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