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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, 23 September 16
EIA SEES U.S. COAL WEEKLY OUTPUT INCREASE
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.1 million short ton ...
Thursday, 22 September 16
CHINA IS THE PRICE-SETTING COUNTRY FOR GLOBAL THERMAL COAL
COALspot.com: China has been the driver of global coal growth since 2009. When China became the largest coal importer in 2011, the country also has ...
Thursday, 22 September 16
SUPRAMAXES ARE ACHIEVING AROUND $7000 FOR A TRIP WITH SINGAPORE DELIVERY VIA INDONESIA TO CHINA
Supramax
A slow start to the week in the Supramax segment in the Atlantic with not much being reported.
In the Blacksea Supramaxes are getti ...
Wednesday, 21 September 16
THE CAPESIZE MARKET HAS BEEN ON A RALLYING TREND SINCE THE END OF AUGUST - GEORGE LAZARIDIS
The Capesize market has been on a rallying trend since the end of August, fuelled mainly by the chase by traders to pre-stock before the typical pi ...
Wednesday, 21 September 16
SHIPPING MARKET INSIGHT - PANOS MAKRINOS
Amidst a challenging dry bulk and tanker market, very little time has been spent on the offshore industry developments during the past couple of ye ...
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- Economic Council, Georgia
- Deloitte Consulting - India
- Iligan Light & Power Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Thai Mozambique Logistica
- PetroVietnam Power Coal Import and Supply Company
- Borneo Indobara - Indonesia
- Chettinad Cement Corporation Ltd - India
- Jaiprakash Power Ventures ltd
- Oldendorff Carriers - Singapore
- Aditya Birla Group - India
- Kartika Selabumi Mining - Indonesia
- Posco Energy - South Korea
- Manunggal Multi Energi - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Sidhee Cement - India
- Meralco Power Generation, Philippines
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Tata Chemicals Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Lanco Infratech Ltd - India
- Sinarmas Energy and Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Asmin Koalindo Tuhup - Indonesia
- VISA Power Limited - India
- Bukit Makmur.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- Eastern Energy - Thailand
- Wilmar Investment Holdings
- Alfred C Toepfer International GmbH - Germany
- Latin American Coal - Colombia
- Ministry of Mines - Canada
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Electricity Generating Authority of Thailand
- Cement Manufacturers Association - India
- Vizag Seaport Private Limited - India
- Mjunction Services Limited - India
- Mercuria Energy - Indonesia
- Chamber of Mines of South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Australian Commodity Traders Exchange
- Carbofer General Trading SA - India
- Orica Australia Pty. Ltd.
- Gujarat Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Bangladesh Power Developement Board
- Port Waratah Coal Services - Australia
- Mercator Lines Limited - India
- Baramulti Group, Indonesia
- Grasim Industreis Ltd - India
- Krishnapatnam Port Company Ltd. - India
- PowerSource Philippines DevCo
- Bhoruka Overseas - Indonesia
- Merrill Lynch Commodities Europe
- Meenaskhi Energy Private Limited - India
- Price Waterhouse Coopers - Russia
- Madhucon Powers Ltd - India
- Altura Mining Limited, Indonesia
- Central Electricity Authority - India
- Bharathi Cement Corporation - India
- Kaltim Prima Coal - Indonesia
- White Energy Company Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aboitiz Power Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- London Commodity Brokers - England
- Sakthi Sugars Limited - India
- Standard Chartered Bank - UAE
- Indian Energy Exchange, India
- Kapuas Tunggal Persada - Indonesia
- Medco Energi Mining Internasional
- Interocean Group of Companies - India
- Tamil Nadu electricity Board
- Rio Tinto Coal - Australia
- Globalindo Alam Lestari - Indonesia
- IEA Clean Coal Centre - UK
- Pendopo Energi Batubara - Indonesia
- Coastal Gujarat Power Limited - India
- Barasentosa Lestari - Indonesia
- Essar Steel Hazira Ltd - India
- SMG Consultants - Indonesia
- Ceylon Electricity Board - Sri Lanka
- GN Power Mariveles Coal Plant, Philippines
- Parry Sugars Refinery, India
- Directorate Of Revenue Intelligence - India
- The University of Queensland
- Bhushan Steel Limited - India
