[1] In a case where an insurance company or an insurance solicitor’s employee violates his/her duty to explain important matters of the insurance contract when entering into an insurance contract or soliciting insurance contracts, whether or not he/she is liable to compensate for damages (affirmative), and the degree of

[2] Criteria to determine whether an insurance company or insurance solicitation worker is liable for damages caused by breach of the suitability principle

[3] The case where comparative negligence is not allowed even if the victim was negligent in causing or expanding damage caused by the tort

[1] Article 638-3(1) of the Commercial Act, Article 750 of the Civil Act, Articles 95(1), 97(1), and 102(1) of the former Insurance Business Act (Amended by Act No. 10394, Jul. 23, 2010); Article 42 of the former Enforcement Decree of the Insurance Business Act (Amended by Presidential Decree No. 20653, Feb. 29, 2008) / [2] Article 750 of the Civil Act; Article 102(1) of the former Insurance Business Act (Amended by Act No. 10394, Jul. 23, 2010) / [3] Articles 396 and 763 of the Civil Act

[3] Supreme Court Decision 2006Da16758, 16765 decided Oct. 25, 2007 (Gong2007Ha, 1806) Supreme Court Decision 2007Da76733 decided Mar. 11, 2010 (Gong2010Sang, 715)

Fili-si Co., Ltd. and one other (Law Firm Sang-hoon, Attorneys Kim Chang- Chang et al., Counsel for the plaintiff-appellant)

E. A.I. International T.I.D. (former title: A.I.D.) and one other (Attorneys Lee Im-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2009Na97606 decided March 31, 2010

The part of the lower judgment against the Defendants is reversed, and that part of the case is remanded to the Seoul High Court.

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

1. As to Defendant 2’s ground of appeal on the Defendants’ duty of explanation, causation between violation of the duty of explanation and damage, and interpretation of the disposition document

An insurance company or a solicitation worker has a duty to protect customers so that customers may reasonably make a decision on whether to conclude an insurance contract based on the relevant information by clearly explaining, in concluding or soliciting an insurance contract with customers, the payment of premiums, grounds for paying insurance proceeds and refunds for termination of payments, standards for calculating such amount, and important matters of insurance contracts which may identify the characteristics and risks of individual insurance products, such as investment type and structure, in the case of an amount-variable insurance contract. If such obligation is violated, the insurance company or the solicitation worker is liable for compensating for losses to the customers arising therefrom pursuant to Article 750 of the Civil Act or Article 102(1) of the former Insurance Business Act (amended by Act No. 10394, Jul. 23, 2010).

In this context, whether an insurance company or insurance solicitation worker is required to explain to a customer certain extent the characteristics and risk level of insurance products, experience and understanding ability of the customer, etc. However, the duty of an insurance company and insurance solicitation worker as stipulated in Articles 97(1) and 95(1) of the former Insurance Business Act, and Article 42 of the former Enforcement Decree of the Insurance Business Act (amended by Presidential Decree No. 20653, Feb. 29, 2008) shall be a significant standard for determining the content of the duty of an insurance company and insurance solicitation worker. Since the important matters of the insurance contract cannot be limited to those stipulated in the insurance contract, if it is difficult to explain the important matters of the insurance contract solely based on the insurance contract, the insurance company or insurance solicitation worker should explain the important matters of the insurance contract on the characteristics and risk of individual insurance products through the method of utilizing adequate data, such as the product description, so that the customer can understand

After finding the facts as indicated in its reasoning, the lower court determined that Defendant 2 violated its duty to explain each insurance contract of this case by explaining the contents of each insurance contract of this case on the premise of a high rate of return not guaranteed with respect to the variable insurance contract of this case and Type 2 insurance contract of this case and Type 3 insurance contract of this case, and thus, it is difficult to see that the contents of each insurance contract of this case were clearly stated, separate from the terms and conditions, and other additional explanatory materials, such as cancellation refund rate and forecast table, have not been issued. In so doing, the lower court did not sufficiently explain the content and risk of each insurance of this case, change in the cancellation refund upon investment return, and in particular, it did not explain that a considerable period of time would have been spent when the cancellation refund is transferred to the principal amount of the premium of each of the insurance contracts of this case. Accordingly, the lower court determined that the Plaintiffs violated its duty to explain the contents of each insurance contract of this case on the premise of a high rate of return not guaranteed with respect to each insurance contract of this case.

The judgment of the court below is just in accordance with the above legal principles, and there is no error in the misapprehension of legal principles as to customer protection obligation, duty of explanation, causation between violation of duty of explanation and damage, or interpretation of disposition document, etc. In this regard, the ground of appeal disputing evidence preparation and fact-finding by the court below is not a legitimate ground of appeal. The defendants' ground of appeal

2. As to the Defendant Company’s ground of appeal on violation of the evidence law

Article 339 of the former Civil Procedure Act (wholly amended by Act No. 6626 of Jan. 26, 2002) provides for the supplementary nature of the party examination that the party may examine the party, ex officio or upon request of the party, when the court fails to obtain a conviction through the examination of evidence. However, the amendment of the Civil Procedure Act on Jan. 26, 2002, when the provision on the supplementary nature of the party examination was repealed, the result of the party examination was able to be evaluated by the free evaluation of evidence by the judge, like other evidence.

