Hanwha Life Insurance's headquarters in Seoul / Korea Times file

All eyes are now on whether Hanwha Life Insurance will take its lawsuit against the financial authorities to the Supreme Court, following its near loss in an appeal challenging a 1.83 billion won ($1.3 million) fine.

The decision on whether the company will appeal to the Supreme Court is especially noteworthy, as the case is related to death benefits for suicides, which is a significant issue within the life insurance industry.

The Seoul High Court on Wednesday partially upheld the Financial Services Commission's (FSC) fine against Hanwha Life Insurance, reducing it from 1.83 billion won to 1.11 billion won.

In the district court trial, only 2 million won of the fine was recognized, but in the appellate trial, the amount significantly increased to 1.11 billion won, resulting in an unfavorable decision for the insurer.

The high court did not provide a detailed explanation for its ruling, but given the size of the fine, the penalty imposed by the FSC for the firm's underpayment of insurance benefits was likely considered appropriate.

The financial authorities have claimed that the insurer underpaid approximately 2.1 billion won in insurance benefits across 4,734 contracts and unjustly terminated 18 contracts, refunding amounts lower than what should have originally been paid.

In particular, when policyholders committed suicide due to mental illnesses like depression, the insurer was supposed to pay the accidental death benefit, but instead, it paid the lower general death benefit.

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Insurance coverage and compensation are inherently tied to chance and uncertainty, which is why, in general, insurance benefits are not paid out for suicides. Insurance policies typically state that intentional self-harm or suicide is a reason for not paying insurance benefits.

However, there are exceptions for cases where the insured, due to a mental or psychological condition that impairs decision-making, causes their own death. This exception is based on the assumption that the death occurred in a state of mental incapacity without intent.

Because of these exception rules, the bereaved family members sometimes initiate lawsuits to claim that their beloved ones' suicides were caused by mental illnesses and therefore insurers are obliged to pay insurance benefits.

Industry officials noted a growing trend in such lawsuits, saying they are bracing for the impact of future rulings. They emphasized that courts must exercise careful judgments, as their rulings will become a significant precedent.

"Judgments based on rationality are essential to prevent associated social costs and moral hazard," an official at a major life insurer said.

Hanwha Life Insurance and the financial authorities must decide whether to appeal within two weeks after receiving the high court's ruling. If no appeal is submitted within this period, the ruling will be finalized.

"We will discuss the next steps after reviewing details of the ruling," a Hanwha Life Insurance official said.

The FSS echoed similar comments.