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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, 07 October 16
INDONESIA'S DEMAND FOR COAL REMAINS STRONG: BP
Indonesia's domestic demand for coal shows no sign of slowing down as the country is banking on its coal abundance to meet the country' ...
Friday, 07 October 16
CEYLON SHIPPING CORPORATION HAS TAKEN DELIVERY OF COAL CARRIER MV.CEYLON PRINCESS
Sri Lanka’s Ceylon Shipping Corporation (CSC) has taken delivery of its second newly built bulk carrier for the transportation of coal to pow ...
Friday, 07 October 16
U.S. YEAR-TO-DATE COAL PRODUCTION TOTALLED AN ESTIMATED 540.5 MMST; DOWN 21.9% Y-O-Y, SAYS EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.7 million short ton ...
Thursday, 06 October 16
SHIPS IN PACIFIC ACHIEVE JUST ABOVE $10K DAILY FOR A BRAZIL ROUND VOYAGE - FEARNLEYS
Supramax
Slower week with limited activity due to holidays in the East. Mixed feelings within different markets, with slight downturn in Pacific ...
Wednesday, 05 October 16
OPEC TO SHUT OFF MORE THAN 6 PERCENT OF ITS PRODUCTION; MIXED FEELING AMONGST TRADERS - ALLIED
OPEC recent accord to shut off more than 6 percent of its production this past week has been met with mixed feeling amongst traders. As we mo ...
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- Iligan Light & Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Ceylon Electricity Board - Sri Lanka
- Merrill Lynch Commodities Europe
- India Bulls Power Limited - India
- Straits Asia Resources Limited - Singapore
- Aditya Birla Group - India
- GN Power Mariveles Coal Plant, Philippines
- Kumho Petrochemical, South Korea
- Power Finance Corporation Ltd., India
- Planning Commission, India
- SN Aboitiz Power Inc, Philippines
- Madhucon Powers Ltd - India
- Latin American Coal - Colombia
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Ministry of Transport, Egypt
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- Parry Sugars Refinery, India
- Siam City Cement PLC, Thailand
- Borneo Indobara - Indonesia
- Gujarat Sidhee Cement - India
- Holcim Trading Pte Ltd - Singapore
- IEA Clean Coal Centre - UK
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Attock Cement Pakistan Limited
- IHS Mccloskey Coal Group - USA
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Bukit Baiduri Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Central Java Power - Indonesia
- Indian Energy Exchange, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sical Logistics Limited - India
- The Treasury - Australian Government
- CIMB Investment Bank - Malaysia
- Posco Energy - South Korea
- San Jose City I Power Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Edison Trading Spa - Italy
- Interocean Group of Companies - India
- Chettinad Cement Corporation Ltd - India
- Meenaskhi Energy Private Limited - India
- Coal and Oil Company - UAE
- Ambuja Cements Ltd - India
- GVK Power & Infra Limited - India
- Indogreen Group - Indonesia
- Sojitz Corporation - Japan
- Independent Power Producers Association of India
- Heidelberg Cement - Germany
- Neyveli Lignite Corporation Ltd, - India
- Trasteel International SA, Italy
- Star Paper Mills Limited - India
- Kepco SPC Power Corporation, Philippines
- Economic Council, Georgia
- Barasentosa Lestari - Indonesia
- Larsen & Toubro Limited - India
- International Coal Ventures Pvt Ltd - India
- Indonesian Coal Mining Association
- Meralco Power Generation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- CNBM International Corporation - China
- Binh Thuan Hamico - Vietnam
- Sree Jayajothi Cements Limited - India
- MS Steel International - UAE
- Kartika Selabumi Mining - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Bhatia International Limited - India
- The University of Queensland
- Standard Chartered Bank - UAE
- Directorate Of Revenue Intelligence - India
- Karbindo Abesyapradhi - Indoneisa
- Commonwealth Bank - Australia
- Georgia Ports Authority, United States
- Kohat Cement Company Ltd. - Pakistan
- Africa Commodities Group - South Africa
- Bukit Makmur.PT - Indonesia
- Carbofer General Trading SA - India
- European Bulk Services B.V. - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- ICICI Bank Limited - India
