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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, 27 October 16
PANAMAX: FIRM ATLANTIC; TOPPISH PACIFIC - FEARNLEYS
Supramax
The trend from last week is passed on. ECSA still strong with Supras from N Brazil to Med fixed at $9,000 to $9,500 daily.
Accordin ...
Wednesday, 26 October 16
SHIPPING MARKET INSIGHT - KONSTANTINOS KONTOMICHIS
If the finale of a thriller movie finds the leading actor successfully surviving after all the sacrifices he has made, the audience presumes this t ...
Tuesday, 25 October 16
INDONESIAN COAL PRICES MARCH HIGHER CONTINUES
COALspot.com: A rally in thermal coal prices over the past few months, after years of decline, is still continuing and it is expected to rally at l ...
Tuesday, 25 October 16
THINGS ARE SLOWLY STARTING TO IMPROVE AS CORRECTIONS ARE MADE - ALLIED
It seems as though left, right and centre, all we see nowadays is the word “restructuring”.
There is restructuring amongst bankers ...
Monday, 24 October 16
KOMIPO INVITES BIDS FOR 0.78 MILLION TONS OF BITUMINOUS COAL
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued a new tender for 780,000 Metric Tons of Bituminous Coal for its B ...
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- Rashtriya Ispat Nigam Limited - India
- Billiton Holdings Pty Ltd - Australia
- Bhushan Steel Limited - India
- Kumho Petrochemical, South Korea
- Straits Asia Resources Limited - Singapore
- Semirara Mining Corp, Philippines
- Borneo Indobara - Indonesia
- Bayan Resources Tbk. - Indonesia
- Maheswari Brothers Coal Limited - India
- Medco Energi Mining Internasional
- Uttam Galva Steels Limited - India
- Renaissance Capital - South Africa
- Directorate Of Revenue Intelligence - India
- Ministry of Mines - Canada
- Kalimantan Lumbung Energi - Indonesia
- Sojitz Corporation - Japan
- Africa Commodities Group - South Africa
- Vedanta Resources Plc - India
- Price Waterhouse Coopers - Russia
- International Coal Ventures Pvt Ltd - India
- Heidelberg Cement - Germany
- Jaiprakash Power Ventures ltd
- Parry Sugars Refinery, India
- Vizag Seaport Private Limited - India
- Barasentosa Lestari - Indonesia
- Bhatia International Limited - India
- Aboitiz Power Corporation - Philippines
- Mjunction Services Limited - India
- Bukit Makmur.PT - Indonesia
- Indogreen Group - Indonesia
- Cement Manufacturers Association - India
- Georgia Ports Authority, United States
- Binh Thuan Hamico - Vietnam
- Siam City Cement PLC, Thailand
- Meenaskhi Energy Private Limited - India
- Pendopo Energi Batubara - Indonesia
- TeaM Sual Corporation - Philippines
- Gujarat Sidhee Cement - India
- Attock Cement Pakistan Limited
- Maharashtra Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Indika Energy - Indonesia
- Trasteel International SA, Italy
- Bulk Trading Sa - Switzerland
- Indian Energy Exchange, India
- Kepco SPC Power Corporation, Philippines
- Ministry of Finance - Indonesia
- Global Green Power PLC Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- Sindya Power Generating Company Private Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mintek Dendrill Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- Videocon Industries ltd - India
- Indo Tambangraya Megah - Indonesia
- Kobexindo Tractors - Indoneisa
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Tamil Nadu electricity Board
- Manunggal Multi Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- European Bulk Services B.V. - Netherlands
- Sical Logistics Limited - India
- Eastern Energy - Thailand
- Timah Investasi Mineral - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- New Zealand Coal & Carbon
- Leighton Contractors Pty Ltd - Australia
- Therma Luzon, Inc, Philippines
- Samtan Co., Ltd - South Korea
- Energy Link Ltd, New Zealand
- Thiess Contractors Indonesia
- Standard Chartered Bank - UAE
- Orica Mining Services - Indonesia
- Aditya Birla Group - India
- Riau Bara Harum - Indonesia
- Makarim & Taira - Indonesia
- Toyota Tsusho Corporation, Japan
- Marubeni Corporation - India
- Mercator Lines Limited - India
- Agrawal Coal Company - India
- ASAPP Information Group - India
- PTC India Limited - India
- Ind-Barath Power Infra Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Star Paper Mills Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Karaikal Port Pvt Ltd - India
