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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, 08 August 16
THE BALTIC EXCHANGE, TRACKING RATES FOR SHIPS CARRYING DRY BULK COMMODITIES SLIDE SLIGHTLY
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities slide slightly as Panamax and Supramax segments ending in ...
Monday, 08 August 16
ARE EXPENSES INCURRED DURING NEGOTIATION OF A PIRATE RANSOM RECOVERABLE IN GENERAL AVERAGE? - CLYDE&CO
KNOWLEDGE TO ELEVATE
Facts
The laden chemical tanker LONGCHAMP was transiting the Gulf of Aden on passage to Vietnam. The ship was subject t ...
Saturday, 06 August 16
DRY BULK SHIPPING CHARTER RATES TO RISE ON UNEXPECTED DEMAND GROWTH - DREWRY
Increasing trade and contracting supply will support a recovery in charter rates on major dry bulk shipping routes, with the prospect of China impo ...
Friday, 05 August 16
WEEKLY U.S. COAL OUTPUT TOTALED AN ESTIMATED 16.1 MMST IN THE WEEK ENDED JULY 30 - EIA
COALspot.com – U.S., the world’s second largest coal producers has produced approximately totalled an estimated 16.1 million short tons ...
Friday, 05 August 16
CAPESIZE : RATES ARE REMAINING AT DEPRESSING LEVELS DUE TO LACK OF FRESH CARGOES - FEARNLEYS
Supramax
Last week has been one of the slowest for some time with rates under pressure in most areas.
In its latest weekly report, shipbroke ...
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- Wood Mackenzie - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Star Paper Mills Limited - India
- Anglo American - United Kingdom
- Siam City Cement - Thailand
- Toyota Tsusho Corporation, Japan
- CIMB Investment Bank - Malaysia
- Parliament of New Zealand
- Formosa Plastics Group - Taiwan
- SMG Consultants - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Meralco Power Generation, Philippines
- Larsen & Toubro Limited - India
- Deloitte Consulting - India
- Indian Energy Exchange, India
- Bukit Asam (Persero) Tbk - Indonesia
- Sical Logistics Limited - India
- Baramulti Group, Indonesia
- Altura Mining Limited, Indonesia
- Manunggal Multi Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Savvy Resources Ltd - HongKong
- Kideco Jaya Agung - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Lanco Infratech Ltd - India
- Jindal Steel & Power Ltd - India
- Semirara Mining Corp, Philippines
- Mercuria Energy - Indonesia
- TeaM Sual Corporation - Philippines
- The University of Queensland
- Goldman Sachs - Singapore
- Planning Commission, India
- Bahari Cakrawala Sebuku - Indonesia
- Xindia Steels Limited - India
- Chettinad Cement Corporation Ltd - India
- Ministry of Transport, Egypt
- Bhatia International Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Riau Bara Harum - Indonesia
- Port Waratah Coal Services - Australia
- Iligan Light & Power Inc, Philippines
- Bhushan Steel Limited - India
- Kumho Petrochemical, South Korea
- Madhucon Powers Ltd - India
- Sindya Power Generating Company Private Ltd
- Carbofer General Trading SA - India
- Straits Asia Resources Limited - Singapore
- Jaiprakash Power Ventures ltd
- Indo Tambangraya Megah - Indonesia
- Global Green Power PLC Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Bulk Trading Sa - Switzerland
- Heidelberg Cement - Germany
- Vedanta Resources Plc - India
- Eastern Coal Council - USA
- Central Java Power - Indonesia
- Orica Mining Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- GMR Energy Limited - India
- Standard Chartered Bank - UAE
- Eastern Energy - Thailand
- Bayan Resources Tbk. - Indonesia
- Aboitiz Power Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- Commonwealth Bank - Australia
- New Zealand Coal & Carbon
- Renaissance Capital - South Africa
- Bhoruka Overseas - Indonesia
- Economic Council, Georgia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- GN Power Mariveles Coal Plant, Philippines
- Indonesian Coal Mining Association
- Agrawal Coal Company - India
- Sakthi Sugars Limited - India
- Sinarmas Energy and Mining - Indonesia
- Central Electricity Authority - India
- Price Waterhouse Coopers - Russia
- Wilmar Investment Holdings
- IEA Clean Coal Centre - UK
- Essar Steel Hazira Ltd - India
- Kaltim Prima Coal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Posco Energy - South Korea
- Semirara Mining and Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Chamber of Mines of South Africa
