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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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Tuesday, 06 September 16
CAPESIZE: THE PACIFIC BASIN WAS THE MAIN REGION KEEPING UP WITH THE POSITIVE SUPPORT - ALLIED
Capesize
Despite some mixed feelings being seen early on in the week, we managed to see a positive week-on-week close on Friday with some positiv ...
Monday, 05 September 16
INDIA BECAME ADARO'S SECOND LARGEST MARKET IN 1H' 16
COALspot.com: The Wara Balangan blend product has been well received by customers in China and India - AI
In the second quarter of 2 ...
Monday, 05 September 16
POOR FREIGHT RATES DESPITE STRONG DEMAND GROWTH FROM CHINA - BIMCO
Demand
The dry bulk commodity imports into and exports out of China we have seen in the first half of 2016 are very positive – and nothing ...
Monday, 05 September 16
FREIGHT RATE FROM INDONESIA TO INDIA IS EXPECTED TO BE FLAT TO SOFT THIS WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose and ending in a positive note this past week except ...
Friday, 02 September 16
EIA FORECASTS U.S. COAL EXPORTS TO DECLINE BY 19 MMST IN 2016 TO 55 MMST
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.3 million sho ...
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- IEA Clean Coal Centre - UK
- Dalmia Cement Bharat India
- CIMB Investment Bank - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Energy - Thailand
- Cement Manufacturers Association - India
- Grasim Industreis Ltd - India
- GMR Energy Limited - India
- Bayan Resources Tbk. - Indonesia
- Directorate Of Revenue Intelligence - India
- Samtan Co., Ltd - South Korea
- Baramulti Group, Indonesia
- International Coal Ventures Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- White Energy Company Limited
- Sical Logistics Limited - India
- Goldman Sachs - Singapore
- Kartika Selabumi Mining - Indonesia
- Central Java Power - Indonesia
- Latin American Coal - Colombia
- Trasteel International SA, Italy
- Rashtriya Ispat Nigam Limited - India
- GAC Shipping (India) Pvt Ltd
- Orica Mining Services - Indonesia
- Therma Luzon, Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Medco Energi Mining Internasional
- Formosa Plastics Group - Taiwan
- Global Green Power PLC Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Mjunction Services Limited - India
- Cigading International Bulk Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Sree Jayajothi Cements Limited - India
- Kaltim Prima Coal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- LBH Netherlands Bv - Netherlands
- Riau Bara Harum - Indonesia
- Kumho Petrochemical, South Korea
- SN Aboitiz Power Inc, Philippines
- Madhucon Powers Ltd - India
- MS Steel International - UAE
- Vedanta Resources Plc - India
- Energy Development Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Billiton Holdings Pty Ltd - Australia
- Globalindo Alam Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Planning Commission, India
- Essar Steel Hazira Ltd - India
- Lanco Infratech Ltd - India
- Kideco Jaya Agung - Indonesia
- Electricity Authority, New Zealand
- Borneo Indobara - Indonesia
- Minerals Council of Australia
- Kapuas Tunggal Persada - Indonesia
- Bhushan Steel Limited - India
- Australian Coal Association
- Binh Thuan Hamico - Vietnam
- Makarim & Taira - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Commodity Traders Exchange
- Interocean Group of Companies - India
- Global Business Power Corporation, Philippines
- Ministry of Transport, Egypt
- Bhoruka Overseas - Indonesia
- PTC India Limited - India
- Deloitte Consulting - India
- Ceylon Electricity Board - Sri Lanka
- Mercator Lines Limited - India
- PowerSource Philippines DevCo
- Savvy Resources Ltd - HongKong
- TNB Fuel Sdn Bhd - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- South Luzon Thermal Energy Corporation
- Toyota Tsusho Corporation, Japan
- Star Paper Mills Limited - India
- OPG Power Generation Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- Indian Energy Exchange, India
- Orica Australia Pty. Ltd.
