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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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Tuesday, 01 November 16
IMPROVEMENT ON THE DEMAND SIDE ONLY BUT THE SUPPLY SIDE IS WORSE OFF - BIMCO
Back in May, BIMCO disclosed a projected “road to recovery” for the dry bulk shipping industry. The main message back then on what the ...
Monday, 31 October 16
INDONESIAN 5000 GAR COAL ROSE 5.56% WEEK OVER WEEK - CS COAL INDEX
COALspot.com: The price for thermal coal has recovered substantially since April 2016. The China’s new policy on its domestic coal miners, th ...
Friday, 28 October 16
STEAM COAL IMPORTS: CHINA AND INDIA'S ROLE REVERSALS - BEN TRIMMEL
While a sharp decline in European imports is a key driver of the expected fall in steam coal trade this year, China and India remain leading actors ...
Friday, 28 October 16
U.S. WEEKLY COAL OUTPUT ROSE DURING THE WEEK ENDING OCTOBER 22 - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.5 million short ton ...
Thursday, 27 October 16
73.08 PERCENT OF COAL PRODUCERS PREDICTED INDIA WILL NOT STOP COAL IMPORTS IN 2 TO 3 YEARS - POLL
COALspot released its weekly opinion poll "How likely do you think India will STOP thermal coal imports in 2-3 years?" this Monday.
...
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- Bhoruka Overseas - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- Videocon Industries ltd - India
- Romanian Commodities Exchange
- Indika Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Madhucon Powers Ltd - India
- Straits Asia Resources Limited - Singapore
- Altura Mining Limited, Indonesia
- Wilmar Investment Holdings
- Indian Energy Exchange, India
- Independent Power Producers Association of India
- Vedanta Resources Plc - India
- Global Coal Blending Company Limited - Australia
- Asmin Koalindo Tuhup - Indonesia
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- Mintek Dendrill Indonesia
- The Treasury - Australian Government
- Krishnapatnam Port Company Ltd. - India
- Sical Logistics Limited - India
- Sinarmas Energy and Mining - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Agrawal Coal Company - India
- Carbofer General Trading SA - India
- Electricity Authority, New Zealand
- PowerSource Philippines DevCo
- Simpson Spence & Young - Indonesia
- European Bulk Services B.V. - Netherlands
- Renaissance Capital - South Africa
- Mercuria Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Link Ltd, New Zealand
- Bhatia International Limited - India
- Lanco Infratech Ltd - India
- Central Java Power - Indonesia
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- GN Power Mariveles Coal Plant, Philippines
- Aboitiz Power Corporation - Philippines
- Indonesian Coal Mining Association
- Malabar Cements Ltd - India
- Central Electricity Authority - India
- Cigading International Bulk Terminal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Makmur.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Petron Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- PNOC Exploration Corporation - Philippines
- New Zealand Coal & Carbon
- Savvy Resources Ltd - HongKong
- Power Finance Corporation Ltd., India
- The University of Queensland
- TeaM Sual Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Orica Mining Services - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Eastern Energy - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- Oldendorff Carriers - Singapore
- Thai Mozambique Logistica
- Semirara Mining and Power Corporation, Philippines
- Eastern Coal Council - USA
- Bayan Resources Tbk. - Indonesia
- Posco Energy - South Korea
- Marubeni Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Coastal Gujarat Power Limited - India
- SMG Consultants - Indonesia
- Jaiprakash Power Ventures ltd
- Attock Cement Pakistan Limited
- OPG Power Generation Pvt Ltd - India
- Indogreen Group - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Chamber of Mines of South Africa
- Pipit Mutiara Jaya. PT, Indonesia
- Jindal Steel & Power Ltd - India
- Riau Bara Harum - Indonesia
- Global Business Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Mercator Lines Limited - India
- Sojitz Corporation - Japan