- Antam Resourcindo - Indonesia
- Samtan Co., Ltd - South Korea
- Eastern Energy - Thailand
- Jaiprakash Power Ventures ltd
- Thiess Contractors Indonesia
- Banpu Public Company Limited - Thailand
- Alfred C Toepfer International GmbH - Germany
- Kobexindo Tractors - Indoneisa
- Ind-Barath Power Infra Limited - India
- Grasim Industreis Ltd - India
- Ministry of Finance - Indonesia
- Parliament of New Zealand
- Orica Mining Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Indian Oil Corporation Limited
- New Zealand Coal & Carbon
- Leighton Contractors Pty Ltd - Australia
- Karaikal Port Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Bhoruka Overseas - Indonesia
- Wilmar Investment Holdings
- Bhushan Steel Limited - India
- Gujarat Electricity Regulatory Commission - India
- Siam City Cement - Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Jindal Steel & Power Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Goldman Sachs - Singapore
- Electricity Generating Authority of Thailand
- London Commodity Brokers - England
- Minerals Council of Australia
- Dalmia Cement Bharat India
- Bukit Asam (Persero) Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Marubeni Corporation - India
- Coalindo Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Rio Tinto Coal - Australia
- White Energy Company Limited
- Mintek Dendrill Indonesia
- Indika Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- Aboitiz Power Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- LBH Netherlands Bv - Netherlands
- Chamber of Mines of South Africa
- Vizag Seaport Private Limited - India
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Riau Bara Harum - Indonesia
- Eastern Coal Council - USA
- Gujarat Mineral Development Corp Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Toyota Tsusho Corporation, Japan
- Kaltim Prima Coal - Indonesia
- Medco Energi Mining Internasional
- Electricity Authority, New Zealand
- Kapuas Tunggal Persada - Indonesia
- Maheswari Brothers Coal Limited - India
- Bharathi Cement Corporation - India
- Bulk Trading Sa - Switzerland
- Essar Steel Hazira Ltd - India
- Formosa Plastics Group - Taiwan
- Australian Coal Association
- PNOC Exploration Corporation - Philippines
- Tata Chemicals Ltd - India
- ASAPP Information Group - India
- GMR Energy Limited - India
- Semirara Mining Corp, Philippines
- The State Trading Corporation of India Ltd
- Miang Besar Coal Terminal - Indonesia
- SMC Global Power, Philippines
- Oldendorff Carriers - Singapore
- Romanian Commodities Exchange
- Savvy Resources Ltd - HongKong
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mercuria Energy - Indonesia
- Bangladesh Power Developement Board
- TeaM Sual Corporation - Philippines
- Uttam Galva Steels Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Makarim & Taira - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Kideco Jaya Agung - Indonesia
- Bayan Resources Tbk. - Indonesia
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- McConnell Dowell - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Metalloyd Limited - United Kingdom
- Ministry of Mines - Canada
- Lanco Infratech Ltd - India
- Agrawal Coal Company - India
- SMG Consultants - Indonesia
- Port Waratah Coal Services - Australia
- Krishnapatnam Port Company Ltd. - India
- Sarangani Energy Corporation, Philippines
- Deloitte Consulting - India
- Cement Manufacturers Association - India
- Singapore Mercantile Exchange
- Xindia Steels Limited - India
- South Luzon Thermal Energy Corporation
- Wood Mackenzie - Singapore
- Orica Australia Pty. Ltd.
- Malabar Cements Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- Energy Development Corp, Philippines
- Coastal Gujarat Power Limited - India
- Tamil Nadu electricity Board
- PTC India Limited - India
- Global Business Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Renaissance Capital - South Africa
- Anglo American - United Kingdom
- PowerSource Philippines DevCo
- Global Coal Blending Company Limited - Australia
- Timah Investasi Mineral - Indoneisa
- Sakthi Sugars Limited - India
- Mercator Lines Limited - India
- Therma Luzon, Inc, Philippines
- Australian Commodity Traders Exchange
- Videocon Industries ltd - India
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