Is Bundling Auto Insurance with New Car Sales Really Legal Just Because It's an "Industry Practice"?

Finally choosing the car you want,

but being told you must purchase designated insurance before taking delivery,

or else you will have to pay a penalty?

Is this “industry practice” reasonable?

How should consumers protect their rights?

Recently, the Jinshan District People’s Court in Shanghai (hereinafter referred to as Jinshan Court) ruled on a case involving a sales contract dispute caused by an auto dealership’s bundled sale of insurance.

(Photo source: internet, do not reproduce)

Case Overview

In February 2025, Ms. Chen ordered a new car from a Shanghai car dealership, paid a deposit of 20,000 yuan, and signed a “Consignment Sales Contract.” The contract mentioned insurance details in the remarks section but did not specify that she had to purchase a particular insurance product.

However, when picking up the car, the dealership demanded that Ms. Chen buy their designated insurance. Ms. Chen felt that the insurance did not meet her actual needs and was too expensive, so she requested to purchase different insurance.

Unexpectedly, the dealership stated on the spot that she must buy the designated insurance in the first year to take delivery, or she would not be able to pick up the car, and she would have to pay a penalty as per the contract. After unsuccessful negotiations, Ms. Chen filed a lawsuit against the dealership.

Ms. Chen argued that the dealership’s bundled sale of insurance was an unreasonable condition attached to the product, violating the principle of voluntary consumption and constituting coercive trade. She claimed that the contract could not be fulfilled due to the dealership’s fault and demanded double the deposit refund.

The dealership claimed that purchasing designated insurance in the first year is an industry practice, and since the contract mentioned insurance details, Ms. Chen’s behavior was a breach of contract, for which she should bear the breach liability.

Court’s Review

The Jinshan Court held that, according to Article 9 of the Consumer Rights Protection Law of the People’s Republic of China, consumers have the right to independently choose goods or services. The dealership’s practice of bundling insurance sales with car sales in the first year clearly infringes on consumers’ right to autonomous choice and is not legally justified. Making insurance purchase a prerequisite for vehicle delivery constitutes a coercive transaction and is illegal.

Furthermore, as the party receiving the deposit, the dealership, without sufficient negotiation, forcibly bundled insurance sales and then refused to deliver the vehicle on the grounds that Ms. Chen did not buy the designated insurance, leading to the failure of the contract’s purpose. This behavior constitutes a fundamental breach of contract, and the dealership should bear corresponding breach liabilities.

During the litigation, both Ms. Chen and the dealership expressed willingness to settle. With the court’s mediation, both parties voluntarily made concessions and reached a settlement agreement. Ultimately, they agreed to terminate the contract, and the dealership refunded Ms. Chen’s relevant purchase payments.

Judgment Statement

Honorable Judge Gan Hualie

Jinshan Court Tinglin People’s Court Judge

In recent years, the automotive consumer market has become a key driver of economic growth, with car ownership reaching thousands of households and becoming an important part of people’s livelihood. However, despite increased regulation, some car dealerships or agents still engage in practices such as coercive bundling of insurance sales, infringing on consumers’ rights.

1. Bundling insurance sales infringes on consumers’ right to autonomous choice

Articles 9 and 10 of the Consumer Rights Protection Law stipulate that consumers have the right to freely choose goods or services and to fair transactions. They have the right to refuse coercive transactions by operators. Article 14 of the Automobile Sales Management Measures explicitly prohibits dealers from forcing consumers to purchase insurance when selling vehicles. This means that consumers, whether paying in full or via loan, have the right to choose their insurance company, insurance types, and channels. No business should force bundling of insurance under the guise of “industry practice” or “conditions for vehicle pickup.” In this case, the dealership’s requirement that Ms. Chen buy its designated insurance as a condition for vehicle pickup is a typical coercive transaction, infringing on her right to autonomous choice.

If consumers encounter such situations, they should not compromise due to “urgent need” or “fear of trouble.” Instead, they should clearly refuse unreasonable demands, keep records of chats, recordings, and contracts as evidence, and report to relevant authorities or seek legal remedies to protect their rights.

2. Dealers refusing to deliver vehicles without just cause should bear breach liabilities

Article 587 of the Civil Code states that if a debtor fulfills their obligation, the deposit can be used as payment or returned. If the party paying the deposit fails to perform or performs improperly, preventing the contract’s purpose, they are not entitled to a refund; if the party receiving the deposit breaches or performs improperly, causing the contract to fail, they must double the deposit.

Deposits serve as a guarantee for contract performance. In this case, the fundamental reason for the contract’s failure was the dealership’s refusal to deliver the vehicle because Ms. Chen did not buy the designated insurance, without proper negotiation. This constitutes a breach, and Ms. Chen is entitled to double the deposit. However, if both parties had fully negotiated and agreed on the insurance terms, or if the dealership only offered it as a purchase incentive rather than a condition for delivery, then no breach occurred.

Consumers should also be aware to distinguish clearly between “deposit” and “down payment.” The former is subject to penalty clauses and should not exceed 20% of the main contract amount; the latter is usually a prepayment. It is advisable to specify in the contract that there are no mandatory insurance purchase conditions.

3. “Industry practice” does not override law; proper business conduct is the long-term path

“Industry practice” cannot override mandatory legal provisions. In this case, the dealership’s defense based on industry practice was not accepted by the court because it violated mandatory legal regulations.

This also serves as a reminder to automotive businesses: do not treat bundling insurance as a profit point. Instead, focus on improving service quality to attract customers. Violating laws and regulations can lead to civil liabilities, administrative penalties, damage to reputation, and long-term harm. Upholding integrity and respecting consumers’ legal rights are the keys to sustainable business success. Only through fair and honest practices can companies achieve long-term mutual benefits with consumers.

Legal References

1. Consumer Rights Protection Law of the People’s Republic of China

• Article 9: Consumers have the right to independently choose goods or services.

• Article 10: Consumers have the right to fair transactions, including quality assurance, reasonable prices, and correct measurements, and to refuse coercive transactions.

2. Automobile Sales Management Measures

• Article 14: Suppliers and dealers shall not restrict consumers’ household registration location, nor limit the providers of auto parts, accessories, financial, insurance, rescue services, or after-sales service providers. Exceptions include parts and services used for “three guarantees” and recall services borne by the supplier.

• Dealers shall not force consumers to purchase insurance or require them to use specific services such as vehicle registration.

3. Civil Code of the People’s Republic of China

• Article 586: Parties may agree that one party pays a deposit as a guarantee. The contract is established upon actual delivery of the deposit.

• The deposit amount is agreed upon but must not exceed 20% of the main contract’s value. Excess amounts are invalid.

• Article 587: If the debtor performs, the deposit can be used as payment or returned. If the party paying the deposit breaches the contract, they are not entitled to a refund; if the party receiving the deposit breaches, they must return double the deposit.

Source: Jinshan District Court, Shanghai High Court

【Source: Lixia District People’s Procuratorate, Jinan City】