- Thai Mozambique Logistica
- Independent Power Producers Association of India
- San Jose City I Power Corp, Philippines
- Tata Chemicals Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- Georgia Ports Authority, United States
- Sarangani Energy Corporation, Philippines
- PTC India Limited - India
- Global Business Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Maheswari Brothers Coal Limited - India
- CNBM International Corporation - China
- Sojitz Corporation - Japan
- Globalindo Alam Lestari - Indonesia
- Medco Energi Mining Internasional
- Power Finance Corporation Ltd., India
- Ind-Barath Power Infra Limited - India
- Vizag Seaport Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Interocean Group of Companies - India
- Energy Link Ltd, New Zealand
- Mercator Lines Limited - India
- GVK Power & Infra Limited - India
- Dalmia Cement Bharat India
- South Luzon Thermal Energy Corporation
- Barasentosa Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Marubeni Corporation - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The Treasury - Australian Government
- European Bulk Services B.V. - Netherlands
- Bangladesh Power Developement Board
- Minerals Council of Australia
- Grasim Industreis Ltd - India
- Electricity Authority, New Zealand
- SMC Global Power, Philippines
- Global Coal Blending Company Limited - Australia
- London Commodity Brokers - England
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Australian Commodity Traders Exchange
- Kapuas Tunggal Persada - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Tamil Nadu electricity Board
- India Bulls Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- ICICI Bank Limited - India
- Petron Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Romanian Commodities Exchange
- Directorate General of MIneral and Coal - Indonesia
- Malabar Cements Ltd - India
- Ambuja Cements Ltd - India
- Siam City Cement PLC, Thailand
- Trasteel International SA, Italy
- Singapore Mercantile Exchange
- Alfred C Toepfer International GmbH - Germany
- Indogreen Group - Indonesia
- Edison Trading Spa - Italy
- OPG Power Generation Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Development Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Leighton Contractors Pty Ltd - Australia
- Cement Manufacturers Association - India
- Mintek Dendrill Indonesia
- Pendopo Energi Batubara - Indonesia
- Coalindo Energy - Indonesia
- Africa Commodities Group - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Videocon Industries ltd - India
- Aditya Birla Group - India
- Meenaskhi Energy Private Limited - India
- PowerSource Philippines DevCo
- Orica Australia Pty. Ltd.
- Banpu Public Company Limited - Thailand
- ASAPP Information Group - India
- Kepco SPC Power Corporation, Philippines
- Thiess Contractors Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bharathi Cement Corporation - India
- Maharashtra Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- PNOC Exploration Corporation - Philippines
- Latin American Coal - Colombia
- Samtan Co., Ltd - South Korea
- Makarim & Taira - Indonesia
- Salva Resources Pvt Ltd - India
- MS Steel International - UAE
- Gujarat Sidhee Cement - India
- The State Trading Corporation of India Ltd
- SN Aboitiz Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Rio Tinto Coal - Australia
- Uttam Galva Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Coal and Oil Company - UAE
- Antam Resourcindo - Indonesia
- Kobexindo Tractors - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Binh Thuan Hamico - Vietnam
- Indian Oil Corporation Limited
- GAC Shipping (India) Pvt Ltd
- Ministry of Finance - Indonesia
- Bukit Makmur.PT - Indonesia
- Mjunction Services Limited - India
- Intertek Mineral Services - Indonesia
- Indika Energy - Indonesia
- Coastal Gujarat Power Limited - India
- VISA Power Limited - India
- Electricity Generating Authority of Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Merrill Lynch Commodities Europe
- IHS Mccloskey Coal Group - USA
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- Attock Cement Pakistan Limited
- Directorate Of Revenue Intelligence - India
- Borneo Indobara - Indonesia
- Parry Sugars Refinery, India
- Ministry of Mines - Canada
- TNB Fuel Sdn Bhd - Malaysia
- White Energy Company Limited
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