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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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Wednesday, 05 October 16
SHIPPING MARKET INSIGHT
On September 27th the OPEC petroleum and energy ministers arrived in Algeria to attend the International Energy Forum, which brought together produ ...
Monday, 03 October 16
THERMAL COAL PRICE SHOOTS UP AND MADE THEIR VERTICAL MOVE IN 5 YEARS; PRICE RALLY 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 ...
Monday, 03 October 16
DRY-BULK SHIPPING FREIGHTS SLIDE IN SOFTENING SPOT MARKET
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities decline slightly and ending in a negative note this past ...
Friday, 30 September 16
U.S. WEEKLY COAL OUTPUT FELL 2.3% - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 15.7 million short ton ...
Friday, 30 September 16
OPEC CUT SUPPORTS SLOW OIL RECOVERY, NOT STRONG REBOUND - FITCH
OPEC's oil production target announced this week signals the potential for greater co-ordination among its members, but the target itself is la ...
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- Meralco Power Generation, Philippines
- Indo Tambangraya Megah - Indonesia
- Power Finance Corporation Ltd., India
- Africa Commodities Group - South Africa
- Attock Cement Pakistan Limited
- South Luzon Thermal Energy Corporation
- Aboitiz Power Corporation - Philippines
- Bhatia International Limited - India
- Madhucon Powers Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Bayan Resources Tbk. - Indonesia
- TeaM Sual Corporation - Philippines
- Maheswari Brothers Coal Limited - India
- Alfred C Toepfer International GmbH - Germany
- Georgia Ports Authority, United States
- Pendopo Energi Batubara - Indonesia
- Sakthi Sugars Limited - India
- Oldendorff Carriers - Singapore
- Global Coal Blending Company Limited - Australia
- Metalloyd Limited - United Kingdom
- SMG Consultants - Indonesia
- Grasim Industreis Ltd - India
- Bhushan Steel Limited - India
- Tamil Nadu electricity Board
- European Bulk Services B.V. - Netherlands
- Medco Energi Mining Internasional
- Chamber of Mines of South Africa
- Independent Power Producers Association of India
- International Coal Ventures Pvt Ltd - India
- Aditya Birla Group - India
- Orica Mining Services - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Bharathi Cement Corporation - India
- Parry Sugars Refinery, India
- SMC Global Power, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Edison Trading Spa - Italy
- Mercuria Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Minerals Council of Australia
- Ambuja Cements Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Ministry of Transport, Egypt
- Bangladesh Power Developement Board
- Global Green Power PLC Corporation, Philippines
- Heidelberg Cement - Germany
- Kepco SPC Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- Petron Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- London Commodity Brokers - England
- Renaissance Capital - South Africa
- IEA Clean Coal Centre - UK
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- GMR Energy Limited - India
- Economic Council, Georgia
- New Zealand Coal & Carbon
- Commonwealth Bank - Australia
- Ind-Barath Power Infra Limited - India
- Wilmar Investment Holdings
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Chettinad Cement Corporation Ltd - India
- McConnell Dowell - Australia
- Xindia Steels Limited - India
- Australian Commodity Traders Exchange
- Trasteel International SA, Italy
- Siam City Cement - Thailand
- Intertek Mineral Services - Indonesia
- PTC India Limited - India
- Bulk Trading Sa - Switzerland
- Globalindo Alam Lestari - Indonesia
- Kumho Petrochemical, South Korea
- Lanco Infratech Ltd - India
- Larsen & Toubro Limited - India
- Baramulti Group, Indonesia
- Ceylon Electricity Board - Sri Lanka
- Energy Development Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Merrill Lynch Commodities Europe
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Eastern Coal Council - USA
- Orica Australia Pty. Ltd.
