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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, 01 September 16
SUPRAMAX GETTING LEVELS OF MID/HIGHER 7K DELIVERY SINGAPORE FOR TRIPS TO CHINA AND AROUND 9K FOR DIRECTION INDIA - FEARNLEYS
Supramax
This week started slower with London on bank holiday Monday. The south east Asian market seems to have been taking a breather with chart ...
Thursday, 01 September 16
AUSTRALIA'S NEWCASTLE PORT SHIPPED 2.33 PERCENT MORE COAL IN JULY
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port has shipped $AU 1.10 bill ...
Wednesday, 31 August 16
THE DRY BULK MARKET MANAGED TO FIND FURTHER SUPPORT DURING THE LAST DAYS OF THE SUMMER SEASON - INTERMODAL
The Dry Bulk market managed to find further support during the last days of the summer season, with the BDI climbing above 700 last Friday, reachin ...
Tuesday, 30 August 16
THE SUDDEN SURGE IN IRON ORE TRADE HAS CREPT UP ON THE MARKET THIS PAST WEEK - GEORGE LAZARIDIS
The sudden surge in Iron ore trade has crept up on the market this past week bringing about a change in the prospects for Capes. Continued increase ...
Monday, 29 August 16
THE 5000 GAR THERMAL COAL INDEX HAS STRENGTHENED BY 9.90% SINCE JANUARY
COALspot.com: A rally in thermal coal prices over the past few months, after years of decline, is still continuing upward and it is expected to ral ...
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- Essar Steel Hazira Ltd - India
- Samtan Co., Ltd - South Korea
- Merrill Lynch Commodities Europe
- Kalimantan Lumbung Energi - Indonesia
- Orica Australia Pty. Ltd.
- Heidelberg Cement - Germany
- Anglo American - United Kingdom
- Mintek Dendrill Indonesia
- Commonwealth Bank - Australia
- Indo Tambangraya Megah - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Holcim Trading Pte Ltd - Singapore
- Eastern Energy - Thailand
- Videocon Industries ltd - India
- PowerSource Philippines DevCo
- Ministry of Transport, Egypt
- Ceylon Electricity Board - Sri Lanka
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Banpu Public Company Limited - Thailand
- Madhucon Powers Ltd - India
- Central Java Power - Indonesia
- Bukit Baiduri Energy - Indonesia
- Coal and Oil Company - UAE
- Altura Mining Limited, Indonesia
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- Indian Oil Corporation Limited
- PTC India Limited - India
- Semirara Mining Corp, Philippines
- Chamber of Mines of South Africa
- Jaiprakash Power Ventures ltd
- Orica Mining Services - Indonesia
- VISA Power Limited - India
- Carbofer General Trading SA - India
- Bhatia International Limited - India
- Billiton Holdings Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- IHS Mccloskey Coal Group - USA
- Global Business Power Corporation, Philippines
- Minerals Council of Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Alfred C Toepfer International GmbH - Germany
- GAC Shipping (India) Pvt Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Jindal Steel & Power Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Attock Cement Pakistan Limited
- CIMB Investment Bank - Malaysia
- TeaM Sual Corporation - Philippines
- Bhushan Steel Limited - India
- Kumho Petrochemical, South Korea
- Romanian Commodities Exchange
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- South Luzon Thermal Energy Corporation
- Posco Energy - South Korea
- PetroVietnam Power Coal Import and Supply Company
- Bangladesh Power Developement Board
- Chettinad Cement Corporation Ltd - India
- Interocean Group of Companies - India
- Africa Commodities Group - South Africa
- Star Paper Mills Limited - India
- Aditya Birla Group - India
- Gujarat Electricity Regulatory Commission - India
- Australian Coal Association
- Indonesian Coal Mining Association
- Globalindo Alam Lestari - Indonesia
- Kaltim Prima Coal - Indonesia
- Deloitte Consulting - India
- Cement Manufacturers Association - India
- Larsen & Toubro Limited - India
- Sical Logistics Limited - India
- Indika Energy - Indonesia
- ASAPP Information Group - India
- Manunggal Multi Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rashtriya Ispat Nigam Limited - India
- MS Steel International - UAE
- Economic Council, Georgia
- Wood Mackenzie - Singapore
- Thai Mozambique Logistica
- Mercator Lines Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Salva Resources Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- Therma Luzon, Inc, Philippines
