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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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Friday, 07 October 16
INDONESIA'S DEMAND FOR COAL REMAINS STRONG: BP
Indonesia's domestic demand for coal shows no sign of slowing down as the country is banking on its coal abundance to meet the country' ...
Friday, 07 October 16
CEYLON SHIPPING CORPORATION HAS TAKEN DELIVERY OF COAL CARRIER MV.CEYLON PRINCESS
Sri Lanka’s Ceylon Shipping Corporation (CSC) has taken delivery of its second newly built bulk carrier for the transportation of coal to pow ...
Friday, 07 October 16
U.S. YEAR-TO-DATE COAL PRODUCTION TOTALLED AN ESTIMATED 540.5 MMST; DOWN 21.9% Y-O-Y, SAYS EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.7 million short ton ...
Thursday, 06 October 16
SHIPS IN PACIFIC ACHIEVE JUST ABOVE $10K DAILY FOR A BRAZIL ROUND VOYAGE - FEARNLEYS
Supramax
Slower week with limited activity due to holidays in the East. Mixed feelings within different markets, with slight downturn in Pacific ...
Wednesday, 05 October 16
OPEC TO SHUT OFF MORE THAN 6 PERCENT OF ITS PRODUCTION; MIXED FEELING AMONGST TRADERS - ALLIED
OPEC recent accord to shut off more than 6 percent of its production this past week has been met with mixed feeling amongst traders. As we mo ...
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- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Petron Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Indian Energy Exchange, India
- SN Aboitiz Power Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Goldman Sachs - Singapore
- Antam Resourcindo - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ambuja Cements Ltd - India
- Sical Logistics Limited - India
- Indo Tambangraya Megah - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Africa Commodities Group - South Africa
- Independent Power Producers Association of India
- Kideco Jaya Agung - Indonesia
- Chamber of Mines of South Africa
- LBH Netherlands Bv - Netherlands
- Attock Cement Pakistan Limited
- Economic Council, Georgia
- Bukit Asam (Persero) Tbk - Indonesia
- Essar Steel Hazira Ltd - India
- Indonesian Coal Mining Association
- Bharathi Cement Corporation - India
- ASAPP Information Group - India
- Edison Trading Spa - Italy
- Power Finance Corporation Ltd., India
- Kumho Petrochemical, South Korea
- Planning Commission, India
- Riau Bara Harum - Indonesia
- Chettinad Cement Corporation Ltd - India
- Singapore Mercantile Exchange
- Petrochimia International Co. Ltd.- Taiwan
- White Energy Company Limited
- Makarim & Taira - Indonesia
- Sojitz Corporation - Japan
- Merrill Lynch Commodities Europe
- Dalmia Cement Bharat India
- GAC Shipping (India) Pvt Ltd
- Asmin Koalindo Tuhup - Indonesia
- Global Green Power PLC Corporation, Philippines
- IEA Clean Coal Centre - UK
- Medco Energi Mining Internasional
- Samtan Co., Ltd - South Korea
- Larsen & Toubro Limited - India
- Agrawal Coal Company - India
- Tamil Nadu electricity Board
- Karaikal Port Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Orica Australia Pty. Ltd.
