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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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Thursday, 29 September 16
FREIGHT RATES MIGHT CONTINUE TO SLIDE NEXT WEEK DUE TO HOLIDAYS IN CHINA
Supramax
Flat start to week followed by a slight gain in rates for Supramaxes, says Fearnleys in its latest weekly report.
According to Fear ...
Wednesday, 28 September 16
WITHOUT A DOUBT FREIGHT RATES HAVE MOVED UP A BIT TO HEALTHIER LEVELS - INTERMODAL
As we are approaching Q4, it is interesting to perform a review of the last nine months with respect to the second-hand prices of Supramax and Pana ...
Tuesday, 27 September 16
THE CAPESIZE RATE OF INCREASE HAS BEEN IMPRESSIVE, UP 39% W/W AND 123% MONTH TO DATE - ALLIED
The Dry bulk market has seen a rare shine in its performance as the capesize sector manages to rally at an unprecedented rate compared to its perfo ...
Monday, 26 September 16
COAL PRICES HAVE BEEN MOVING STEADILY HIGHER AFTER YEARS OF DECLINE
COALspot.com: A rally in thermal coal prices over the past few months, after years of decline, is still continuing and it is expected to rally at l ...
Monday, 26 September 16
THE FREIGHT MARKET WAS FIRM; ALL SEGMENTS WERE UP THIS PAST WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose and ending in a positive note this past week. The BD ...
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- Dalmia Cement Bharat India
- Kepco SPC Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- CIMB Investment Bank - Malaysia
- Kumho Petrochemical, South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- London Commodity Brokers - England
- Bhatia International Limited - India
- Kartika Selabumi Mining - Indonesia
- SMC Global Power, Philippines
- Jindal Steel & Power Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Australian Commodity Traders Exchange
- Sree Jayajothi Cements Limited - India
- Latin American Coal - Colombia
- Eastern Coal Council - USA
- Bhushan Steel Limited - India
- The State Trading Corporation of India Ltd
- LBH Netherlands Bv - Netherlands
- Gujarat Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- Meralco Power Generation, Philippines
- Aditya Birla Group - India
- Kaltim Prima Coal - Indonesia
- New Zealand Coal & Carbon
- Simpson Spence & Young - Indonesia
- IHS Mccloskey Coal Group - USA
- Tamil Nadu electricity Board
- Karbindo Abesyapradhi - Indoneisa
- Medco Energi Mining Internasional
- TeaM Sual Corporation - Philippines
- MS Steel International - UAE
- Chettinad Cement Corporation Ltd - India
- IEA Clean Coal Centre - UK
- Price Waterhouse Coopers - Russia
- International Coal Ventures Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Attock Cement Pakistan Limited
- Vijayanagar Sugar Pvt Ltd - India
- Independent Power Producers Association of India
- Antam Resourcindo - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Coastal Gujarat Power Limited - India
- Central Java Power - Indonesia
- Formosa Plastics Group - Taiwan
- Bukit Makmur.PT - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Romanian Commodities Exchange
- PNOC Exploration Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Altura Mining Limited, Indonesia
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Grasim Industreis Ltd - India
- Vizag Seaport Private Limited - India
- Jaiprakash Power Ventures ltd
- Salva Resources Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- European Bulk Services B.V. - Netherlands
- AsiaOL BioFuels Corp., Philippines
- Standard Chartered Bank - UAE
- Anglo American - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- White Energy Company Limited
- Agrawal Coal Company - India
- Ministry of Transport, Egypt
- Coal and Oil Company - UAE
- Lanco Infratech Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Posco Energy - South Korea
- Petron Corporation, Philippines
- McConnell Dowell - Australia
- Samtan Co., Ltd - South Korea
- Barasentosa Lestari - Indonesia
- Manunggal Multi Energi - Indonesia
- Vedanta Resources Plc - India
- Sinarmas Energy and Mining - Indonesia
- Xindia Steels Limited - India
- Madhucon Powers Ltd - India
- Larsen & Toubro Limited - India
- Chamber of Mines of South Africa
- South Luzon Thermal Energy Corporation
