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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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- Electricity Authority, New Zealand
- Singapore Mercantile Exchange
- Kalimantan Lumbung Energi - Indonesia
- Larsen & Toubro Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Jaiprakash Power Ventures ltd
- Sindya Power Generating Company Private Ltd
- Essar Steel Hazira Ltd - India
- Maheswari Brothers Coal Limited - India
- Indian Oil Corporation Limited
- Sical Logistics Limited - India
- Neyveli Lignite Corporation Ltd, - India
- South Luzon Thermal Energy Corporation
- AsiaOL BioFuels Corp., Philippines
- The University of Queensland
- Edison Trading Spa - Italy
- Ambuja Cements Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Kartika Selabumi Mining - Indonesia
- Orica Australia Pty. Ltd.
- Grasim Industreis Ltd - India
- Goldman Sachs - Singapore
- Global Coal Blending Company Limited - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- LBH Netherlands Bv - Netherlands
- Bhushan Steel Limited - India
- Mercuria Energy - Indonesia
- Trasteel International SA, Italy
- Petrochimia International Co. Ltd.- Taiwan
- Kideco Jaya Agung - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Globalindo Alam Lestari - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- ICICI Bank Limited - India
- Altura Mining Limited, Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Vizag Seaport Private Limited - India
- ASAPP Information Group - India
- Renaissance Capital - South Africa
- Bangladesh Power Developement Board
- Ministry of Finance - Indonesia
- Videocon Industries ltd - India
- Energy Development Corp, Philippines
- Kumho Petrochemical, South Korea
- Global Business Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- Orica Mining Services - Indonesia
- Cement Manufacturers Association - India
- Gujarat Mineral Development Corp Ltd - India
- Bhatia International Limited - India
- Barasentosa Lestari - Indonesia
- Bulk Trading Sa - Switzerland
- OPG Power Generation Pvt Ltd - India
- Indonesian Coal Mining Association
- TeaM Sual Corporation - Philippines
- Standard Chartered Bank - UAE
- Commonwealth Bank - Australia
- Borneo Indobara - Indonesia
- Bayan Resources Tbk. - Indonesia
- Wood Mackenzie - Singapore
- Iligan Light & Power Inc, Philippines
- Mercator Lines Limited - India
- Interocean Group of Companies - India
- Australian Commodity Traders Exchange
- Formosa Plastics Group - Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Alfred C Toepfer International GmbH - Germany
- Antam Resourcindo - Indonesia
- Banpu Public Company Limited - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Gujarat Electricity Regulatory Commission - India
- GAC Shipping (India) Pvt Ltd
- MS Steel International - UAE
- Baramulti Group, Indonesia
- Georgia Ports Authority, United States
- Chamber of Mines of South Africa
- VISA Power Limited - India
- Attock Cement Pakistan Limited
- The Treasury - Australian Government
- CNBM International Corporation - China
- Maharashtra Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- London Commodity Brokers - England
- Thiess Contractors Indonesia
- Mjunction Services Limited - India
- Rashtriya Ispat Nigam Limited - India
- Thai Mozambique Logistica
- Minerals Council of Australia
- Miang Besar Coal Terminal - Indonesia
- San Jose City I Power Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- International Coal Ventures Pvt Ltd - India
- Xindia Steels Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Medco Energi Mining Internasional
- PNOC Exploration Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Ind-Barath Power Infra Limited - India
- Petron Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Ministry of Mines - Canada
- SN Aboitiz Power Inc, Philippines
- Coalindo Energy - Indonesia
- Tamil Nadu electricity Board
- Central Electricity Authority - India
- Sakthi Sugars Limited - India
- New Zealand Coal & Carbon
- GVK Power & Infra Limited - India
- White Energy Company Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement PLC, Thailand
- Therma Luzon, Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Agrawal Coal Company - India
- Leighton Contractors Pty Ltd - Australia
- Sojitz Corporation - Japan
- Semirara Mining and Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Bhoruka Overseas - Indonesia
- Madhucon Powers Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IHS Mccloskey Coal Group - USA
- Makarim & Taira - Indonesia
- Australian Coal Association
- Metalloyd Limited - United Kingdom
- Marubeni Corporation - India
- Salva Resources Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Carbofer General Trading SA - India
- Energy Link Ltd, New Zealand
- Independent Power Producers Association of India
- Toyota Tsusho Corporation, Japan
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- India Bulls Power Limited - India
- Star Paper Mills Limited - India
- Parry Sugars Refinery, India
- Mintek Dendrill Indonesia
- CIMB Investment Bank - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Meralco Power Generation, Philippines
- Planning Commission, India
- Indogreen Group - Indonesia
- Samtan Co., Ltd - South Korea
- Eastern Energy - Thailand
- Karbindo Abesyapradhi - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Directorate Of Revenue Intelligence - India
- Binh Thuan Hamico - Vietnam
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
- Parliament of New Zealand
- Siam City Cement - Thailand
- Jindal Steel & Power Ltd - India
- Oldendorff Carriers - Singapore
- PTC India Limited - India
- Uttam Galva Steels Limited - India
- Wilmar Investment Holdings
- PetroVietnam Power Coal Import and Supply Company
- Sarangani Energy Corporation, Philippines
- Electricity Generating Authority of Thailand
- Kapuas Tunggal Persada - Indonesia
- Meenaskhi Energy Private Limited - India
- SMC Global Power, Philippines
- Tata Chemicals Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Romanian Commodities Exchange
- Ceylon Electricity Board - Sri Lanka
- Karaikal Port Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- GMR Energy Limited - India
- Bukit Makmur.PT - Indonesia
- PowerSource Philippines DevCo
- Indo Tambangraya Megah - Indonesia
- Semirara Mining Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Dalmia Cement Bharat India
- Indian Energy Exchange, India
- Rio Tinto Coal - Australia
- Anglo American - United Kingdom
- European Bulk Services B.V. - Netherlands
- Gujarat Sidhee Cement - India
- Bukit Asam (Persero) Tbk - Indonesia
- The State Trading Corporation of India Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- Intertek Mineral Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Vedanta Resources Plc - India
- Africa Commodities Group - South Africa
- Chettinad Cement Corporation Ltd - India
- Indika Energy - Indonesia
- Ministry of Transport, Egypt
- Posco Energy - South Korea
- IEA Clean Coal Centre - UK
- Power Finance Corporation Ltd., India
- McConnell Dowell - Australia
- Port Waratah Coal Services - Australia
- Aditya Birla Group - India
- TNB Fuel Sdn Bhd - Malaysia
- Deloitte Consulting - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kaltim Prima Coal - Indonesia
- Economic Council, Georgia
- Coal and Oil Company - UAE
- Central Java Power - Indonesia
- Sree Jayajothi Cements Limited - India
- Lanco Infratech Ltd - India
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