- Indika Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Barasentosa Lestari - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Baramulti Group, Indonesia
- Formosa Plastics Group - Taiwan
- Wilmar Investment Holdings
- Thiess Contractors Indonesia
- Ministry of Mines - Canada
- ICICI Bank Limited - India
- Sinarmas Energy and Mining - Indonesia
- Kartika Selabumi Mining - Indonesia
- Energy Link Ltd, New Zealand
- OPG Power Generation Pvt Ltd - India
- SMG Consultants - Indonesia
- Bhoruka Overseas - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Madhucon Powers Ltd - India
- Aditya Birla Group - India
- International Coal Ventures Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Kobexindo Tractors - Indoneisa
- Rio Tinto Coal - Australia
- Lanco Infratech Ltd - India
- Videocon Industries ltd - India
- Indian Oil Corporation Limited
- Marubeni Corporation - India
- Star Paper Mills Limited - India
- New Zealand Coal & Carbon
- Directorate Of Revenue Intelligence - India
- Sarangani Energy Corporation, Philippines
- Parry Sugars Refinery, India
- Kalimantan Lumbung Energi - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Vedanta Resources Plc - India
- Savvy Resources Ltd - HongKong
- Cigading International Bulk Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Jaiprakash Power Ventures ltd
- Georgia Ports Authority, United States
- Coal and Oil Company - UAE
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Finance - Indonesia
- Intertek Mineral Services - Indonesia
- SMC Global Power, Philippines
- Iligan Light & Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Heidelberg Cement - Germany
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Electricity Authority, New Zealand
- Trasteel International SA, Italy
- Banpu Public Company Limited - Thailand
- Renaissance Capital - South Africa
- Salva Resources Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Australian Coal Association
- PowerSource Philippines DevCo
- Simpson Spence & Young - Indonesia
- MS Steel International - UAE
- Bulk Trading Sa - Switzerland
- Siam City Cement PLC, Thailand
- Interocean Group of Companies - India
- CIMB Investment Bank - Malaysia
- Parliament of New Zealand
- Meralco Power Generation, Philippines
- Timah Investasi Mineral - Indoneisa
- Price Waterhouse Coopers - Russia
- London Commodity Brokers - England
- Cement Manufacturers Association - India
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement - Thailand
- Toyota Tsusho Corporation, Japan
- Bukit Baiduri Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- VISA Power Limited - India
- Orica Mining Services - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- Deloitte Consulting - India
- South Luzon Thermal Energy Corporation
- Kepco SPC Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Kapuas Tunggal Persada - Indonesia
- Xindia Steels Limited - India
- Jindal Steel & Power Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Coalindo Energy - Indonesia
- GVK Power & Infra Limited - India
- Commonwealth Bank - Australia
- Thai Mozambique Logistica
- Binh Thuan Hamico - Vietnam
- Sree Jayajothi Cements Limited - India
- Aboitiz Power Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining Corp, Philippines
- Eastern Coal Council - USA
- Global Business Power Corporation, Philippines
- Mintek Dendrill Indonesia
- Maheswari Brothers Coal Limited - India
- McConnell Dowell - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mjunction Services Limited - India
- India Bulls Power Limited - India
- Latin American Coal - Colombia
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Romanian Commodities Exchange
- Kohat Cement Company Ltd. - Pakistan
- Altura Mining Limited, Indonesia
- Ministry of Transport, Egypt
- Leighton Contractors Pty Ltd - Australia
- The University of Queensland
- CNBM International Corporation - China
- San Jose City I Power Corp, Philippines
- Mercuria Energy - Indonesia
- Bangladesh Power Developement Board
- Alfred C Toepfer International GmbH - Germany
- Pendopo Energi Batubara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Oldendorff Carriers - Singapore
- Minerals Council of Australia
- Indogreen Group - Indonesia
- Wood Mackenzie - Singapore
- Malabar Cements Ltd - India
- Gujarat Sidhee Cement - India
- Sakthi Sugars Limited - India
- PNOC Exploration Corporation - Philippines
- Bhushan Steel Limited - India
- Central Java Power - Indonesia
- Manunggal Multi Energi - Indonesia
- Energy Development Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Eastern Energy - Thailand
- Central Electricity Authority - India
- Australian Commodity Traders Exchange
- Grasim Industreis Ltd - India
- Ind-Barath Power Infra Limited - India
- Vizag Seaport Private Limited - India
- IHS Mccloskey Coal Group - USA
- Uttam Galva Steels Limited - India
- Carbofer General Trading SA - India
- Directorate General of MIneral and Coal - Indonesia
- Mercator Lines Limited - India
- The Treasury - Australian Government
- GMR Energy Limited - India
- TeaM Sual Corporation - Philippines
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Globalindo Alam Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Bhatia International Limited - India
- Electricity Generating Authority of Thailand
- Posco Energy - South Korea
- Kaltim Prima Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Coastal Gujarat Power Limited - India
- Metalloyd Limited - United Kingdom
- Standard Chartered Bank - UAE
- Jorong Barutama Greston.PT - Indonesia
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