- Central Electricity Authority - India
- Sakthi Sugars Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Bhoruka Overseas - Indonesia
- Oldendorff Carriers - Singapore
- Binh Thuan Hamico - Vietnam
- San Jose City I Power Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- Mercator Lines Limited - India
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Essar Steel Hazira Ltd - India
- Baramulti Group, Indonesia
- Makarim & Taira - Indonesia
- Planning Commission, India
- GMR Energy Limited - India
- Maheswari Brothers Coal Limited - India
- Indian Energy Exchange, India
- Meenaskhi Energy Private Limited - India
- Siam City Cement - Thailand
- Cigading International Bulk Terminal - Indonesia
- Indika Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- The Treasury - Australian Government
- Borneo Indobara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ICICI Bank Limited - India
- Africa Commodities Group - South Africa
- Energy Link Ltd, New Zealand
- Videocon Industries ltd - India
- Goldman Sachs - Singapore
- Australian Coal Association
- Global Business Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Wood Mackenzie - Singapore
- Edison Trading Spa - Italy
- Mjunction Services Limited - India
- Eastern Energy - Thailand
- Global Green Power PLC Corporation, Philippines
- Metalloyd Limited - United Kingdom
- VISA Power Limited - India
- Commonwealth Bank - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Heidelberg Cement - Germany
- Parliament of New Zealand
- OPG Power Generation Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Petrochimia International Co. Ltd.- Taiwan
- GN Power Mariveles Coal Plant, Philippines
- Star Paper Mills Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Ceylon Electricity Board - Sri Lanka
- Riau Bara Harum - Indonesia
- The University of Queensland
- Georgia Ports Authority, United States
- Toyota Tsusho Corporation, Japan
- Semirara Mining and Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Orica Australia Pty. Ltd.
- Minerals Council of Australia
- Siam City Cement PLC, Thailand
- Sindya Power Generating Company Private Ltd
- Kobexindo Tractors - Indoneisa
- Ministry of Mines - Canada
- Ministry of Finance - Indonesia
- Alfred C Toepfer International GmbH - Germany
- PowerSource Philippines DevCo
- Thai Mozambique Logistica
- Economic Council, Georgia
- Indo Tambangraya Megah - Indonesia
- Electricity Generating Authority of Thailand
- Sical Logistics Limited - India
- Timah Investasi Mineral - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Coalindo Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Aboitiz Power Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Development Corp, Philippines
- Parry Sugars Refinery, India
- Semirara Mining Corp, Philippines
- Wilmar Investment Holdings
- Bahari Cakrawala Sebuku - Indonesia
- Deloitte Consulting - India
- Therma Luzon, Inc, Philippines
- Renaissance Capital - South Africa
- CNBM International Corporation - China
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- Carbofer General Trading SA - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Coal Blending Company Limited - Australia
- Electricity Authority, New Zealand
- Orica Mining Services - Indonesia
- Rio Tinto Coal - Australia
- GAC Shipping (India) Pvt Ltd
- Tata Chemicals Ltd - India
- Mercuria Energy - Indonesia
- Gujarat Sidhee Cement - India
- Jorong Barutama Greston.PT - Indonesia
- Merrill Lynch Commodities Europe
- GVK Power & Infra Limited - India
- Iligan Light & Power Inc, Philippines
- Trasteel International SA, Italy
- Ind-Barath Power Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Karaikal Port Pvt Ltd - India
- Cement Manufacturers Association - India
- Indian Oil Corporation Limited
- Mintek Dendrill Indonesia
- Ambuja Cements Ltd - India
- Singapore Mercantile Exchange
- PTC India Limited - India
- Malabar Cements Ltd - India
- Sojitz Corporation - Japan
- Marubeni Corporation - India
- India Bulls Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Port Waratah Coal Services - Australia
- Bangladesh Power Developement Board
- Indogreen Group - Indonesia
- Kideco Jaya Agung - Indonesia
- Thiess Contractors Indonesia
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