- Central Java Power - Indonesia
- Metalloyd Limited - United Kingdom
- Vijayanagar Sugar Pvt Ltd - India
- Coalindo Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Meralco Power Generation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Independent Power Producers Association of India
- PNOC Exploration Corporation - Philippines
- Antam Resourcindo - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Singapore Mercantile Exchange
- TNB Fuel Sdn Bhd - Malaysia
- The Treasury - Australian Government
- Posco Energy - South Korea
- Chettinad Cement Corporation Ltd - India
- India Bulls Power Limited - India
- Rio Tinto Coal - Australia
- Central Electricity Authority - India
- Kaltim Prima Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Carbofer General Trading SA - India
- OPG Power Generation Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Ministry of Transport, Egypt
- CIMB Investment Bank - Malaysia
- Savvy Resources Ltd - HongKong
- Semirara Mining and Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Neyveli Lignite Corporation Ltd, - India
- Malabar Cements Ltd - India
- Thai Mozambique Logistica
- Mercuria Energy - Indonesia
- Australian Coal Association
- Tata Chemicals Ltd - India
- Ambuja Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- PetroVietnam Power Coal Import and Supply Company
- Energy Development Corp, Philippines
- Goldman Sachs - Singapore
- South Luzon Thermal Energy Corporation
- Petrochimia International Co. Ltd.- Taiwan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Anglo American - United Kingdom
- Coal and Oil Company - UAE
- Parliament of New Zealand
- Grasim Industreis Ltd - India
- Port Waratah Coal Services - Australia
- Salva Resources Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Petron Corporation, Philippines
- Wilmar Investment Holdings
- Pipit Mutiara Jaya. PT, Indonesia
- Bangladesh Power Developement Board
- GMR Energy Limited - India
- London Commodity Brokers - England
- Deloitte Consulting - India
- Romanian Commodities Exchange
- Chamber of Mines of South Africa
- Alfred C Toepfer International GmbH - Germany
- Global Business Power Corporation, Philippines
- Commonwealth Bank - Australia
- Sinarmas Energy and Mining - Indonesia
- MS Steel International - UAE
- Minerals Council of Australia
- The State Trading Corporation of India Ltd
- San Jose City I Power Corp, Philippines
- Electricity Authority, New Zealand
- Sree Jayajothi Cements Limited - India
- Latin American Coal - Colombia
- White Energy Company Limited
- Ceylon Electricity Board - Sri Lanka
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- GN Power Mariveles Coal Plant, Philippines
- Siam City Cement - Thailand
- IHS Mccloskey Coal Group - USA
- Cigading International Bulk Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Eastern Coal Council - USA
- McConnell Dowell - Australia
- Global Coal Blending Company Limited - Australia
- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Wood Mackenzie - Singapore
- AsiaOL BioFuels Corp., Philippines
- Karbindo Abesyapradhi - Indoneisa
- Merrill Lynch Commodities Europe
- Interocean Group of Companies - India
- The University of Queensland
- Gujarat Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IEA Clean Coal Centre - UK
- Larsen & Toubro Limited - India
- Bhoruka Overseas - Indonesia
- Madhucon Powers Ltd - India
- Power Finance Corporation Ltd., India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Baramulti Group, Indonesia
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Planning Commission, India
- CNBM International Corporation - China
- Sarangani Energy Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Orica Australia Pty. Ltd.
- Kideco Jaya Agung - Indonesia
- Altura Mining Limited, Indonesia
- Economic Council, Georgia
- Kartika Selabumi Mining - Indonesia
- Edison Trading Spa - Italy
- Simpson Spence & Young - Indonesia
- Dalmia Cement Bharat India
- VISA Power Limited - India
- Coastal Gujarat Power Limited - India
- Intertek Mineral Services - Indonesia
- Sakthi Sugars Limited - India
- GVK Power & Infra Limited - India
- SMG Consultants - Indonesia
- Indonesian Coal Mining Association
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