Supreme Court Applies 5-Year Commercial Statute of Limitations to Unjust Insurance Benefit Recovery Claims, Revises Previous Deduction-Related Rulings

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court's full bench has ruled that the statute of limitations for claims to recover insurance money unfairly received by an insurance company from the policyholder should be five years under the Commercial Act, not ten years under the Civil Act.

The ruling considers that the insurance money sought for return was paid as performance of a commercial contract, the insurance contract, and that there is a high possibility of multiple stakeholders being involved, necessitating a swift resolution of the legal relationship. It also takes into account that the insurance company, possessing specialized knowledge, holds a superior position compared to the policyholder.

On the 22nd, the Supreme Court full bench (Presiding Justice Kim Jae-hyung) affirmed the lower court's ruling by unanimous decision in the appeal trial of Kyobo Life Insurance Co., Ltd. against Mr. Son and his son Mr. Kim, confirming the partial victory of the plaintiff in the lawsuit seeking nullification of the insurance contract.

Mr. Son entered into an insurance contract with Kyobo Life in March 2005, naming himself as the policyholder and beneficiary, and his son Mr. Kim as the insured.

The insurance contract stipulated that if Mr. Kim was hospitalized due to injury or illness, Kyobo Life would pay a daily hospitalization allowance, among other benefits.

Subsequently, Mr. Kim was hospitalized 45 times for a total of 849 days from January 2007 to June 2017 due to facial nerve paralysis and other reasons. Mr. Son and Mr. Kim received insurance payments of 52.7 million KRW and 3.85 million KRW respectively from Kyobo Life.

However, it was later revealed that even after entering into this insurance contract with Kyobo Life, they had signed similar insurance contracts with eight other insurance companies, including Shinhan Life, Samsung Fire & Marine, and MG Insurance, with Mr. Kim as the insured.

Kyobo Life judged that they intended to claim insurance money by entering into multiple similar contracts around the same time and filed a lawsuit seeking to confirm the nullity of the insurance contract and to recover the insurance money already paid.

The first and second instance courts found that Mr. Son and others had entered into multiple insurance contracts with the intention of claiming insurance money, ruling that the insurance contract with Kyobo Life violated Article 103 of the Civil Act, which prohibits contracts against good morals and public order, and was therefore null and void. They also ruled that the insurance money received by Mr. Son and Mr. Kim constituted unjust enrichment and must be returned along with delayed damages.

The issue was the statute of limitations. Mr. Son and others argued that even if the insurance contract was null and void under Article 103 of the Civil Act, the five-year commercial statute of limitations should apply to Kyobo Life's claim for recovery of unjust enrichment.

In response to this defense, Kyobo Life argued, "Since the claim for recovery of unjust enrichment is based on the nullity of the insurance contract under Article 103 of the Civil Act, the ten-year statute of limitations for general claims under the Civil Act should apply."

The first trial court concluded, "The insurance contract between the plaintiff and defendants is a fundamental commercial transaction of the plaintiff, and the claim for recovery of unjust enrichment arises from the performance based on this commercial contract. Considering the need to resolve the legal relationship as promptly as in commercial transactions, the five-year commercial statute of limitations under Article 64 of the Commercial Act applies to the claim for recovery of unjust enrichment arising from the nullity of this insurance contract."

It then ordered Mr. Son and Mr. Kim to return to Kyobo Life the insurance money excluding the amount for which the five-year statute of limitations had passed, specifically 19.91 million KRW and 3.85 million KRW respectively.

The Supreme Court also found no error in this lower court ruling.

Previously, the Supreme Court held that unless there are special circumstances, the ten-year civil statute of limitations applies to claims for recovery of unjust enrichment arising from null commercial contracts. However, when the claim seeks the return of the performance itself based on a commercial contract and there is a need for prompt resolution similar to commercial transactions, the five-year commercial statute of limitations is analogously applied.

The court stated, "When an insurance contract is concluded with the intent to fraudulently obtain insurance money through multiple contracts and is null and void under Article 103 of the Civil Act for violating good morals and public order, the claim for recovery of unjust enrichment by the insurance company against the policyholder for the insurance money already paid should be analogously applied under Article 64 of the Commercial Act, and the five-year commercial statute of limitations applies."

The reason given was, "The insurance money sought for return was paid as performance of a commercial contract, the insurance contract, and such cases typically involve multiple insurance contracts and multiple insurance companies, necessitating a standardized and prompt handling of the legal relationships."

Furthermore, "Considering that the policyholder's obligation to pay premiums and the insurance company's obligation to pay insurance money are reciprocal and that the insurance company, as a party with specialized knowledge, holds a superior position compared to the policyholder, applying the long ten-year civil statute of limitations only to the insurance company's claim for return is inequitable."

The court also added, "Article 662 of the Commercial Act, which applies a short three-year statute of limitations to the policyholder's claim for premium refund when the insurance contract is null, is a legislative decision considering the characteristics of insurance contracts and clearly does not apply to the insurance company's claim for return of insurance money."

Meanwhile, on the same day, the Supreme Court full bench overturned a previous ruling that applied the ten-year civil statute of limitations to similar cases.

The court stated, "The ruling on October 27, 2016 (case number 2014Da233596), which held that the ten-year civil statute of limitations applies to claims for recovery of unjust enrichment equivalent to mutual aid money held by mutual aid associations when mutual aid contracts are null, is hereby changed to the extent that it conflicts with this ruling."

This content was produced with the assistance of AI translation services.