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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, 15 September 16
CAPESIZE: LAST WEEK ENDED ON A VERY STRONG NOTE MAINLY DRIVEN BY A ACTIVE BRAZIL MARKET - FEARNLYS
Supramax
With holidays in the eastern hemisphere beginning this week, the sentiment and activity level has been decreasing.
In the Pacific, ...
Wednesday, 14 September 16
THE DRY BULK MARKET REACHED LEVELS LAST SEEN BACK IN 2015 - INTERMODAL
In an earlier column we commented that we are undergoing “shipping’s new (ab)normal” with constrained financing, shift in demand ...
Wednesday, 14 September 16
THE PORT OF NEWCASTLE SHIPPED 12.48 MMT OF COAL IN AUGUST; AVERAGE SELLING PRICE WAS $AU 83.33
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port has shipped $AU $1,040.4 ...
Tuesday, 13 September 16
CAPESIZE: BIG STRENGTH SEEN IN THE MARKET THIS WEEK - ALLIED
Capesize - Big strength seen in the market this week, with an upbeat in sentiment amongst owners helping pull up rates fairly quickly and many hold ...
Monday, 12 September 16
THE CAPE MARKET HAS GAINS ON WEEK; THE CAPE INDEX SETTLING AT 1566 POINTS ON FRIDAY
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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- Minerals Council of Australia
- Indian Oil Corporation Limited
- Gujarat Sidhee Cement - India
- Altura Mining Limited, Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Agrawal Coal Company - India
- Intertek Mineral Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- SMG Consultants - Indonesia
- Thai Mozambique Logistica
- Jindal Steel & Power Ltd - India
- Parry Sugars Refinery, India
- Energy Development Corp, Philippines
- The University of Queensland
- Economic Council, Georgia
- Karaikal Port Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Mercuria Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- Planning Commission, India
- Maharashtra Electricity Regulatory Commission - India
- Romanian Commodities Exchange
- Singapore Mercantile Exchange
- Chamber of Mines of South Africa
- Kaltim Prima Coal - Indonesia
- Oldendorff Carriers - Singapore
- The State Trading Corporation of India Ltd
- Bangladesh Power Developement Board
- Makarim & Taira - Indonesia
- Wood Mackenzie - Singapore
- Power Finance Corporation Ltd., India
- Riau Bara Harum - Indonesia
- Mjunction Services Limited - India
- Edison Trading Spa - Italy
- Essar Steel Hazira Ltd - India
- AsiaOL BioFuels Corp., Philippines
- GMR Energy Limited - India
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- CNBM International Corporation - China
- SMC Global Power, Philippines
- Straits Asia Resources Limited - Singapore
- Electricity Authority, New Zealand
- Iligan Light & Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- Kartika Selabumi Mining - Indonesia
- IEA Clean Coal Centre - UK
- SN Aboitiz Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- Anglo American - United Kingdom
- Maheswari Brothers Coal Limited - India
- Xindia Steels Limited - India
- Parliament of New Zealand
- Central Electricity Authority - India
- Samtan Co., Ltd - South Korea
- Cement Manufacturers Association - India
- Sakthi Sugars Limited - India
- European Bulk Services B.V. - Netherlands
- Meralco Power Generation, Philippines
- Bukit Makmur.PT - Indonesia
- Carbofer General Trading SA - India
- Port Waratah Coal Services - Australia
- Directorate General of MIneral and Coal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Savvy Resources Ltd - HongKong
- PTC India Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Commodity Traders Exchange
- The Treasury - Australian Government
- ICICI Bank Limited - India
- Electricity Generating Authority of Thailand
- Coal and Oil Company - UAE
- GAC Shipping (India) Pvt Ltd
- Aditya Birla Group - India
- Bayan Resources Tbk. - Indonesia
- Interocean Group of Companies - India
- Sical Logistics Limited - India
- Binh Thuan Hamico - Vietnam
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Metalloyd Limited - United Kingdom
- Ministry of Finance - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Pendopo Energi Batubara - Indonesia
- Coalindo Energy - Indonesia
- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- Vedanta Resources Plc - India
