in its reasoning, even though it was obligated to investigate and verify whether the automobile sales contract was concluded genuinely between the Han Tourism and the Young Automatic Operator. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the duty to investigate

3. Plaintiff’s ground of appeal

According to the reasoning of the judgment of the court below, Jungwon Tourism entered into a contract for purchasing three buses from Amba car on November 10, 2006 and paid the purchase price in full to Amba automobile with money borrowed from Hyundai Capital Co., Ltd. during the period from December 29, 2006 to April 30, 207. However, Jungwon Tourism entered into the guarantee insurance contract of this case with the defendant on May 31, 2007 by using the altered automobile sales contract, and entered into the loan contract of this case with the plaintiff on May 31, 2007. However, the plaintiff did not purchase three buses newly from Amba automobile or pay the purchase price of buses with loans under the loan contract of this case.

In light of the aforementioned facts in light of the contents of the instant guarantee insurance contract, insofar as it only made the appearance of a newly concluded automobile sales contract by submitting a modified automobile sales contract on a bus in which the purchase price was already paid in full while entering into the instant loan agreement, and in fact did not purchase a bus from a vehicle, the instant loan agreement cannot be deemed as an installment financing loan agreement entered into with a financial institution for the purpose of concluding a contract with a vehicle with a vehicle with a vehicle by Jungwon Tourism and paying the purchase price. Therefore, the instant loan agreement cannot be deemed as a principal contract which is the subject of the guarantee insurance contract, and even if Hanwon Tourism failed to perform its obligation stipulated in the instant loan agreement, the Plaintiff cannot claim insurance money against the Defendant.

Although the lower court’s explanation on the main contract of the guaranteed insurance contract of this case is inappropriate, it was justifiable to have rejected Plaintiff’s claim against the Defendant regarding the Plaintiff’s automobile sales contract. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the main contract of the guaranteed insurance contract and Article 6

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)