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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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Monday, 29 August 16
THE FREIGHT MARKET WAS STEADY AND FIRM THIS PAST WEEK; BCI ROSE 18.74%
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, 26 August 16
WEEKLY US COAL OUTPUT UP 0.7% W/W TO 16 MMST: EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16 million short tons ...
Thursday, 25 August 16
SUPRAMAXES ARE BEING FIXED IN REGION OF $9000
Supramax
Due to Chinese coal imports which continues to source much of the tonnage in SE Asia combined with a good flow of mineral exports ex Aus ...
Wednesday, 24 August 16
MARKET INSIGHT
Brazil and the world bid farewell on Sunday to the first Olympic Games in South America in the midst of a finale meant to be both one last bash and ...
Wednesday, 24 August 16
DRY BULK VESSELS FACE CONTINUED DISTRESS - CLEAR ASSET
Dry bulk vessels have faced extreme distress in recent years. With a combination of factors including newer vessels being ordered with up to 5-year ...
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- Indo Tambangraya Megah - Indonesia
- Sakthi Sugars Limited - India
- Krishnapatnam Port Company Ltd. - India
- Salva Resources Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Australian Coal Association
- Chettinad Cement Corporation Ltd - India
- Wood Mackenzie - Singapore
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Orica Mining Services - Indonesia
- Bhatia International Limited - India
- Miang Besar Coal Terminal - Indonesia
- Larsen & Toubro Limited - India
- Bukit Makmur.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Green Power PLC Corporation, Philippines
- Heidelberg Cement - Germany
- Kalimantan Lumbung Energi - Indonesia
- Sical Logistics Limited - India
- Samtan Co., Ltd - South Korea
- The Treasury - Australian Government
- Pipit Mutiara Jaya. PT, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Directorate Of Revenue Intelligence - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IEA Clean Coal Centre - UK
- Thai Mozambique Logistica
- Vizag Seaport Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Power Finance Corporation Ltd., India
- London Commodity Brokers - England
- Sinarmas Energy and Mining - Indonesia
- Bangladesh Power Developement Board
- Australian Commodity Traders Exchange
- Rio Tinto Coal - Australia
- PNOC Exploration Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- Tata Chemicals Ltd - India
- Sarangani Energy Corporation, Philippines
- Independent Power Producers Association of India
- Ministry of Transport, Egypt
- Electricity Authority, New Zealand
- Sindya Power Generating Company Private Ltd
- Mercator Lines Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Minerals Council of Australia
- Maharashtra Electricity Regulatory Commission - India
- Georgia Ports Authority, United States
- Thiess Contractors Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- GVK Power & Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Star Paper Mills Limited - India
- Aditya Birla Group - India
- Globalindo Alam Lestari - Indonesia
- Trasteel International SA, Italy
- GMR Energy Limited - India
- Holcim Trading Pte Ltd - Singapore
- Indonesian Coal Mining Association
- Latin American Coal - Colombia
- Semirara Mining Corp, Philippines
- Petron Corporation, Philippines
- Riau Bara Harum - Indonesia
- Jindal Steel & Power Ltd - India
- Bayan Resources Tbk. - Indonesia
- PTC India Limited - India
- Jaiprakash Power Ventures ltd
- Posco Energy - South Korea
- Tamil Nadu electricity Board
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parry Sugars Refinery, India
- Romanian Commodities Exchange
- ICICI Bank Limited - India
- Attock Cement Pakistan Limited
- Meenaskhi Energy Private Limited - India
- Siam City Cement PLC, Thailand
- SMG Consultants - Indonesia
- Aboitiz Power Corporation - Philippines
- Ministry of Mines - Canada
- Merrill Lynch Commodities Europe
- San Jose City I Power Corp, Philippines
- Coal and Oil Company - UAE
- Deloitte Consulting - India
- TeaM Sual Corporation - Philippines
