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Friday, 23 September 16
"COLLATERAL LIES" DO NOT NECESSARILY UNDERMINE AN INSURANCE CLAIM
 KNOWLEDGE TO ELEVATE
An insured was not precluded from recovering under an insurance policy even though it had made a false statement during the claims process with a view to strengthening its claim. The Supreme Court in Versloot Dredging BV & anr v HDI Gerling Industrie Versicherung AG [2016] UKSC 45 considered the extent of the fraudulent claims rule which applies to insurance contracts and prevents an insured recovering under an insurance policy where the claim is fabricated or exaggerated. The Supreme Court held (Lord Mance dissenting) that this rule does not apply to false statements that are immaterial to an insured’s right to recovery under the policy. Insurers have expressed their concern at the decision.
The claimant ship owners suffered irreparable damage of a vessel’s engine after the engine room was flooded, causing a loss of EUR 3,241 million, which they sought to recover from the defendant insurers. The ship owners had falsely stated, in response to inquiries made by the insurers, that an alarm had sounded but that no action had been taken by the crew as the alarm was attributed to the ship rolling in heavy seas. In actual fact no alarm had sounded. The ship owners had been frustrated by the insurers’ delay in recognising the claim and this statement was intended to reassure the insurers that the ship was seaworthy with fully operational alarm systems. They believed that this statement would fortify the claim and accelerate payment.
The alarm statement was later discovered to be false, but was irrelevant to the validity of the claim. Although the alarm had not sounded, it was tested shortly after the incident and found to be working. Even if it had not been working, Popplewell J at first instance held that this would not assist the insurers as the alarm’s failure to sound would not have been the proximate cause of the loss. Popplewell J concluded that the loss was caused by a peril of the seas covered by the insurance policy. Nevertheless, Popplewell J held that the insurers were entitled to repudiate the entire claim under the ship owners’ insurance policy as a result of this false statement. The ship owners appealed, with the Court of Appeal upholding the decision.
Fraudulent and exaggerated claims
At common law it is well established that if an insured makes a fraudulent or exaggerated claim on its insurer, the insured loses the right to recover the entirety of that claim, including any genuine losses it would have obtained. The law refuses to sever the honest part of the claim from the invented part.1 This is commonly referred to as the “fraudulent claims rule”.
Section 12 of the Insurance Act 2015 (which came into force on 12 August 2016) has preserved this rule. It does not, however, define what constitutes a fraudulent claim and does not refer to a situation where a valid claim is supported by a false statement.
Collateral lies and fraudulent devices
The extension of the common law rule to justified claims supported by false statements is more recent and controversial. Lord Sumption referred to Agapitos v Agnew (The Aegeon) [2003] QB 556, where Lord Mance had considered, obiter, whether the fraudulent claims rule could apply to a lie made in the presentation of a claim which does not affect the merits of, or the amount of, the claim. This has been generally termed a “fraudulent device” (or, adopting Lord Sumption’s expression, a “collateral lie”). Lord Mance considered that such collateral lies were also subject to the fraudulent claims rule.
The majority of the Supreme Court, with Lord Sumption giving the lead judgment, disagreed with this approach. Lord Sumption distinguished between a fraudulent exaggerated claim, which is designed to enable the insured to gain something which it is not entitled to, and a justified claim supported by a collateral lie. Where the lie is irrelevant to the existence or the amount the insured is entitled to, the insured gains nothing from the lie which he was not already entitled to by law and the insurer loses nothing from meeting a liability it already had (having crystallised at the moment of loss). The lie is therefore dishonest but the claim is not.
Lord Sumption concluded that it was disproportionately harsh to the insured and would go further than any legitimate commercial interest for the fraudulent claim rule to extend to collateral lies. The policy of deterrence did not justify such an extension of the rule.
COMMENT
The historic justification for the fraudulent claim rule was as a clear deterrent to fraudulent claims, recognising that insurers can be dependant on the insured for information, both at the formation of the contract and in the processing of claims. Honest policyholders would otherwise bear the financial burden of costs incurred by the insurers due to fraudulent or exaggerated claims, through increased premiums. As the judges recognised, fraudulent insurance claims are a serious issue, with insurance fraud widely perceived as victimless (a perception the judges emphasised was quite false).