- Ministry of Finance - Indonesia
- Indika Energy - Indonesia
- Mintek Dendrill Indonesia
- Independent Power Producers Association of India
- Heidelberg Cement - Germany
- Australian Coal Association
- Global Green Power PLC Corporation, Philippines
- MS Steel International - UAE
- Agrawal Coal Company - India
- Antam Resourcindo - Indonesia
- Simpson Spence & Young - Indonesia
- Indonesian Coal Mining Association
- Trasteel International SA, Italy
- LBH Netherlands Bv - Netherlands
- Bukit Baiduri Energy - Indonesia
- Indian Oil Corporation Limited
- Savvy Resources Ltd - HongKong
- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- The State Trading Corporation of India Ltd
- Renaissance Capital - South Africa
- McConnell Dowell - Australia
- Indogreen Group - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Global Business Power Corporation, Philippines
- Planning Commission, India
- Africa Commodities Group - South Africa
- Central Java Power - Indonesia
- Formosa Plastics Group - Taiwan
- GAC Shipping (India) Pvt Ltd
- Coal and Oil Company - UAE
- Semirara Mining Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Metalloyd Limited - United Kingdom
- Leighton Contractors Pty Ltd - Australia
- Karbindo Abesyapradhi - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Mineral Development Corp Ltd - India
- Energy Development Corp, Philippines
- San Jose City I Power Corp, Philippines
- The Treasury - Australian Government
- Uttam Galva Steels Limited - India
- Neyveli Lignite Corporation Ltd, - India
- IHS Mccloskey Coal Group - USA
- PTC India Limited - India
- SMC Global Power, Philippines
- South Luzon Thermal Energy Corporation
- Marubeni Corporation - India
- Bhatia International Limited - India
- Semirara Mining and Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Jorong Barutama Greston.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Indo Tambangraya Megah - Indonesia
- Kobexindo Tractors - Indoneisa
- Sical Logistics Limited - India
- PNOC Exploration Corporation - Philippines
- ICICI Bank Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Eastern Coal Council - USA
- Thiess Contractors Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Petron Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Coalindo Energy - Indonesia
- GVK Power & Infra Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Therma Luzon, Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Dalmia Cement Bharat India
- Sojitz Corporation - Japan
- Attock Cement Pakistan Limited
- Vedanta Resources Plc - India
- Maheswari Brothers Coal Limited - India
- India Bulls Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Toyota Tsusho Corporation, Japan
- Power Finance Corporation Ltd., India
- European Bulk Services B.V. - Netherlands
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Authority, New Zealand
- Riau Bara Harum - Indonesia
- Wood Mackenzie - Singapore
- Ministry of Transport, Egypt
- New Zealand Coal & Carbon
- Sree Jayajothi Cements Limited - India
- Siam City Cement PLC, Thailand
- Banpu Public Company Limited - Thailand
- Ambuja Cements Ltd - India
- Energy Link Ltd, New Zealand
- Sindya Power Generating Company Private Ltd
- Timah Investasi Mineral - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Edison Trading Spa - Italy
- ASAPP Information Group - India
- Commonwealth Bank - Australia
- Makarim & Taira - Indonesia
- Videocon Industries ltd - India
- OPG Power Generation Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Xindia Steels Limited - India
- Samtan Co., Ltd - South Korea
- International Coal Ventures Pvt Ltd - India
- Anglo American - United Kingdom
- Singapore Mercantile Exchange
- Goldman Sachs - Singapore
- Binh Thuan Hamico - Vietnam
- Georgia Ports Authority, United States
- Karaikal Port Pvt Ltd - India
- Romanian Commodities Exchange
- Bulk Trading Sa - Switzerland
- Parliament of New Zealand
- Minerals Council of Australia
- Siam City Cement - Thailand
- CIMB Investment Bank - Malaysia
- TeaM Sual Corporation - Philippines
- CNBM International Corporation - China
- Salva Resources Pvt Ltd - India
- GMR Energy Limited - India
- Intertek Mineral Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Larsen & Toubro Limited - India
- Maharashtra Electricity Regulatory Commission - India
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