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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, 12 August 16
U.S. WEEKLY COAL OUTPUT ENDING AUGUST 6 FELL SLIGHTLY
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 15.9 million short ton ...
Thursday, 11 August 16
CAPESIZE THE PACIFIC SIDE IS LOOKING MORE POSITIVE, DRIVEN BY AUSTRALIAN IRON ORE - FEARNLEYS
Supramax
Rates continue to be under pressure with index ending up with 639 points and average TC value at USD6,680, said Fearnleys. Fearnleys A/S ...
Thursday, 11 August 16
EIA ESTIMATES THE DELIVERED COAL PRICE TO U.S. ELECTRIC UTILITIES IN 2017 AVERAGED $2.24/MMBTU; $0.05/MMBTU HIGHER THAN 2016 ESTIMATES
Coal Supply
U.S. coal production in July was 65 million short tons (MMst), an 8 MMst (14%) increase from the previous month but 11 MMst (15%) low ...
Wednesday, 10 August 16
THE DRY BULK MARKET KEPT SOFTENING LAST WEEK; WE CAN SEE MUCH HEALTHIER NUMBERS STARTING SEPTEMBER
The Dry Bulk market kept softening last week as we have now started going through the traditionally quieter days of the summer season peak period, ...
Wednesday, 10 August 16
THE INDONESIAN DRAFT NEW MINING LAW - AMENDMENTS TO THE 2009 MINING LAW
KNOWLEDGE TO ELEVATE
COALspot.com: A draft mining law published by Indonesia's Minister of Energy and Mineral Resources provides use ...
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Krishnapatnam Port Company Ltd. - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Indo Tambangraya Megah - Indonesia
- Vedanta Resources Plc - India
- IHS Mccloskey Coal Group - USA
- PowerSource Philippines DevCo
- Vizag Seaport Private Limited - India
- Port Waratah Coal Services - Australia
- The State Trading Corporation of India Ltd
- Ministry of Finance - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Parry Sugars Refinery, India
- Cement Manufacturers Association - India
- PetroVietnam Power Coal Import and Supply Company
- Salva Resources Pvt Ltd - India
- Videocon Industries ltd - India
- Economic Council, Georgia
- Central Java Power - Indonesia
- Kepco SPC Power Corporation, Philippines
- Anglo American - United Kingdom
- Chamber of Mines of South Africa
- Parliament of New Zealand
- Global Green Power PLC Corporation, Philippines
- Heidelberg Cement - Germany
- Indika Energy - Indonesia
- Power Finance Corporation Ltd., India
- Maharashtra Electricity Regulatory Commission - India
- Billiton Holdings Pty Ltd - Australia
- GAC Shipping (India) Pvt Ltd
- Savvy Resources Ltd - HongKong
- Indian Energy Exchange, India
- Iligan Light & Power Inc, Philippines
- Global Business Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Commonwealth Bank - Australia
- Kobexindo Tractors - Indoneisa
- PNOC Exploration Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Malabar Cements Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Australian Commodity Traders Exchange
- The Treasury - Australian Government
- White Energy Company Limited
- VISA Power Limited - India
- Bukit Makmur.PT - Indonesia
- Agrawal Coal Company - India
- Xindia Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Kapuas Tunggal Persada - Indonesia
- PTC India Limited - India
- Essar Steel Hazira Ltd - India
- Australian Coal Association
- Globalindo Alam Lestari - Indonesia
- Directorate Of Revenue Intelligence - India
- Sinarmas Energy and Mining - Indonesia
- Uttam Galva Steels Limited - India
- Gujarat Sidhee Cement - India
- London Commodity Brokers - England
- LBH Netherlands Bv - Netherlands
- SMC Global Power, Philippines
- Kaltim Prima Coal - Indonesia
- Trasteel International SA, Italy
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Bhushan Steel Limited - India
- Jaiprakash Power Ventures ltd
- Cigading International Bulk Terminal - Indonesia
- Bhatia International Limited - India
- Karaikal Port Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Dalmia Cement Bharat India
- ICICI Bank Limited - India
- SN Aboitiz Power Inc, Philippines
- Goldman Sachs - Singapore
- Sree Jayajothi Cements Limited - India
- Eastern Energy - Thailand
- Grasim Industreis Ltd - India
- Edison Trading Spa - Italy
- Attock Cement Pakistan Limited
- OPG Power Generation Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Merrill Lynch Commodities Europe
- Georgia Ports Authority, United States
- Leighton Contractors Pty Ltd - Australia
- Africa Commodities Group - South Africa
