However, from the viewpoint of insurance companies, this issue has a totally different meaning. The insurers assume the liability for the victims’ damage as part of its obligation under the insurance contract with the insured. The grounds for their performance of contractual obligations will be stronger if the insurers take over the responsibilities to compensate for the victims, which arise from a contract entered into between the insured and a third party. Even if this is not the case, the insurers’ liabilities are based on the aforementioned insurance contract, as pointed out by the Supreme Court, and it is sufficient to explain there is a trading relationship between the insurers and the victims, which is forged through the insured. In this respect, the insurance companies perform their contractual obligations not for the insured but for the victims, and the victims are already specified as the beneficiary of compensation, given the nature of the automobile insurance. Therefore, there is no trading relationship since the insurance companies fulfill their obligations arising from the insurance contract.
In some cases, performance of contractual obligations consists of factual acts alone (e.g., delivery of goods). In other cases, however, such performance itself is a legal act (e.g., exercise of real right for ownership transfer). In this case, when the insurance companies performed their liabilities to directly compensate the victims for the damage, they had to undergo a process of determining details of the damage, instead of simply making the compensation payments. In that process, it can be said that the insurers were in an advantageous position because they exclusively had the information on the items of damage compensation, and that they had an obligation to explain the items to the victims. If they had determined the amount of damages without carrying out such obligation, this could have been seen as an unfair trade practice taking advantage of their favorable position while performing the liabilities for damages. Furthermore, this conduct constituted an act of disturbing the trade order in insurance transaction. Therefore, it was reasonable for the KFTC and the Supreme Court to rule that the conduct had been an act of unfair trade practice.
IV. Concluding Remarks
1. Practical Implications
Korea ranks first among OECD member countries in car accident rate. In 2005, the number of registered cars stood at 15,396,715 units (excluding two-wheeled vehicles) and about 1.7 million car accidents occurred per year in Korea. Non-life insurance companies handle more than two million property damage accidents under automobile insurance policy each year. Furthermore, most of the compensation for the victims in car accidents is undertaken by nonlife insurance companies, which implies that automobile insurance has a significant effect on everyday life of the people in Korea. Under these circumstances, non-life insurers did not actively explain to the victims that they were entitled to indirect damage insurance payments, such as compensation for non-operation and automobile depreciation. They also did not properly provide indirect damage compensation payments, taking advantage of the fact that the victims were not well aware of the payment standards in the insurance policy.
With the corrective measures imposed against this case, non-life insurance companies will likely provide information on indirect damage insurance payments more actively and do best effort to compute and pay indirect insurance payments such as compensation for nonoperation and automobile depreciation, in addition to direct damage compensation. This case will contribute to eradicating improper damage compensation for the victims, thereby significantly enhancing the welfare of insurance consumers.
2. Legal Implications
The KFTC’s decision and the court’s judgments have clarified the meaning of the term “trade” under the MRFTA, interpreting the scope of the concept in a comprehensive manner. In line with the opinions of most academics, the KFTC and the courts defined trade as a general means for the business activities or trading order, instead of individual contracts. It is meaningful that the grounds for the insurers’ argument were not accepted. Their logic was that a direct trading relationship between the parties needs to be recognized. However, according to the KFTC’s decision and the courts’ judgments, even without a direct trading relationship, an act of unfair trade practice could be acknowledged if a conduct is seen as performance of legal obligations in a trading relationship. In other words, a relationship for the claim for damages associated with an illegal act can be recognized as a trading relationship if the insurers determine the items of compensation for damaged cars in order to fulfill their obligations under the insurance contracts. It is a significant judgment that, although the insurer-victim relationship is formed based on legal provisions on a direct insurance claim, a trading relationship is acknowledged as long as the insurers’ obligation to compensate the victims for the property damage is defined in the insurance contracts.
In this regard, an important standard has been defined for determination of unfair trade practices. The main focus of the MRFTA should be the actual aspects of trade practice. Determination based only on legal principles is meaningless. In the present case, the ground for determination was an actual relationship between the parties, which was determined based on an intention of the parties to form neither trading relationship nor a legal act. It is also important that the rulings pointed out an unfair trade practice can be easily committed during performance of the damage compensation obligation. This logic can be applied extensively to insurance contracts for a third party.
In addition, it was reconfirmed that a superior position should be recognized after considering market conditions, difference in business capabilities of the parties concerned, and the characteristics of goods to be traded. The factors considered in this case include information imbalance, no right to choose an insurer, receipt of payments as computed by insurers, specialized or technical information, contractual terms of the insurance policy, no payment in a large scale, and the possibility of paying a uniformly calculated amount.
Furthermore, it was explicitly ruled that even an “omission” to do something can be recognized as an act of providing disadvantages. In other words, an act of providing disadvantages includes not only an active engagement in a conduct to the disadvantage of trading partners but also an omission to bear the costs or perform the liability. The idea behind this ruling is that it is necessary to strictly enforce the law against the acts contrary to the primary purpose of an insurance system.
To conclude, the Court decided that it was contrary to customary trade practices to provide disadvantages for individual victims who wanted to be compensated for their damage through insurance policies and also contrary to leave many victims not filing a claim for indirect damage compensation.