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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, 09 September 16
U.S. WEEKLY COAL OUTPUT DECLINED SLIGHTLY TO 16.1 MMST, EIA SAYS
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.1 million short ton ...
Friday, 09 September 16
CAPESIZE: THE SENTIMENT IS SOLID, SAYS FEARNLEYS
Supramax
A quiet start with Labour Day celebrations in the United States leading to very little being reported from the Atlantic basin. Supramaxe ...
Thursday, 08 September 16
U.S. COAL EXPORTS IN JUNE 2016 UP 29% COMPARED TO MAY 2016, SAYS EIA
U.S. coal production in August was 71 million short tons (MMst), which is 6 MMst (9%) higher than in the previous month and 12 MMst (14%) lower tha ...
Wednesday, 07 September 16
WEEKLY MARKET (TANKER) REPORT - INTERMODAL
What goes around comes around! The Shipping industry is infamous for its seasonality and cyclicality and the tanker sector is no exception to these ...
Tuesday, 06 September 16
INDO GOVT. SETS SEPTEMBER COAL REFERENCE PRICE AT US$ 63.93 PER TON; JUMP 20.17% YTD
COALspot.com: The Indonesia coal benchmark price hits to its highest level since April 2015. The government declared benchmark prices f ...
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- Bhatia International Limited - India
- Sojitz Corporation - Japan
- Eastern Coal Council - USA
- PTC India Limited - India
- Marubeni Corporation - India
- Vedanta Resources Plc - India
- Coalindo Energy - Indonesia
- MS Steel International - UAE
- Cement Manufacturers Association - India
- Larsen & Toubro Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Sindya Power Generating Company Private Ltd
- Kobexindo Tractors - Indoneisa
- Siam City Cement PLC, Thailand
- IHS Mccloskey Coal Group - USA
- Pipit Mutiara Jaya. PT, Indonesia
- Mercuria Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- The State Trading Corporation of India Ltd
- Latin American Coal - Colombia
- Rio Tinto Coal - Australia
- AsiaOL BioFuels Corp., Philippines
- Orica Australia Pty. Ltd.
- ICICI Bank Limited - India
- Coal and Oil Company - UAE
- Electricity Generating Authority of Thailand
- Mjunction Services Limited - India
- Chettinad Cement Corporation Ltd - India
- Dalmia Cement Bharat India
- International Coal Ventures Pvt Ltd - India
- Ministry of Mines - Canada
- White Energy Company Limited
- Tamil Nadu electricity Board
- Kalimantan Lumbung Energi - Indonesia
- Bhoruka Overseas - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- Billiton Holdings Pty Ltd - Australia
- Merrill Lynch Commodities Europe
- Meralco Power Generation, Philippines
- Bayan Resources Tbk. - Indonesia
- Central Electricity Authority - India
- Bukit Baiduri Energy - Indonesia
- Australian Coal Association
- Krishnapatnam Port Company Ltd. - India
- Independent Power Producers Association of India
- Electricity Authority, New Zealand
- TNB Fuel Sdn Bhd - Malaysia
- Power Finance Corporation Ltd., India
- Asmin Koalindo Tuhup - Indonesia
- Indian Oil Corporation Limited
- Metalloyd Limited - United Kingdom
- Bukit Makmur.PT - Indonesia
- The Treasury - Australian Government
- Attock Cement Pakistan Limited
- Agrawal Coal Company - India
- Heidelberg Cement - Germany
- Indogreen Group - Indonesia
- Indo Tambangraya Megah - Indonesia
- SMG Consultants - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- IEA Clean Coal Centre - UK
- Standard Chartered Bank - UAE
- Kapuas Tunggal Persada - Indonesia
- LBH Netherlands Bv - Netherlands
- San Jose City I Power Corp, Philippines
- Star Paper Mills Limited - India
- India Bulls Power Limited - India
- Binh Thuan Hamico - Vietnam
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Energy Development Corp, Philippines
- Kaltim Prima Coal - Indonesia
- Formosa Plastics Group - Taiwan
- Holcim Trading Pte Ltd - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Rashtriya Ispat Nigam Limited - India
- Leighton Contractors Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Mercator Lines Limited - India
- Baramulti Group, Indonesia
- McConnell Dowell - Australia
- CNBM International Corporation - China
- OPG Power Generation Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Anglo American - United Kingdom
- Indika Energy - Indonesia
- Carbofer General Trading SA - India
- Parry Sugars Refinery, India
