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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, 23 September 16
EIA SEES U.S. COAL WEEKLY OUTPUT INCREASE
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.1 million short ton ...
Thursday, 22 September 16
CHINA IS THE PRICE-SETTING COUNTRY FOR GLOBAL THERMAL COAL
COALspot.com: China has been the driver of global coal growth since 2009. When China became the largest coal importer in 2011, the country also has ...
Thursday, 22 September 16
SUPRAMAXES ARE ACHIEVING AROUND $7000 FOR A TRIP WITH SINGAPORE DELIVERY VIA INDONESIA TO CHINA
Supramax
A slow start to the week in the Supramax segment in the Atlantic with not much being reported.
In the Blacksea Supramaxes are getti ...
Wednesday, 21 September 16
THE CAPESIZE MARKET HAS BEEN ON A RALLYING TREND SINCE THE END OF AUGUST - GEORGE LAZARIDIS
The Capesize market has been on a rallying trend since the end of August, fuelled mainly by the chase by traders to pre-stock before the typical pi ...
Wednesday, 21 September 16
SHIPPING MARKET INSIGHT - PANOS MAKRINOS
Amidst a challenging dry bulk and tanker market, very little time has been spent on the offshore industry developments during the past couple of ye ...
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- Kartika Selabumi Mining - Indonesia
- LBH Netherlands Bv - Netherlands
- Sarangani Energy Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Minerals Council of Australia
- Trasteel International SA, Italy
- Bharathi Cement Corporation - India
- Kalimantan Lumbung Energi - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Bhushan Steel Limited - India
- Cigading International Bulk Terminal - Indonesia
- Tata Chemicals Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Xindia Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Dalmia Cement Bharat India
- New Zealand Coal & Carbon
- IEA Clean Coal Centre - UK
- Attock Cement Pakistan Limited
- Medco Energi Mining Internasional
- Salva Resources Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Orica Mining Services - Indonesia
- Sree Jayajothi Cements Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Latin American Coal - Colombia
- Meenaskhi Energy Private Limited - India
- Bhoruka Overseas - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bukit Baiduri Energy - Indonesia
- Mintek Dendrill Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Price Waterhouse Coopers - Russia
- Eastern Energy - Thailand
- Georgia Ports Authority, United States
- Larsen & Toubro Limited - India
- Indian Oil Corporation Limited
- MS Steel International - UAE
- Mercator Lines Limited - India
- London Commodity Brokers - England
- Bayan Resources Tbk. - Indonesia
- Wood Mackenzie - Singapore
- PetroVietnam Power Coal Import and Supply Company
- European Bulk Services B.V. - Netherlands
- Carbofer General Trading SA - India
- Kepco SPC Power Corporation, Philippines
- Coal and Oil Company - UAE
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- Maharashtra Electricity Regulatory Commission - India
- Lanco Infratech Ltd - India
- Petron Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Power Finance Corporation Ltd., India
- Global Green Power PLC Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Economic Council, Georgia
- Sakthi Sugars Limited - India
- Jindal Steel & Power Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Business Power Corporation, Philippines
- CNBM International Corporation - China
- White Energy Company Limited
- Antam Resourcindo - Indonesia
- Edison Trading Spa - Italy
- Borneo Indobara - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Vizag Seaport Private Limited - India
- Bulk Trading Sa - Switzerland
- Coastal Gujarat Power Limited - India
- The University of Queensland
- Interocean Group of Companies - India
- Indo Tambangraya Megah - Indonesia
- Siam City Cement PLC, Thailand
- Renaissance Capital - South Africa
- Central Electricity Authority - India
- Maheswari Brothers Coal Limited - India
- Semirara Mining Corp, Philippines
- Riau Bara Harum - Indonesia
- Cement Manufacturers Association - India
- Standard Chartered Bank - UAE
- Romanian Commodities Exchange
- South Luzon Thermal Energy Corporation
- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- Kaltim Prima Coal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Kobexindo Tractors - Indoneisa
- Bukit Makmur.PT - Indonesia
- Aditya Birla Group - India
- Ministry of Finance - Indonesia
- IHS Mccloskey Coal Group - USA
- Ind-Barath Power Infra Limited - India
- Metalloyd Limited - United Kingdom
- Madhucon Powers Ltd - India
- Kideco Jaya Agung - Indonesia
- McConnell Dowell - Australia
- Indogreen Group - Indonesia
- Planning Commission, India
- Sical Logistics Limited - India
- Sojitz Corporation - Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Merrill Lynch Commodities Europe
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- Posco Energy - South Korea
- Jaiprakash Power Ventures ltd
- Central Java Power - Indonesia
- Parry Sugars Refinery, India
- Coalindo Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Grasim Industreis Ltd - India
- Electricity Generating Authority of Thailand
- Alfred C Toepfer International GmbH - Germany
- Sindya Power Generating Company Private Ltd
- Directorate General of MIneral and Coal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Ministry of Mines - Canada
- Binh Thuan Hamico - Vietnam
- TeaM Sual Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Heidelberg Cement - Germany
- AsiaOL BioFuels Corp., Philippines
- ICICI Bank Limited - India
- Energy Development Corp, Philippines
- Siam City Cement - Thailand
- Port Waratah Coal Services - Australia
- PNOC Exploration Corporation - Philippines
- Mjunction Services Limited - India
- Kumho Petrochemical, South Korea
- Aboitiz Power Corporation - Philippines
- Mercuria Energy - Indonesia
- Simpson Spence & Young - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Electricity Authority, New Zealand
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Transport, Egypt
- Agrawal Coal Company - India
- Orica Australia Pty. Ltd.
- Singapore Mercantile Exchange
- International Coal Ventures Pvt Ltd - India
- Deloitte Consulting - India
- Leighton Contractors Pty Ltd - Australia
- Thai Mozambique Logistica
- Vedanta Resources Plc - India
- SMG Consultants - Indonesia
- Indian Energy Exchange, India
- Australian Coal Association
- Timah Investasi Mineral - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Tamil Nadu electricity Board
- Toyota Tsusho Corporation, Japan
- Oldendorff Carriers - Singapore
- VISA Power Limited - India
- Parliament of New Zealand
- Meralco Power Generation, Philippines
- Karaikal Port Pvt Ltd - India
- Rio Tinto Coal - Australia
- The State Trading Corporation of India Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- San Jose City I Power Corp, Philippines
- Commonwealth Bank - Australia
- Videocon Industries ltd - India
- GVK Power & Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- Anglo American - United Kingdom
- Africa Commodities Group - South Africa
- Kapuas Tunggal Persada - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Makarim & Taira - Indonesia
- Iligan Light & Power Inc, Philippines
- Independent Power Producers Association of India
- The Treasury - Australian Government
- Formosa Plastics Group - Taiwan
- Samtan Co., Ltd - South Korea
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Straits Asia Resources Limited - Singapore
- Ambuja Cements Ltd - India
- Banpu Public Company Limited - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- India Bulls Power Limited - India
- Bhatia International Limited - India
- Uttam Galva Steels Limited - India
- Australian Commodity Traders Exchange
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Malabar Cements Ltd - India
- Indika Energy - Indonesia
- GMR Energy Limited - India
- Global Coal Blending Company Limited - Australia
- ASAPP Information Group - India
- CIMB Investment Bank - Malaysia
- Kohat Cement Company Ltd. - Pakistan
- Holcim Trading Pte Ltd - Singapore
- Barasentosa Lestari - Indonesia
- Bangladesh Power Developement Board
- Baramulti Group, Indonesia
- Billiton Holdings Pty Ltd - Australia
- Directorate Of Revenue Intelligence - India
- Gujarat Sidhee Cement - India
- Gujarat Electricity Regulatory Commission - India
- Marubeni Corporation - India
- Thiess Contractors Indonesia
- PTC India Limited - India
- SMC Global Power, Philippines
- Intertek Mineral Services - Indonesia
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