- The University of Queensland
- Thiess Contractors Indonesia
- Singapore Mercantile Exchange
- Thai Mozambique Logistica
- Anglo American - United Kingdom
- Siam City Cement PLC, Thailand
- Miang Besar Coal Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Malabar Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- Sojitz Corporation - Japan
- Jindal Steel & Power Ltd - India
- Samtan Co., Ltd - South Korea
- Billiton Holdings Pty Ltd - Australia
- Vedanta Resources Plc - India
- CIMB Investment Bank - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- White Energy Company Limited
- Eastern Energy - Thailand
- Iligan Light & Power Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Electricity Authority, New Zealand
- Jorong Barutama Greston.PT - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Borneo Indobara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Neyveli Lignite Corporation Ltd, - India
- Bukit Makmur.PT - Indonesia
- Mercator Lines Limited - India
- Parliament of New Zealand
- The State Trading Corporation of India Ltd
- OPG Power Generation Pvt Ltd - India
- Cement Manufacturers Association - India
- Electricity Generating Authority of Thailand
- Energy Link Ltd, New Zealand
- Ministry of Finance - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Tata Chemicals Ltd - India
- Mintek Dendrill Indonesia
- Toyota Tsusho Corporation, Japan
- The Treasury - Australian Government
- Central Electricity Authority - India
- Goldman Sachs - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Indogreen Group - Indonesia
- Sical Logistics Limited - India
- Kideco Jaya Agung - Indonesia
- Interocean Group of Companies - India
- Gujarat Mineral Development Corp Ltd - India
- Coastal Gujarat Power Limited - India
- Vizag Seaport Private Limited - India
- Bhoruka Overseas - Indonesia
- Star Paper Mills Limited - India
- Agrawal Coal Company - India
- Videocon Industries ltd - India
- Salva Resources Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- ASAPP Information Group - India
- Cigading International Bulk Terminal - Indonesia
- Posco Energy - South Korea
- Essar Steel Hazira Ltd - India
- Mjunction Services Limited - India
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Makarim & Taira - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Planning Commission, India
- Petrochimia International Co. Ltd.- Taiwan
- Price Waterhouse Coopers - Russia
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- LBH Netherlands Bv - Netherlands
- PNOC Exploration Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Ministry of Mines - Canada
- Global Business Power Corporation, Philippines
- Marubeni Corporation - India
- Coal and Oil Company - UAE
- Sarangani Energy Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Altura Mining Limited, Indonesia
- Port Waratah Coal Services - Australia
- Dalmia Cement Bharat India
- Kartika Selabumi Mining - Indonesia
- Indian Energy Exchange, India
- Coalindo Energy - Indonesia
- Indika Energy - Indonesia
- Wood Mackenzie - Singapore
- GVK Power & Infra Limited - India
- Manunggal Multi Energi - Indonesia
- SN Aboitiz Power Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- IHS Mccloskey Coal Group - USA
- Directorate Of Revenue Intelligence - India
- Australian Coal Association
- Formosa Plastics Group - Taiwan
- Gujarat Sidhee Cement - India
- Uttam Galva Steels Limited - India
- MS Steel International - UAE
- India Bulls Power Limited - India
- Jaiprakash Power Ventures ltd
- Vijayanagar Sugar Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- CNBM International Corporation - China
- Asmin Koalindo Tuhup - Indonesia
- VISA Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- ICICI Bank Limited - India
- Carbofer General Trading SA - India
- Deloitte Consulting - India
- Banpu Public Company Limited - Thailand
- Bukit Baiduri Energy - Indonesia
- Riau Bara Harum - Indonesia
- Rio Tinto Coal - Australia
- Sree Jayajothi Cements Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Romanian Commodities Exchange
- Simpson Spence & Young - Indonesia
- Barasentosa Lestari - Indonesia
- Indian Oil Corporation Limited
- Karaikal Port Pvt Ltd - India
- Standard Chartered Bank - UAE
- Kapuas Tunggal Persada - Indonesia
- Kaltim Prima Coal - Indonesia
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