Page 26 - Insurance Times January 2024

the owners. Further, the owners claimed that the loss was gains from intentionally giving wrong or incomplete
caused by engine breakdown and fracture of condenser feed- information. This is done in order to procure an insurance
pipe which flooded the ship from within causing the hull to policy that would not otherwise be obtainable or obtained
give way, which the courts found incredible. The owners sued on better terms. The implication is that the party seeking
the insurance company and in ensuing legal action the courts insurance has fraudulently non-disclosed or fraudulently
sided with the insurance company. The overabundance of misrepresented the risk offered for insurance. In such
available tonnage and scarcity of cargo led to huge fall in circumstances the resulting fraud entitles the insurer to
freight rates and ship values. The owners paid for the vessel avoid the contract. Most marine policies insuring ships are
in instalments and still owed significant amount of money to 'valued' policies, with the proposed insured value being put
the Shipping Board. forward by the insured. In the absence of fraud, the value
agreed between the insurer and the insured is binding on
In the court of appeal in November 1922, Lords Justices the insurer. It is important therefore, before agreeing, an
Bankes and Scrutton and Mr. Justice Eve, without calling underwriter is satisfied with the agreed value.
upon the counsel for the underwriters, gave their
judgement, dismissing the ship ownersf appeal, thus It is customary for ships to be insured for their market value.
A ship offered for insurance with a value significantly in
affirming Mr. Justice Rowlattfs finding that the vessel was
excess of its market value is one that an underwriter will
scuttled with the connivance of the owners.
not readily agree to; in the absence of a compelling
argument to explain the difference. Certainly, any insurer
The appellants were Spanish shipping company Jose Luie de (marine or nonmarine) who agrees to insure an asset for
Ansoliaga y Campania Limitada, Bilbao and the respondents more than its 'market value' is potentially inviting fraud.
were the Indemnity Mutual Marine Insurance Company, Where a marine 'valued' policy is in place the likelihood of
limited. The ship foundered within 40 nautical miles (74 km; fraud increases significantly. In practice, it is much easier to
46 mi) off the coast in calm weather. Even the crew and over-insure ships than it is cargo. Any excessive over-
captain abandoned the vessel right away. Based on these insurance of cargo will, in the absence of fraudulent
factors, the courts decided that the ship was deliberately documentation, become apparent when, as part of the
scuttled with the connivance of the owners to collect claims process, invoices in support of the loss are called for.
insurance money. Mr. Justice Rowlatt, too had given a
similar judgement, previously for the underwriters. Marine insurance underwriters need to be aware and
remain vigilant to the wider issues impacting the maritime
The concept of the fraudulent claims is compatible with the industry. The introduction and ready access to the Internet
articles 17-21 of the Marine Insurance Act 1906, i.e. the provides today's underwriters with a powerful research tool
section about the disclosure and representation. There are from which to supplement and gain greater insight into those
several cases to show that in general, fraud consists a risks they are being asked to insure. In addition to providing
fraudulent claim. Among the instances of maritime fraud, up to date and direct access to an underwriter's traditional
the scuttling of ships, the deliberate sinking of a ship in sources of information (e.g. Lloyds' Register) an enquiring
order to collect the insurance money, stands out. It has been underwriter's judicious use of search engines can often prove
suggested that marine transport is prone to infiltration by to be enlightening and invaluable.
organized crime groups. These are suggestions that have The most effective tool to prevent fraud within the marine
never been substantiated, but they could point towards a
insurance industry is to ensure its participants conduct
criminogenic market-structure of the marine insurance
themselves with utmost good faith, integrity and maintain the
industry. The insuring of ships requires skill, professionalism
highest professional standards befitting their respective roles.
and money, but the practice of marine insurance has hardly
changed since the Dutch Golden Age. Drawing upon the *I am thankful to Dr.S.Mukherjee, an Expert and
results of years of fieldwork in the Dutch marine insurance International Investigator for Maritime Fraud for his advice
industry, it can be argued that the scuttling of ships is
interlinked and intertwined with the practice of marine Dr. Soumi Mukherjee completed her Graduation in Mass
insurance and the way the marine insurance industry is Media and Masters in Mass Media from University of
commercially and legally organized. Mumbai, later completed her Ph.d. She is interested in
Investigative Journalism related with History, Geography,
Fraud in the negotiation or formation of a marine insurance Zoology etc. She is currently serving in Media Officer
contract usually arises when the party seeking insurance with International Police Organization.

24 January 2024 The Insurance Times