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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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- Cement Manufacturers Association - India
- Tamil Nadu electricity Board
- Energy Development Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Price Waterhouse Coopers - Russia
- Madhucon Powers Ltd - India
- Jaiprakash Power Ventures ltd
- Bhoruka Overseas - Indonesia
- South Luzon Thermal Energy Corporation
- Straits Asia Resources Limited - Singapore
- Economic Council, Georgia
- Africa Commodities Group - South Africa
- Semirara Mining Corp, Philippines
- Indian Oil Corporation Limited
- Mercator Lines Limited - India
- Meralco Power Generation, Philippines
- Heidelberg Cement - Germany
- Lanco Infratech Ltd - India
- Manunggal Multi Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Transport, Egypt
- Coal and Oil Company - UAE
- Standard Chartered Bank - UAE
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- Makarim & Taira - Indonesia
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- Singapore Mercantile Exchange
- GN Power Mariveles Coal Plant, Philippines
- Central Electricity Authority - India
- Salva Resources Pvt Ltd - India
- Gujarat Sidhee Cement - India
- LBH Netherlands Bv - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Parry Sugars Refinery, India
- Maheswari Brothers Coal Limited - India
- Energy Link Ltd, New Zealand
- Eastern Coal Council - USA
- Central Java Power - Indonesia
- Siam City Cement - Thailand
- Karaikal Port Pvt Ltd - India
- Bharathi Cement Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Baramulti Group, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coalindo Energy - Indonesia
- SMG Consultants - Indonesia
- Bhushan Steel Limited - India
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Indika Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- Krishnapatnam Port Company Ltd. - India
- CNBM International Corporation - China
- Larsen & Toubro Limited - India
- Kideco Jaya Agung - Indonesia
- Riau Bara Harum - Indonesia
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- Wilmar Investment Holdings
- Edison Trading Spa - Italy
- Coastal Gujarat Power Limited - India
- Uttam Galva Steels Limited - India
- Jindal Steel & Power Ltd - India
- Mintek Dendrill Indonesia
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- Bhatia International Limited - India
- PTC India Limited - India
- GMR Energy Limited - India
- ASAPP Information Group - India
- Vijayanagar Sugar Pvt Ltd - India
- Sojitz Corporation - Japan
- Eastern Energy - Thailand
- Sical Logistics Limited - India
- Ministry of Finance - Indonesia
- Barasentosa Lestari - Indonesia
- Agrawal Coal Company - India
- Sakthi Sugars Limited - India
- Xindia Steels Limited - India
- The University of Queensland
- Thai Mozambique Logistica
- Banpu Public Company Limited - Thailand
- Vizag Seaport Private Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Latin American Coal - Colombia
- Planning Commission, India
- Directorate Of Revenue Intelligence - India
- Indonesian Coal Mining Association
- Rashtriya Ispat Nigam Limited - India
- Sindya Power Generating Company Private Ltd
- Borneo Indobara - Indonesia
- Mercuria Energy - Indonesia
- The Treasury - Australian Government
- Indogreen Group - Indonesia
- New Zealand Coal & Carbon
- Bulk Trading Sa - Switzerland
- Sarangani Energy Corporation, Philippines
- Petron Corporation, Philippines
- Electricity Generating Authority of Thailand
- White Energy Company Limited
- VISA Power Limited - India
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- IEA Clean Coal Centre - UK
- Global Business Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Bukit Makmur.PT - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Independent Power Producers Association of India
- Carbofer General Trading SA - India
- Orica Mining Services - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- PNOC Exploration Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- The State Trading Corporation of India Ltd
- Deloitte Consulting - India
- Posco Energy - South Korea
- McConnell Dowell - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Indian Energy Exchange, India
- Kaltim Prima Coal - Indonesia
- Trasteel International SA, Italy
- Kapuas Tunggal Persada - Indonesia
- Samtan Co., Ltd - South Korea
- SMC Global Power, Philippines
- Aboitiz Power Corporation - Philippines
- Parliament of New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Australian Coal Association
- Directorate General of MIneral and Coal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Romanian Commodities Exchange
- Ambuja Cements Ltd - India
- Videocon Industries ltd - India
- Globalindo Alam Lestari - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Medco Energi Mining Internasional
- Kumho Petrochemical, South Korea
- Aditya Birla Group - India
- Attock Cement Pakistan Limited
- Oldendorff Carriers - Singapore
- Bayan Resources Tbk. - Indonesia
- Tata Chemicals Ltd - India
- GAC Shipping (India) Pvt Ltd
- Mjunction Services Limited - India
- Ministry of Mines - Canada
- Kartika Selabumi Mining - Indonesia
- Iligan Light & Power Inc, Philippines
- Wood Mackenzie - Singapore
- CIMB Investment Bank - Malaysia
- Indo Tambangraya Megah - Indonesia
- Rio Tinto Coal - Australia
- Formosa Plastics Group - Taiwan
- Meenaskhi Energy Private Limited - India
- Metalloyd Limited - United Kingdom
- Dalmia Cement Bharat India
- PowerSource Philippines DevCo
- Kobexindo Tractors - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Orica Australia Pty. Ltd.
- Georgia Ports Authority, United States
- Kohat Cement Company Ltd. - Pakistan
- Siam City Cement PLC, Thailand
- Global Green Power PLC Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Timah Investasi Mineral - Indoneisa
- IHS Mccloskey Coal Group - USA
- Interocean Group of Companies - India
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Maharashtra Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Leighton Contractors Pty Ltd - Australia
- Marubeni Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Thiess Contractors Indonesia
- ICICI Bank Limited - India
- Power Finance Corporation Ltd., India
- Bukit Baiduri Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Sinarmas Energy and Mining - Indonesia
- Merrill Lynch Commodities Europe
- Gujarat Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- Commonwealth Bank - Australia
- Port Waratah Coal Services - Australia
- International Coal Ventures Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Bangladesh Power Developement Board
- Minerals Council of Australia
- Intertek Mineral Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Australian Commodity Traders Exchange
- London Commodity Brokers - England
- Pendopo Energi Batubara - Indonesia
- Sree Jayajothi Cements Limited - India
- Goldman Sachs - Singapore
- Savvy Resources Ltd - HongKong
- Chamber of Mines of South Africa
- Anglo American - United Kingdom
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