- Mintek Dendrill Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Barasentosa Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Price Waterhouse Coopers - Russia
- Renaissance Capital - South Africa
- Oldendorff Carriers - Singapore
- Agrawal Coal Company - India
- Africa Commodities Group - South Africa
- Uttam Galva Steels Limited - India
- Parliament of New Zealand
- Semirara Mining and Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Medco Energi Mining Internasional
- Global Coal Blending Company Limited - Australia
- Timah Investasi Mineral - Indoneisa
- Cement Manufacturers Association - India
- Asmin Koalindo Tuhup - Indonesia
- Eastern Energy - Thailand
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PowerSource Philippines DevCo
- Coalindo Energy - Indonesia
- Ministry of Finance - Indonesia
- AsiaOL BioFuels Corp., Philippines
- MS Steel International - UAE
- Makarim & Taira - Indonesia
- Banpu Public Company Limited - Thailand
- Sojitz Corporation - Japan
- Metalloyd Limited - United Kingdom
- Commonwealth Bank - Australia
- McConnell Dowell - Australia
- Indian Oil Corporation Limited
- Savvy Resources Ltd - HongKong
- Port Waratah Coal Services - Australia
- South Luzon Thermal Energy Corporation
- Mercuria Energy - Indonesia
- Indogreen Group - Indonesia
- Bharathi Cement Corporation - India
- Vedanta Resources Plc - India
- GN Power Mariveles Coal Plant, Philippines
- Kartika Selabumi Mining - Indonesia
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- Siam City Cement - Thailand
- New Zealand Coal & Carbon
- Energy Link Ltd, New Zealand
- OPG Power Generation Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- VISA Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Videocon Industries ltd - India
- Central Java Power - Indonesia
- Bukit Baiduri Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Mjunction Services Limited - India
- Coastal Gujarat Power Limited - India
- Karaikal Port Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Ceylon Electricity Board - Sri Lanka
- Dalmia Cement Bharat India
- Antam Resourcindo - Indonesia
- Indian Energy Exchange, India
- Simpson Spence & Young - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Chamber of Mines of South Africa
- Karbindo Abesyapradhi - Indoneisa
- Carbofer General Trading SA - India
- Malabar Cements Ltd - India
- Madhucon Powers Ltd - India
- CIMB Investment Bank - Malaysia
- Ind-Barath Power Infra Limited - India
- Bulk Trading Sa - Switzerland
- Gujarat Sidhee Cement - India
- Kobexindo Tractors - Indoneisa
- SMC Global Power, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Binh Thuan Hamico - Vietnam
- White Energy Company Limited
- Orica Australia Pty. Ltd.
- Standard Chartered Bank - UAE
- LBH Netherlands Bv - Netherlands
- Interocean Group of Companies - India
- Economic Council, Georgia
- Bahari Cakrawala Sebuku - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Pendopo Energi Batubara - Indonesia
- Goldman Sachs - Singapore
- Ambuja Cements Ltd - India
- Edison Trading Spa - Italy
- Straits Asia Resources Limited - Singapore
- Electricity Generating Authority of Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Anglo American - United Kingdom
- Marubeni Corporation - India
- The State Trading Corporation of India Ltd
- Baramulti Group, Indonesia
- Lanco Infratech Ltd - India
- Kideco Jaya Agung - Indonesia
- Eastern Coal Council - USA
- The University of Queensland
- Gujarat Electricity Regulatory Commission - India
- Meralco Power Generation, Philippines
- SN Aboitiz Power Inc, Philippines
- Xindia Steels Limited - India
- India Bulls Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- Planning Commission, India
- ASAPP Information Group - India
- Toyota Tsusho Corporation, Japan
- Borneo Indobara - Indonesia
- Iligan Light & Power Inc, Philippines
- Indika Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- Central Electricity Authority - India
- Wilmar Investment Holdings
- Cigading International Bulk Terminal - Indonesia
- Bhushan Steel Limited - India
- CNBM International Corporation - China
- Altura Mining Limited, Indonesia
- Sree Jayajothi Cements Limited - India
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