- CIMB Investment Bank - Malaysia
- Mjunction Services Limited - India
- Bukit Baiduri Energy - Indonesia
- Orica Mining Services - Indonesia
- Lanco Infratech Ltd - India
- Jindal Steel & Power Ltd - India
- Central Electricity Authority - India
- Minerals Council of Australia
- Marubeni Corporation - India
- CNBM International Corporation - China
- GMR Energy Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Bharathi Cement Corporation - India
- Antam Resourcindo - Indonesia
- Indonesian Coal Mining Association
- Siam City Cement PLC, Thailand
- Chettinad Cement Corporation Ltd - India
- Bhoruka Overseas - Indonesia
- Posco Energy - South Korea
- Straits Asia Resources Limited - Singapore
- Electricity Generating Authority of Thailand
- India Bulls Power Limited - India
- Energy Development Corp, Philippines
- Maheswari Brothers Coal Limited - India
- Ceylon Electricity Board - Sri Lanka
- Sarangani Energy Corporation, Philippines
- GVK Power & Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Carbofer General Trading SA - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Mines - Canada
- Baramulti Group, Indonesia
- Coalindo Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Coastal Gujarat Power Limited - India
- Bulk Trading Sa - Switzerland
- Siam City Cement - Thailand
- Semirara Mining Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Tamil Nadu electricity Board
- Formosa Plastics Group - Taiwan
- Indian Oil Corporation Limited
- Orica Australia Pty. Ltd.
- Renaissance Capital - South Africa
- Wood Mackenzie - Singapore
- Price Waterhouse Coopers - Russia
- Madhucon Powers Ltd - India
- Sical Logistics Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- MS Steel International - UAE
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Manunggal Multi Energi - Indonesia
- Rio Tinto Coal - Australia
- Neyveli Lignite Corporation Ltd, - India
- Aditya Birla Group - India
- Planning Commission, India
- Riau Bara Harum - Indonesia
- Sojitz Corporation - Japan
- McConnell Dowell - Australia
- Kartika Selabumi Mining - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Medco Energi Mining Internasional
- Makarim & Taira - Indonesia
- Thai Mozambique Logistica
- Larsen & Toubro Limited - India
- Gujarat Electricity Regulatory Commission - India
- IEA Clean Coal Centre - UK
- Mercuria Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Intertek Mineral Services - Indonesia
- Meenaskhi Energy Private Limited - India
- The University of Queensland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bangladesh Power Developement Board
- European Bulk Services B.V. - Netherlands
- South Luzon Thermal Energy Corporation
- TeaM Sual Corporation - Philippines
- Thiess Contractors Indonesia
- Mercator Lines Limited - India
- Kideco Jaya Agung - Indonesia
- Binh Thuan Hamico - Vietnam
- Bayan Resources Tbk. - Indonesia
- Sindya Power Generating Company Private Ltd
- Romanian Commodities Exchange
- Deloitte Consulting - India
- Wilmar Investment Holdings
- Bank of Tokyo Mitsubishi UFJ Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petron Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Interocean Group of Companies - India
- Toyota Tsusho Corporation, Japan
- Independent Power Producers Association of India
- Vijayanagar Sugar Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Oldendorff Carriers - Singapore
- Barasentosa Lestari - Indonesia
- SMG Consultants - Indonesia
- Alfred C Toepfer International GmbH - Germany
- ASAPP Information Group - India
- Timah Investasi Mineral - Indoneisa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Altura Mining Limited, Indonesia
- Ind-Barath Power Infra Limited - India
- Ministry of Transport, Egypt
- Energy Link Ltd, New Zealand
- San Jose City I Power Corp, Philippines
- Tata Chemicals Ltd - India
- Latin American Coal - Colombia
- Eastern Coal Council - USA
- Mintek Dendrill Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Sakthi Sugars Limited - India
- Global Coal Blending Company Limited - Australia
- Ambuja Cements Ltd - India
- Coal and Oil Company - UAE
- Kumho Petrochemical, South Korea
- New Zealand Coal & Carbon
- Samtan Co., Ltd - South Korea
- Standard Chartered Bank - UAE
- AsiaOL BioFuels Corp., Philippines
- Holcim Trading Pte Ltd - Singapore
- Borneo Indobara - Indonesia
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