Table Of ContentM A R I N E
I N S U R A N C E
F R AU D
BARIS¸ SOYER
MARITIME AND TRANSPORT LAW LIBRARY
Marine Insurance Fraud Pollution at Sea: Law and Liability
by Barıs¸ Soyer edited by Barıs¸ Soyer and Andrew Tettenborn
(2014) (2012)
International Maritime Conventions Contracts of Carriage by Air
Volume One 2nd Edition
The Carriage of Goods and Passengers by Sea by Malcolm A. Clarke
by Francesco Berlingieri (2012)
(2014)
Place of Refuge: International Law and the
International Carriage of Goods by Road: CMR CMI Draft Convention
6th Edition by Eric Van Hooydonk
by Malcolm A. Clarke (2010)
(2014)
Maritime Fraud and Piracy
The Maritime Labour Convention 2006: by Paul Todd
International Labour Law Redefined (2010)
edited by Jennifer Lavelle
(2013) The Carriage of Goods by Sea under the
Rotterdam Rules
Modern Maritime Law: edited by D. Rhidian Thomas
Volume 1: Jurisdiction and Risks (2010)
3rd Edition
by Aleka Mandaraka-Sheppard The International Law of the Shipmaster
(2013) by John A. C. Cartner, Richard P. Fisk
and Tara L. Leiter
Modern Maritime Law: (2009)
Volume 2: Managing Risks and Liabilities
3rd Edition The Modern Law of Marine Insurance
by Aleka Mandaraka-Sheppard edited by D. Rhidian Thomas
(2013) (2009)
Carriage of Goods by Sea Land and Air: The Rotterdam Rules: A Practical Annotation
Uni-Modal and Multi-Modal Transport in by Yvonne Baatz, Charles Debattista, Filippo
The 21st Century Lorenzon, Andrew Serdy, Hilton Staniland and
edited by Barıs¸ Soyer and Andrew Tettenborn Michael Tsimplis
(2013) (2009)
Freight Forwarding and Multimodal The Evolving Law and Practice of
Transport Contracts Voyage Charters
2nd Edition edited by D. Rhidian Thomas
by David A. Glass (2009)
(2012)
Risk and Liability in Air Law
The Law of Yachts and Yachting by George Leloudas
by Filippo Lorenzon and Richard Coles (2009)
(2012)
Legal Issues Relating to Time Charterparties
Marine Insurance Clauses edited by D. Rhidian Thomas
5th Edition (2008)
by N. Geoffrey Hudson, Tim Madge and
Keith Sturges
(2012)
Contracts of Carriage by Land and Air Commencement of Laytime
2nd Edition 4th Edition
by Malcolm A. Clarke and David Yates edited by D. Rhidian Thomas
(2008) (2006)
Bills of Lading and Bankers’ Documentary Credits General Average: Law and Practice
4th Edition 2nd Edition
by Paul Todd by F. D. Rose
(2007) (2005)
Liability Regimes in Contemporary Maritime Law War, Terror and Carriage by Sea
edited by D. Rhidian Thomas by Keith Michel
(2007) (2004)
Marine Insurance: The Law in Transition
edited by D. Rhidian Thomas
(2006)
First published 2014
by Informa Law from Routledge
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and by Informa Law from Routledge
711 Third Avenue, New York, NY 10017
Informa Law from Routledge is an imprint of the Taylor & Francis Group, an Informa business
© Barıs¸ Soyer 2014
The right of Barıs¸ Soyer to be identified as author of this work has been asserted by him in
accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by
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ISBN 978-0-415-84242-6
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MARINE INSURANCE FRAUD
BARIS¸ SOYER
This book provides a comprehensive and coherent legal analysis of the impact of
fraud on the position of various parties to a marine insurance contract, as well as
the cover provided by standard marine policies. The issues under discussion in this
invaluable guide are also equally relevant in the context of non-marine insurance
contracts.
Helpfully divided into two parts, Part One deals with the impact of fraud com-
mitted by parties to an insurance contract, such as the assured, insurer and brokers.
Part Two analyses the extent to which standard marine policies cover the fraudulent
and dishonest activity of third parties to an insurance contract.
This book will be of huge practical assistant to practitioners specialising in marine
insurance as well as insurance generally, and to professionals, academics and post-
graduate students.
Professor Barıs¸ Soyer is a Professor of Commercial and Maritime Law, head of
the Postgraduate Legal Studies Department and the Director of the Institute of
International Shipping and Trade Law at Swansea University School of Law.
This book is dedicated to my children: Özgú´r- James and Cherley- Jale
FOREWORD
Professor Soyer has written a valuable work, centred on marine insurance fraud,
but of wider application in the context of insurance generally. The heart of it is its
consideration of fraud at two critical stages of the relationship between insurer and
insured, namely at the outset of their relationship when the doctrine of good faith
disclosure requires a fair presentation of the risk, and after the insurance contract
has incepted when claims come to be presented.
Where fraud is concerned, the initial period presents fewer difficulties, because
deliberate, dishonest concealment such as deserves the name of fraud overleaps
many of the anxieties which currently hang about the doctrine of good faith in the
presentation of the risk and the draconian remedy of avoidance. Indeed, Professor
Soyer demonstrates how the most egregious frauds start life even before contract, in
the conspiratorial planning of the loss of phantom cargoes.
