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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, 29 September 16
FREIGHT RATES MIGHT CONTINUE TO SLIDE NEXT WEEK DUE TO HOLIDAYS IN CHINA
Supramax
Flat start to week followed by a slight gain in rates for Supramaxes, says Fearnleys in its latest weekly report.
According to Fear ...
Wednesday, 28 September 16
WITHOUT A DOUBT FREIGHT RATES HAVE MOVED UP A BIT TO HEALTHIER LEVELS - INTERMODAL
As we are approaching Q4, it is interesting to perform a review of the last nine months with respect to the second-hand prices of Supramax and Pana ...
Tuesday, 27 September 16
THE CAPESIZE RATE OF INCREASE HAS BEEN IMPRESSIVE, UP 39% W/W AND 123% MONTH TO DATE - ALLIED
The Dry bulk market has seen a rare shine in its performance as the capesize sector manages to rally at an unprecedented rate compared to its perfo ...
Monday, 26 September 16
COAL PRICES HAVE BEEN MOVING STEADILY HIGHER AFTER YEARS OF DECLINE
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, 26 September 16
THE FREIGHT MARKET WAS FIRM; ALL SEGMENTS WERE UP THIS PAST WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose and ending in a positive note this past week. The BD ...
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- Salva Resources Pvt Ltd - India
- The University of Queensland
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- Petron Corporation, Philippines
- Oldendorff Carriers - Singapore
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- Commonwealth Bank - Australia
- Posco Energy - South Korea
- Borneo Indobara - Indonesia
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- Ministry of Finance - Indonesia
- Planning Commission, India
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- Eastern Energy - Thailand
- Energy Link Ltd, New Zealand
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- Bhoruka Overseas - Indonesia
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- GAC Shipping (India) Pvt Ltd
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- Directorate General of MIneral and Coal - Indonesia
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- TNB Fuel Sdn Bhd - Malaysia
- Heidelberg Cement - Germany
- Global Business Power Corporation, Philippines
- Dalmia Cement Bharat India
- Orica Australia Pty. Ltd.
- Parliament of New Zealand
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- Bahari Cakrawala Sebuku - Indonesia
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- Gujarat Mineral Development Corp Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Eastern Coal Council - USA
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- Wilmar Investment Holdings
- Bulk Trading Sa - Switzerland
- PowerSource Philippines DevCo
- Carbofer General Trading SA - India
- Toyota Tsusho Corporation, Japan
- Sinarmas Energy and Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Australian Commodity Traders Exchange
- South Luzon Thermal Energy Corporation
- Siam City Cement - Thailand
- Ambuja Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Bangladesh Power Developement Board
- McConnell Dowell - Australia
- Ministry of Transport, Egypt
- San Jose City I Power Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Kaltim Prima Coal - Indonesia
- Simpson Spence & Young - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Meenaskhi Energy Private Limited - India
- Semirara Mining Corp, Philippines
- Goldman Sachs - Singapore
- Banpu Public Company Limited - Thailand
- Globalindo Alam Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- Mintek Dendrill Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Global Green Power PLC Corporation, Philippines
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- Mercuria Energy - Indonesia
- Vizag Seaport Private Limited - India
- Latin American Coal - Colombia
- IEA Clean Coal Centre - UK
- Kumho Petrochemical, South Korea
- Gujarat Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Central Java Power - Indonesia
- GVK Power & Infra Limited - India
- Attock Cement Pakistan Limited
- London Commodity Brokers - England
- GMR Energy Limited - India
- Mercator Lines Limited - India
- Thai Mozambique Logistica
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- Trasteel International SA, Italy
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- Metalloyd Limited - United Kingdom
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- Larsen & Toubro Limited - India
- Indogreen Group - Indonesia
- Renaissance Capital - South Africa
- Kepco SPC Power Corporation, Philippines
- Romanian Commodities Exchange
- Power Finance Corporation Ltd., India
- ASAPP Information Group - India
- White Energy Company Limited
- Sakthi Sugars Limited - India
- Makarim & Taira - Indonesia
- Cement Manufacturers Association - India
- Ministry of Mines - Canada
- Sindya Power Generating Company Private Ltd
- Georgia Ports Authority, United States
- Tata Chemicals Ltd - India
- Wood Mackenzie - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Anglo American - United Kingdom
- Electricity Generating Authority of Thailand
- Malabar Cements Ltd - India
- Cigading International Bulk Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
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- Medco Energi Mining Internasional
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- Merrill Lynch Commodities Europe
- Sical Logistics Limited - India
- Leighton Contractors Pty Ltd - Australia
- Neyveli Lignite Corporation Ltd, - India
- Bukit Makmur.PT - Indonesia
- PTC India Limited - India
- Ind-Barath Power Infra Limited - India
- Electricity Authority, New Zealand
- VISA Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Holcim Trading Pte Ltd - Singapore
- Jindal Steel & Power Ltd - India
- SMC Global Power, Philippines
- Ceylon Electricity Board - Sri Lanka
- Savvy Resources Ltd - HongKong
- Meralco Power Generation, Philippines
- Minerals Council of Australia
- Global Coal Blending Company Limited - Australia
- The State Trading Corporation of India Ltd
- Chamber of Mines of South Africa
- European Bulk Services B.V. - Netherlands
- Jaiprakash Power Ventures ltd
- Sarangani Energy Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- International Coal Ventures Pvt Ltd - India
- Deloitte Consulting - India
- Billiton Holdings Pty Ltd - Australia
- Mjunction Services Limited - India
- Singapore Mercantile Exchange
- Chettinad Cement Corporation Ltd - India
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- Central Electricity Authority - India
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- Edison Trading Spa - Italy
- SMG Consultants - Indonesia
- Samtan Co., Ltd - South Korea
- PNOC Exploration Corporation - Philippines
- Therma Luzon, Inc, Philippines
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- Interocean Group of Companies - India
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- Bharathi Cement Corporation - India
- The Treasury - Australian Government
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- CIMB Investment Bank - Malaysia
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- Siam City Cement PLC, Thailand
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- Formosa Plastics Group - Taiwan
- Indika Energy - Indonesia
- India Bulls Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- Aboitiz Power Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Indian Oil Corporation Limited
- Sojitz Corporation - Japan
- Bhushan Steel Limited - India
- Uttam Galva Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Tamil Nadu electricity Board
- Bhatia International Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Baramulti Group, Indonesia
- Gujarat Sidhee Cement - India
- Xindia Steels Limited - India
- Coal and Oil Company - UAE
- Rio Tinto Coal - Australia
- Semirara Mining and Power Corporation, Philippines
- Lanco Infratech Ltd - India
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- Price Waterhouse Coopers - Russia
- Indian Energy Exchange, India
- Africa Commodities Group - South Africa
- Kohat Cement Company Ltd. - Pakistan
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