- Standard Chartered Bank - UAE
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- IHS Mccloskey Coal Group - USA
- Aboitiz Power Corporation - Philippines
- Australian Coal Association
- TNB Fuel Sdn Bhd - Malaysia
- Holcim Trading Pte Ltd - Singapore
- LBH Netherlands Bv - Netherlands
- Petron Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sojitz Corporation - Japan
- Sree Jayajothi Cements Limited - India
- Indika Energy - Indonesia
- Uttam Galva Steels Limited - India
- Manunggal Multi Energi - Indonesia
- Commonwealth Bank - Australia
- Deloitte Consulting - India
- Orica Mining Services - Indonesia
- Goldman Sachs - Singapore
- London Commodity Brokers - England
- Miang Besar Coal Terminal - Indonesia
- Merrill Lynch Commodities Europe
- Global Green Power PLC Corporation, Philippines
- Eastern Coal Council - USA
- Therma Luzon, Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- Neyveli Lignite Corporation Ltd, - India
- Central Java Power - Indonesia
- Jaiprakash Power Ventures ltd
- Sindya Power Generating Company Private Ltd
- Tamil Nadu electricity Board
- Gujarat Electricity Regulatory Commission - India
- Thiess Contractors Indonesia
- Ind-Barath Power Infra Limited - India
- Mercator Lines Limited - India
- Krishnapatnam Port Company Ltd. - India
- CIMB Investment Bank - Malaysia
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- Cigading International Bulk Terminal - Indonesia
- Georgia Ports Authority, United States
- Price Waterhouse Coopers - Russia
- Petrochimia International Co. Ltd.- Taiwan
- Dalmia Cement Bharat India
- Videocon Industries ltd - India
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- Timah Investasi Mineral - Indoneisa
- Ministry of Mines - Canada
- Renaissance Capital - South Africa
- South Luzon Thermal Energy Corporation
- Bhushan Steel Limited - India
- Medco Energi Mining Internasional
- Bulk Trading Sa - Switzerland
- Vizag Seaport Private Limited - India
- Antam Resourcindo - Indonesia
- Billiton Holdings Pty Ltd - Australia
- TeaM Sual Corporation - Philippines
- India Bulls Power Limited - India
- PowerSource Philippines DevCo
- Ministry of Transport, Egypt
- Star Paper Mills Limited - India
- Semirara Mining and Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- International Coal Ventures Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Formosa Plastics Group - Taiwan
- Borneo Indobara - Indonesia
- Indian Energy Exchange, India
- Banpu Public Company Limited - Thailand
- Sarangani Energy Corporation, Philippines
- Baramulti Group, Indonesia
- San Jose City I Power Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Eastern Energy - Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- New Zealand Coal & Carbon
- Leighton Contractors Pty Ltd - Australia
- Global Coal Blending Company Limited - Australia
- Kideco Jaya Agung - Indonesia
- Trasteel International SA, Italy
- Energy Link Ltd, New Zealand
- Global Business Power Corporation, Philippines
- Latin American Coal - Colombia
- Posco Energy - South Korea
- Kumho Petrochemical, South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- ASAPP Information Group - India
- Rio Tinto Coal - Australia
- OPG Power Generation Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Indonesian Coal Mining Association
- Indogreen Group - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Grasim Industreis Ltd - India
- Larsen & Toubro Limited - India
- Meenaskhi Energy Private Limited - India
- Ambuja Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Bhoruka Overseas - Indonesia
- Orica Australia Pty. Ltd.
- Independent Power Producers Association of India
- Kobexindo Tractors - Indoneisa
- Bharathi Cement Corporation - India
- Attock Cement Pakistan Limited
- Rashtriya Ispat Nigam Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhatia International Limited - India
- VISA Power Limited - India
- Siam City Cement - Thailand
- Barasentosa Lestari - Indonesia
- Tata Chemicals Ltd - India
- Madhucon Powers Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Mintek Dendrill Indonesia
- PNOC Exploration Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- White Energy Company Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
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