- CNBM International Corporation - China
- Ind-Barath Power Infra Limited - India
- Uttam Galva Steels Limited - India
- Vizag Seaport Private Limited - India
- CIMB Investment Bank - Malaysia
- Energy Development Corp, Philippines
- Siam City Cement - Thailand
- Barasentosa Lestari - Indonesia
- Tata Chemicals Ltd - India
- Gujarat Sidhee Cement - India
- Coal and Oil Company - UAE
- San Jose City I Power Corp, Philippines
- Formosa Plastics Group - Taiwan
- Directorate General of MIneral and Coal - Indonesia
- Bhushan Steel Limited - India
- Siam City Cement PLC, Thailand
- Sindya Power Generating Company Private Ltd
- Pendopo Energi Batubara - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Mines - Canada
- Edison Trading Spa - Italy
- Kaltim Prima Coal - Indonesia
- Sree Jayajothi Cements Limited - India
- Mjunction Services Limited - India
- Kumho Petrochemical, South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Alfred C Toepfer International GmbH - Germany
- Timah Investasi Mineral - Indoneisa
- Merrill Lynch Commodities Europe
- Rio Tinto Coal - Australia
- MS Steel International - UAE
- Bulk Trading Sa - Switzerland
- Interocean Group of Companies - India
- Ministry of Finance - Indonesia
- Ministry of Transport, Egypt
- Cement Manufacturers Association - India
- IEA Clean Coal Centre - UK
- Manunggal Multi Energi - Indonesia
- Xindia Steels Limited - India
- Australian Commodity Traders Exchange
- Minerals Council of Australia
- Bharathi Cement Corporation - India
- ASAPP Information Group - India
- Grasim Industreis Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Baramulti Group, Indonesia
- South Luzon Thermal Energy Corporation
- Indian Oil Corporation Limited
- Economic Council, Georgia
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Wood Mackenzie - Singapore
- Makarim & Taira - Indonesia
- India Bulls Power Limited - India
- Dalmia Cement Bharat India
- Parry Sugars Refinery, India
- Therma Luzon, Inc, Philippines
- McConnell Dowell - Australia
- LBH Netherlands Bv - Netherlands
- Aditya Birla Group - India
- Directorate Of Revenue Intelligence - India
- The State Trading Corporation of India Ltd
- Electricity Generating Authority of Thailand
- Price Waterhouse Coopers - Russia
- Vijayanagar Sugar Pvt Ltd - India
- PTC India Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Billiton Holdings Pty Ltd - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thiess Contractors Indonesia
- Kalimantan Lumbung Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Globalindo Alam Lestari - Indonesia
- Deloitte Consulting - India
- Trasteel International SA, Italy
- Intertek Mineral Services - Indonesia
- Singapore Mercantile Exchange
- ICICI Bank Limited - India
- Binh Thuan Hamico - Vietnam
- Indo Tambangraya Megah - Indonesia
- Kideco Jaya Agung - Indonesia
- Salva Resources Pvt Ltd - India
- Bangladesh Power Developement Board
- GAC Shipping (India) Pvt Ltd
- Australian Coal Association
- AsiaOL BioFuels Corp., Philippines
- International Coal Ventures Pvt Ltd - India
- Star Paper Mills Limited - India
- Rashtriya Ispat Nigam Limited - India
- Parliament of New Zealand
- IHS Mccloskey Coal Group - USA
- GMR Energy Limited - India
- Commonwealth Bank - Australia
- Essar Steel Hazira Ltd - India
- Meralco Power Generation, Philippines
- Kepco SPC Power Corporation, Philippines
- Sakthi Sugars Limited - India
- SN Aboitiz Power Inc, Philippines
- Goldman Sachs - Singapore
- Africa Commodities Group - South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Larsen & Toubro Limited - India
- Kartika Selabumi Mining - Indonesia
- Samtan Co., Ltd - South Korea
- Coalindo Energy - Indonesia
- Tamil Nadu electricity Board
- VISA Power Limited - India
- Orica Australia Pty. Ltd.
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- White Energy Company Limited
- Bukit Baiduri Energy - Indonesia
- London Commodity Brokers - England
- SMC Global Power, Philippines
- Semirara Mining Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- Planning Commission, India
- Medco Energi Mining Internasional
- GVK Power & Infra Limited - India
- Heidelberg Cement - Germany
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