- Indian Energy Exchange, India
- Sarangani Energy Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Essar Steel Hazira Ltd - India
- Simpson Spence & Young - Indonesia
- Global Green Power PLC Corporation, Philippines
- Trasteel International SA, Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Karaikal Port Pvt Ltd - India
- Minerals Council of Australia
- Xindia Steels Limited - India
- The University of Queensland
- Gujarat Electricity Regulatory Commission - India
- Economic Council, Georgia
- Borneo Indobara - Indonesia
- Goldman Sachs - Singapore
- Toyota Tsusho Corporation, Japan
- Planning Commission, India
- Samtan Co., Ltd - South Korea
- Port Waratah Coal Services - Australia
- Aditya Birla Group - India
- Gujarat Sidhee Cement - India
- Australian Commodity Traders Exchange
- Globalindo Alam Lestari - Indonesia
- South Luzon Thermal Energy Corporation
- Parliament of New Zealand
- Ministry of Finance - Indonesia
- Chamber of Mines of South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- PowerSource Philippines DevCo
- Antam Resourcindo - Indonesia
- Eastern Energy - Thailand
- Jaiprakash Power Ventures ltd
- Directorate General of MIneral and Coal - Indonesia
- Medco Energi Mining Internasional
- Petron Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Bharathi Cement Corporation - India
- Sical Logistics Limited - India
- Barasentosa Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Lanco Infratech Ltd - India
- Intertek Mineral Services - Indonesia
- Madhucon Powers Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Altura Mining Limited, Indonesia
- SN Aboitiz Power Inc, Philippines
- Miang Besar Coal Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Riau Bara Harum - Indonesia
- VISA Power Limited - India
- Uttam Galva Steels Limited - India
- Semirara Mining Corp, Philippines
- Thai Mozambique Logistica
- Ambuja Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Energy Link Ltd, New Zealand
- ASAPP Information Group - India
- Maharashtra Electricity Regulatory Commission - India
- Bhushan Steel Limited - India
- Straits Asia Resources Limited - Singapore
- Indonesian Coal Mining Association
- Kumho Petrochemical, South Korea
- Wood Mackenzie - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Renaissance Capital - South Africa
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- GAC Shipping (India) Pvt Ltd
- PetroVietnam Power Coal Import and Supply Company
- Romanian Commodities Exchange
- Malabar Cements Ltd - India
- Central Java Power - Indonesia
- Jindal Steel & Power Ltd - India
- TeaM Sual Corporation - Philippines
- Sree Jayajothi Cements Limited - India
- Edison Trading Spa - Italy
- Global Coal Blending Company Limited - Australia
- Aboitiz Power Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vizag Seaport Private Limited - India
- Alfred C Toepfer International GmbH - Germany
- Therma Luzon, Inc, Philippines
- Ministry of Transport, Egypt
- Bangladesh Power Developement Board
- Kideco Jaya Agung - Indonesia
- GMR Energy Limited - India
- New Zealand Coal & Carbon
- GN Power Mariveles Coal Plant, Philippines
- Directorate Of Revenue Intelligence - India
- Siam City Cement - Thailand
- Grasim Industreis Ltd - India
- Mintek Dendrill Indonesia
- PNOC Exploration Corporation - Philippines
- Makarim & Taira - Indonesia
- Maheswari Brothers Coal Limited - India
- Posco Energy - South Korea
- Coastal Gujarat Power Limited - India
- Sakthi Sugars Limited - India
- Savvy Resources Ltd - HongKong
- Commonwealth Bank - Australia
- CIMB Investment Bank - Malaysia
- Price Waterhouse Coopers - Russia
- Semirara Mining and Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- London Commodity Brokers - England
- Offshore Bulk Terminal Pte Ltd, Singapore
- Singapore Mercantile Exchange
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Vijayanagar Sugar Pvt Ltd - India
- Deloitte Consulting - India
- Orica Mining Services - Indonesia
- Thiess Contractors Indonesia
- Meenaskhi Energy Private Limited - India
- GVK Power & Infra Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- European Bulk Services B.V. - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- Bulk Trading Sa - Switzerland
- Interocean Group of Companies - India
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