Therefore, even if the lower court found the principal facts solely based on the result of the Plaintiff 2’s party examination, it cannot be deemed that the lower court violated the law of evidence. Moreover, according to the reasoning of the lower judgment and the record, the lower court did not seem to have recognized the principal facts solely based on the result of the Plaintiff 2’

3. As to the defendants' grounds of appeal on violation of the suitability principle

An insurance company or a person engaged in insurance solicitation is not qualified for a customer in light of the age, property and income status of the customer, social experience, purpose of purchasing insurance, etc., if deemed that an insurance contract with investment risk or variable insurance is inappropriate for a customer, it shall not be solicited to conclude such insurance contract. If the solicitation of an insurance contract with excessive risk without complying with such suitability principle is assessed as illegal by failing to comply with it, it shall be held liable for compensating the customer for damages arising therefrom pursuant to Article 750 of the Civil Act or Article 102(1) of the former Insurance Business Act. The existence of liability for compensating for damages arising from a violation of the suitability principle should be determined by fully examining various circumstances, such as the customer’s age, property and income status, purpose of purchasing the insurance, characteristics of the insurance purchased, etc., and the argument and certification thereof should be determined merely by concluding that the execution of the insurance contract is not unlawful because it is accompanied by a high investment risk in the amount-variable insurance product that was recommended to conclude it, or that the insurance premium has a large share in income.

According to the reasoning of the judgment below, the court below determined that Defendant 2 actively recommended the Plaintiff 2 to subscribe to the instant secondary insurance contract in light of Plaintiff 2’s age, purpose of investment, property status, and investment experience and transactions involving excessive risk compared to Plaintiff 2’s age, investment purpose, and investment experience, and that Defendant 2 recommended the Plaintiff 2 to invest 100% amount equivalent to 51% of the net income per annum in the instant third insurance contract (hereinafter “Plaintiff Company”), while setting the amount equivalent to 100% of the net income per annum in the instant case’s insurance premium, and that Defendant 2 recommended the Plaintiff 2 to invest the 10% amount in the stock-type fund with the highest risk of being paid-in premium, if added to the premium of the instant insurance contract up to the premium of KRW 10,00,000, compared to the Plaintiff Company’s investment purpose and investment risk in light of the Plaintiff Company’s property suitability and investment risk.

However, in light of the legal principles as seen earlier, it is difficult to readily conclude that Defendant 2’s solicitation of Defendants 2 and 3 insurance in the instant case against the suitability principle is unlawful on the sole basis of the facts acknowledged by the lower court without revealing any additional circumstances on the size and composition of the Plaintiffs’ assets and liabilities, estimates and prospects of future income, and the Plaintiffs’ ability and intent to decrease risks based on the purpose of purchasing insurance policies. Furthermore, according to the evidence duly admitted by the lower court, the Defendants 2 and 3 insurance in the instant case have advantages in regulating the amount and timing of payment of insurance premiums by changing the management of the special account from the equity fund to the bond type fund, and it can be known that they are products that can cope with risks by changing the amount and timing of payment of insurance premiums from the fund to the bond type fund. In light of these, the risk of Type 2 and Type 3 insurance in the instant case cannot be said to be excessive merely

Nevertheless, the lower court, solely based on its stated reasoning, determined that Defendant 2 actively solicited the transaction involving excessive risk against the principle of suitability. In so doing, the lower court erred by misapprehending the legal doctrine on the suitability principle in recommending the conclusion of variable universal insurance contracts, thereby failing to exhaust all necessary deliberations. The Defendants’ ground of appeal assigning this error is with merit.

4. As to the defendants' grounds of appeal on offsetting negligence

According to the reasoning of the judgment below, the court below acknowledged the facts as follows. Defendant 2's improper solicitation, like the case of fraud, constitutes a so-called "value transfer type" tort to which the victim's property or economic profit is transferred to the perpetrator, and the plaintiffs' negligence in this case cannot be assessed separately from the illegality of the solicitor, on the ground that the so-called "feasible negligence" caused by Defendant 2's improper solicitation, which cannot be assessed separately from the illegality of the solicitor. Thus, in calculating the amount of damages against the defendants, the court below determined that even if the plaintiffs did not actively confirm the important matters of the contract, such as the cancellation refund, etc

However, if the victim was negligent with regard to the occurrence or expansion of damage caused by a tort, it should be taken into account as a matter of course in determining the scope of the tortfeasor’s compensation (see, e.g., Supreme Court Decision 2007Da76733, Mar. 11, 2010). If the harmful act is an act of acquisition by fraud, embezzlement, or breach of trust, etc., and if the harmful act is recognized as comparative negligence, it is not exceptionally allowed comparative negligence only where the perpetrator ultimately holds profits from the tort and it would result in a result contrary to the principle of fairness or good faith (see, e.g., Supreme Court Decision 2006Da16758, Oct. 25, 207). However, even according to the facts acknowledged by the court below, it cannot be deemed that the defendants’ unfair solicitation against the plaintiffs constitutes such an act of acquisition. Thus, the court below should have determined the scope of the defendant’s compensation in consideration of the

Nevertheless, the lower court determined that the Plaintiffs’ negligence cannot be the object of offsetting negligence on the ground of the reasoning of its judgment. In so determining, the lower court erred by misapprehending the legal doctrine on offsetting negligence, and the Defendants’ ground of appeal assigning this error is with merit.

5. Conclusion

Therefore, the part of the judgment below against the Defendants is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices.

Justices Yang Chang-soo (Presiding Justice)