However, this judgment prevents any extension of this rule and limits an insurer’s right to reject a claim. Although the decision has raised concerns within the insurance industry, it is far from being an invitation for an insured to embellish an insurance claim without fear of any consequences. Any attempt to enhance a claim which would result in increasing the amount recoverable will lead to forfeiture of the entirety of the claim if discovered. Even where a false statement is wholly collateral to a justified claim, an insured may be penalised for that statement if exposed. In the context of a contested claim, any settlement agreement induced by the false statement could be set aside. Moreover, there could be cost orders in any proceedings, increased premiums and difficulty in obtaining future insurance policies after the requirement to disclose the insured’s claims history in any insurance proposal is met. Insureds will also want to avoid litigation concerning whether a false statement is collateral or not to a justified claim.
Finally, insurers can consider including clauses in insurance contracts precluding the recovery of any claims supported by collateral lies. It is likely that going forward insurers will seek legal advice as to the merits of doing so.
Source: Allen & Overy
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Thursday, 03 November 16
THE INDEX BASED COAL SALES & PURCHASE STRATEGY MAKES MORE EFFICIENT, SAYS 55.17% END-USERS
Considering the current coal market condition, the Index based coal sales & purchase strategy make more efficient was deemed the winner by 57.0 ...
Thursday, 03 November 16
CAPESIZE: BRAZIL/CHINA RATES MOVED TO THE $11 PMT LEVEL; WEST AUSTRALIA/CHINA ROUTE MOVED UP CLOSE TO MID $5 PMT LEVEL - FEARNLEYS
Supramax
In the Atlantic we see a bit more activity than in the eastern hemisphere, says Fearnleys in its latest weekly report. Fhauls via Black ...
Wednesday, 02 November 16
SHIPPING MARKET INSIGHT
A week before the U.S. presidential election, everyone is eager to see the socio-political effects that the result of these elections will have. As ...
Wednesday, 02 November 16
SHIP OPERATING COSTS ARE EXPECTED TO RISE IN BOTH 2016 AND 2017 - MOORE STEPHENS
Vessel operating costs are expected to rise in both 2016 and 2017. Repairs and maintenance and spares are the cost categories which are likely to i ...
Tuesday, 01 November 16
PANAMAX : A FAIR AMOUNT OF SIDEWAYS SHIPPING IN RATES - ALLIED SHIPPING
Capesize
A very sluggish start to the week, with rates dropping considerably as all optimism seems to have evaporated over the weekend. According ...
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- Agrawal Coal Company - India
- Gujarat Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Sakthi Sugars Limited - India
- Minerals Council of Australia
- Central Java Power - Indonesia
- MS Steel International - UAE
- Chettinad Cement Corporation Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vizag Seaport Private Limited - India
- Sarangani Energy Corporation, Philippines
- Medco Energi Mining Internasional
- Semirara Mining Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Formosa Plastics Group - Taiwan
- SMC Global Power, Philippines
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- IHS Mccloskey Coal Group - USA
- Commonwealth Bank - Australia
- Energy Development Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Rio Tinto Coal - Australia
- The State Trading Corporation of India Ltd
- Directorate Of Revenue Intelligence - India
- TeaM Sual Corporation - Philippines
- Dalmia Cement Bharat India
- Marubeni Corporation - India
- Eastern Coal Council - USA
- Holcim Trading Pte Ltd - Singapore
- Bharathi Cement Corporation - India
- Orica Mining Services - Indonesia
- Global Coal Blending Company Limited - Australia
- Sojitz Corporation - Japan
- Mjunction Services Limited - India
- Barasentosa Lestari - Indonesia
- Meralco Power Generation, Philippines
- Oldendorff Carriers - Singapore
- Riau Bara Harum - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Therma Luzon, Inc, Philippines
- Essar Steel Hazira Ltd - India
- Romanian Commodities Exchange
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- Thiess Contractors Indonesia
- Indo Tambangraya Megah - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Ministry of Transport, Egypt
- Toyota Tsusho Corporation, Japan
- Vedanta Resources Plc - India
- Bukit Baiduri Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Latin American Coal - Colombia
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- McConnell Dowell - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Bayan Resources Tbk. - Indonesia
- Gujarat Sidhee Cement - India
- India Bulls Power Limited - India
- Meenaskhi Energy Private Limited - India
- CNBM International Corporation - China
- ICICI Bank Limited - India
- White Energy Company Limited
- Sinarmas Energy and Mining - Indonesia
- SMG Consultants - Indonesia