- White Energy Company Limited
- Makarim & Taira - Indonesia
- Ambuja Cements Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Electricity Generating Authority of Thailand
- Tata Chemicals Ltd - India
- Mjunction Services Limited - India
- Formosa Plastics Group - Taiwan
- Borneo Indobara - Indonesia
- Grasim Industreis Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- SMC Global Power, Philippines
- Energy Link Ltd, New Zealand
- San Jose City I Power Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dalmia Cement Bharat India
- Uttam Galva Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Petron Corporation, Philippines
- Sojitz Corporation - Japan
- Krishnapatnam Port Company Ltd. - India
- Kobexindo Tractors - Indoneisa
- Australian Commodity Traders Exchange
- Bukit Makmur.PT - Indonesia
- Parliament of New Zealand
- Trasteel International SA, Italy
- Meralco Power Generation, Philippines
- OPG Power Generation Pvt Ltd - India
- London Commodity Brokers - England
- India Bulls Power Limited - India
- Eastern Coal Council - USA
- The University of Queensland
- Asmin Koalindo Tuhup - Indonesia
- Edison Trading Spa - Italy
- Standard Chartered Bank - UAE
- Power Finance Corporation Ltd., India
- Oldendorff Carriers - Singapore
- Planning Commission, India
- Singapore Mercantile Exchange
- Kideco Jaya Agung - Indonesia
- Antam Resourcindo - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Barasentosa Lestari - Indonesia
- Bharathi Cement Corporation - India
- Sinarmas Energy and Mining - Indonesia
- Electricity Authority, New Zealand
- IEA Clean Coal Centre - UK
- Intertek Mineral Services - Indonesia
- New Zealand Coal & Carbon
- Kepco SPC Power Corporation, Philippines
- Energy Development Corp, Philippines
- Indian Energy Exchange, India
- Wilmar Investment Holdings
- Toyota Tsusho Corporation, Japan
- International Coal Ventures Pvt Ltd - India
- Siam City Cement - Thailand
- Binh Thuan Hamico - Vietnam
- Vizag Seaport Private Limited - India
- Latin American Coal - Colombia
- Petrochimia International Co. Ltd.- Taiwan
- SMG Consultants - Indonesia
- Metalloyd Limited - United Kingdom
- GMR Energy Limited - India
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- ICICI Bank Limited - India
- Goldman Sachs - Singapore
- Lanco Infratech Ltd - India
- Xindia Steels Limited - India
- Vedanta Resources Plc - India
- The State Trading Corporation of India Ltd
- Ministry of Mines - Canada
- Renaissance Capital - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Neyveli Lignite Corporation Ltd, - India
- European Bulk Services B.V. - Netherlands
- Global Green Power PLC Corporation, Philippines
- Rio Tinto Coal - Australia
- Kartika Selabumi Mining - Indonesia
- Sarangani Energy Corporation, Philippines
- Port Waratah Coal Services - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coalindo Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Maheswari Brothers Coal Limited - India
- LBH Netherlands Bv - Netherlands
- Coastal Gujarat Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Independent Power Producers Association of India
- Kapuas Tunggal Persada - Indonesia
- Thiess Contractors Indonesia
- Gujarat Sidhee Cement - India
- Aboitiz Power Corporation - Philippines
- Directorate General of MIneral and Coal - Indonesia
- Mercuria Energy - Indonesia
- Indogreen Group - Indonesia
- Central Electricity Authority - India
- Marubeni Corporation - India
- Malabar Cements Ltd - India
- McConnell Dowell - Australia
- Directorate Of Revenue Intelligence - India
- Karaikal Port Pvt Ltd - India
- Sakthi Sugars Limited - India
- Baramulti Group, Indonesia
- Bayan Resources Tbk. - Indonesia
- Sree Jayajothi Cements Limited - India
- Iligan Light & Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Meenaskhi Energy Private Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- The Treasury - Australian Government
- Parry Sugars Refinery, India
- Vijayanagar Sugar Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Bhoruka Overseas - Indonesia
- Georgia Ports Authority, United States
- AsiaOL BioFuels Corp., Philippines
- Ministry of Finance - Indonesia
- Global Coal Blending Company Limited - Australia
- Simpson Spence & Young - Indonesia
- Straits Asia Resources Limited - Singapore
- Riau Bara Harum - Indonesia
- Tamil Nadu electricity Board
- CNBM International Corporation - China
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