It is in the second period, however, when claims are generated, that the issues
that arise from fraud multiply. Chapter 3 of this work provides its readers with a
substantial and excellent analysis of the problems involved in finding a coherent
and proportionate structure for dealing with the many different kinds of dishonesty
which populate this period.
Thus Professor Soyer helpfully categorises the various ways in which claims are
affected by lying, from the extreme cases of criminal conspiracies, to the over-ambi-
tious exaggeration of values and the use of dishonest devices in the presentation of
genuine claims. He goes on to demonstrate the analytical difficulties into which a
judicial view that the statutory doctrine of good faith survives the inception of the
contract has plunged modern jurisprudence. The courts have had to struggle with
solutions for providing a fair response and proportionate remedies to the many dif-
ferent ways in which various forms of dishonesty may infect the presentation and
pursuit of claims. Should avoidance ab initio be the consequence, with the undoing
of previous settlements? Or should the instant claim be lost? Or should the insur-
ance contract be lost for the future? Public policy and concepts of moral hazard also
play their role.
Chapter 4 concentrates on similar problems but from the point of view of a
dishonest insurer, or at any rate one falling below the standards of good faith. It is
rightly said that there are fewer case-reported examples of such conduct: but recent
press coverage of wholesale compensation having to be provided in the consumer
market makes one wonder where the balance is to be found. It is in this chapter that
the author refers to such cases as Drake Insurance plc v Provident Insurance plc [2003]
vii
foreword
EWCA Civ 1834; [2004] 1 Lloyd’s Rep 268 and Sprung v Royal Insurance (UK) Ltd
[1999] 1 Lloyd’s Rep IR 111, the former raising questions of reform, the latter of
the need for reform.
Law reform is indeed the subject matter of Chapter 6, where the reader will find a
helpful summary of the current proposals of the Law Commission. Professor Soyer
analyses these proposals by and large favourably and looks forward to the time
when, if the proposed reforms find Parliamentary enactment, he can write a second
edition of his work to deal with a new legal framework operating in practice.
In his final Chapter 7, the author considers what protection can be obtained by an
insured against third party fraud. This is a substantial chapter which pulls together
a series of problems concerning insurance coverage in a way which will be of real
assistance to its readers. There is for instance extensive treatment of a peril which in
the classical world gave Pompey his chance to be named Magnus (‘the Great’) and
which still plagues the modern world, namely piracy.
In short, Professor Soyer has written a book on an important and fascinating
theme which not only states the law in a clear and concise way, but also analyses it
critically, insightfully and helpfully. I am confident that it will be used profitably by
a wide range of readers. I too look forward to his second edition.
Sir Bernard Rix
Formerly Lord Justice of Appeal
20 Essex Street
April 2014
viii
PREFACE
Fraud frequently occurs in every area of commerce, despite efforts of law enforce-
ment agencies, regulators and executives of corporations. Commercial fraud is often
the work of organised criminal syndicates; but it is also perpetrated by opportunist
individuals taking advantage of other parties’ lack of information about certain key
data surrounding commercial transactions, or of their naivety. The position is not
different in the context of marine insurance, although there are additional factors
that make this area a fertile ground for fraudsters.
The main objective of this monograph is to provide a comprehensive and coher-
ent legal analysis of both the impact of fraud on the position of various parties to
a marine insurance contract, and the cover provided by standard marine policies.
Accordingly, the book is divided into two parts. Part 1 (Chapters 1–6) analyses
the impact of fraud committed by parties to the insurance contract, that is to say
the assured, brokers and insurers, will be analysed. To this end, following a general
introduction carried out in Chapter 1, the impact of the assured’s (and its employ-
ees’) fraud at the pre-c ontractual stage on the contract and potential remedies avail-
able for the insurer are considered in Chapter 2. Chapter 3 discusses the position
of the insurer when it is established that the assured has committed fraud at the
post- contractual stage. This area of law is rather unsettled and has generated a con-
siderable amount of litigation in the course of the last two decades. In Chapter 4, the
impact of insurer’s fraud on the contract, both at pre- and post- contractual stages,
is deliberated. The number of reported cases in this area is considerably lower than
those dealing with the assured’s fraud either at pre- or post- contractual stages. This
partly reflects the nature of the insurance contracts and the fact that the informa-
tion imbalance is very much in favour of the assured, who is in possession of the key
information needed to assess the proposed risk or circumstances surrounding a loss.
Independent intermediaries, such as insurance brokers and underwriting agents,
play a significant role, particularly in the process of obtaining insurance cover, but
this also puts them in a position where they could easily influence the decisions
of their counterparts by acting deceitfully. Accordingly, Chapter 5 is devoted to
analysing the impact of fraud committed by independent intermediaries on their
principal and the other party to an insurance contract. So far, the focus has been on
the law as it currently exists. However, the English and Scottish Law Commissions
are planning to put forward reform proposals and a draft Bill in 2014 that aspire to
alter several fundamental principles of insurance law and certain provisions of the
Marine Insurance Act (MIA) 1906. If and when such a statutory change occurs, a
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