- Siam City Cement PLC, Thailand
- Independent Power Producers Association of India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Parliament of New Zealand
- Bhoruka Overseas - Indonesia
- Bhatia International Limited - India
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Mintek Dendrill Indonesia
- Larsen & Toubro Limited - India
- Billiton Holdings Pty Ltd - Australia
- Gujarat Mineral Development Corp Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Eastern Energy - Thailand
- Posco Energy - South Korea
- Sindya Power Generating Company Private Ltd
- Tata Chemicals Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Wilmar Investment Holdings
- Indian Oil Corporation Limited
- Deloitte Consulting - India
- Aboitiz Power Corporation - Philippines
- Ministry of Mines - Canada
- Ceylon Electricity Board - Sri Lanka
- San Jose City I Power Corp, Philippines
- CIMB Investment Bank - Malaysia
- Globalindo Alam Lestari - Indonesia
- LBH Netherlands Bv - Netherlands
- Ambuja Cements Ltd - India
- GAC Shipping (India) Pvt Ltd
- Trasteel International SA, Italy
- Kohat Cement Company Ltd. - Pakistan
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Wood Mackenzie - Singapore
- Georgia Ports Authority, United States
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bulk Trading Sa - Switzerland
- Heidelberg Cement - Germany
- Jaiprakash Power Ventures ltd
- Interocean Group of Companies - India
- Africa Commodities Group - South Africa
- Power Finance Corporation Ltd., India
- Electricity Authority, New Zealand
- Straits Asia Resources Limited - Singapore
- Edison Trading Spa - Italy
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Salva Resources Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Singapore Mercantile Exchange
- Samtan Co., Ltd - South Korea
- Sree Jayajothi Cements Limited - India
- The University of Queensland
- Orica Australia Pty. Ltd.
- OPG Power Generation Pvt Ltd - India
- London Commodity Brokers - England
- Petron Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Indika Energy - Indonesia
- Parry Sugars Refinery, India
- Energy Link Ltd, New Zealand
- Timah Investasi Mineral - Indoneisa
- Mercuria Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Economic Council, Georgia
- The Treasury - Australian Government
- Kaltim Prima Coal - Indonesia
- Port Waratah Coal Services - Australia
- Jorong Barutama Greston.PT - Indonesia
- Global Green Power PLC Corporation, Philippines
- New Zealand Coal & Carbon
- Kumho Petrochemical, South Korea
- Karbindo Abesyapradhi - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Bhushan Steel Limited - India
- Chamber of Mines of South Africa
- Indian Energy Exchange, India
- Malabar Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Baramulti Group, Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Cement Manufacturers Association - India
- South Luzon Thermal Energy Corporation
- Makarim & Taira - Indonesia
- VISA Power Limited - India
- Coastal Gujarat Power Limited - India
- Uttam Galva Steels Limited - India
- Anglo American - United Kingdom
- Metalloyd Limited - United Kingdom
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Bukit Makmur.PT - Indonesia
- Coal and Oil Company - UAE
- Kepco SPC Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Simpson Spence & Young - Indonesia
- Xindia Steels Limited - India
- Pendopo Energi Batubara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- PowerSource Philippines DevCo
- Lanco Infratech Ltd - India
- Borneo Indobara - Indonesia
- Iligan Light & Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- PTC India Limited - India
- Banpu Public Company Limited - Thailand
- Bangladesh Power Developement Board
- GN Power Mariveles Coal Plant, Philippines
- Miang Besar Coal Terminal - Indonesia
- Standard Chartered Bank - UAE
- Australian Coal Association
- Aditya Birla Group - India
- Siam City Cement - Thailand
- Grasim Industreis Ltd - India
- Sical Logistics Limited - India
- Karaikal Port Pvt Ltd - India
- Madhucon Powers Ltd - India
- Videocon Industries ltd - India
- Binh Thuan Hamico - Vietnam
- Global Business Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Finance - Indonesia
- GVK Power & Infra Limited - India
- Thai Mozambique Logistica
- Cigading International Bulk Terminal - Indonesia
- IEA Clean Coal Centre - UK
- AsiaOL BioFuels Corp., Philippines
- Renaissance Capital - South Africa
- Indonesian Coal Mining Association
- Antam Resourcindo - Indonesia
- Tamil Nadu electricity Board
- Planning Commission, India
- Jindal Steel & Power Ltd - India
- GMR Energy Limited - India
- Mercator Lines Limited - India
- Alfred C Toepfer International GmbH - Germany
- Electricity Generating Authority of Thailand
- Altura Mining Limited, Indonesia
- Coalindo Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Central Electricity Authority - India
- Goldman Sachs - Singapore
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