- VISA Power Limited - India
- Renaissance Capital - South Africa
- Banpu Public Company Limited - Thailand
- Eastern Coal Council - USA
- Standard Chartered Bank - UAE
- Bulk Trading Sa - Switzerland
- Indogreen Group - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Wood Mackenzie - Singapore
- SMC Global Power, Philippines
- Semirara Mining and Power Corporation, Philippines
- Mintek Dendrill Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bhatia International Limited - India
- Barasentosa Lestari - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Jorong Barutama Greston.PT - Indonesia
- San Jose City I Power Corp, Philippines
- Posco Energy - South Korea
- SMG Consultants - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Parliament of New Zealand
- Sinarmas Energy and Mining - Indonesia
- Singapore Mercantile Exchange
- Jindal Steel & Power Ltd - India
- Oldendorff Carriers - Singapore
- Alfred C Toepfer International GmbH - Germany
- Holcim Trading Pte Ltd - Singapore
- Sarangani Energy Corporation, Philippines
- Semirara Mining Corp, Philippines
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Carbofer General Trading SA - India
- Indika Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Indian Oil Corporation Limited
- Karbindo Abesyapradhi - Indoneisa
- McConnell Dowell - Australia
- Metalloyd Limited - United Kingdom
- Georgia Ports Authority, United States
- Petrochimia International Co. Ltd.- Taiwan
- The Treasury - Australian Government
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- Vijayanagar Sugar Pvt Ltd - India
- Romanian Commodities Exchange
- PNOC Exploration Corporation - Philippines
- Marubeni Corporation - India
- Vizag Seaport Private Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Sakthi Sugars Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Aboitiz Power Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- The State Trading Corporation of India Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- New Zealand Coal & Carbon
- London Commodity Brokers - England
- Electricity Generating Authority of Thailand
- Global Coal Blending Company Limited - Australia
- Gujarat Sidhee Cement - India
- Ambuja Cements Ltd - India
- Agrawal Coal Company - India
- Sindya Power Generating Company Private Ltd
- Ind-Barath Power Infra Limited - India
- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- ASAPP Information Group - India
- Antam Resourcindo - Indonesia
- Tamil Nadu electricity Board
- Kobexindo Tractors - Indoneisa
- TeaM Sual Corporation - Philippines
- Altura Mining Limited, Indonesia
- Uttam Galva Steels Limited - India
- Port Waratah Coal Services - Australia
- Independent Power Producers Association of India
- Siam City Cement - Thailand
- Coal and Oil Company - UAE
- Iligan Light & Power Inc, Philippines
- Ministry of Finance - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Videocon Industries ltd - India
- European Bulk Services B.V. - Netherlands
- Rio Tinto Coal - Australia
- Tata Chemicals Ltd - India
- ICICI Bank Limited - India
- Edison Trading Spa - Italy
- Maheswari Brothers Coal Limited - India
- Economic Council, Georgia
- Intertek Mineral Services - Indonesia
- Xindia Steels Limited - India
- Timah Investasi Mineral - Indoneisa
- Indonesian Coal Mining Association
- GVK Power & Infra Limited - India
- Commonwealth Bank - Australia
- Bukit Baiduri Energy - Indonesia
- Siam City Cement PLC, Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Karaikal Port Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- The University of Queensland
- Bukit Makmur.PT - Indonesia
- Parry Sugars Refinery, India
- Attock Cement Pakistan Limited
- India Bulls Power Limited - India
- Salva Resources Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Manunggal Multi Energi - Indonesia
- Ministry of Mines - Canada
- CNBM International Corporation - China
- Coastal Gujarat Power Limited - India
- Meralco Power Generation, Philippines
- Simpson Spence & Young - Indonesia
- Merrill Lynch Commodities Europe
- Wilmar Investment Holdings
- Africa Commodities Group - South Africa
- Chamber of Mines of South Africa
- Thiess Contractors Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Coalindo Energy - Indonesia
- Anglo American - United Kingdom
- Gujarat Mineral Development Corp Ltd - India
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
- Bharathi Cement Corporation - India
- Gujarat Electricity Regulatory Commission - India
- Aditya Birla Group - India
- Power Finance Corporation Ltd., India
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