Mostly missing or infrequently discussed in the COVID-19 pandemic is the current oil crash deepening from crippling fuel demand, sending prices spiraling to an 18-year low. As Americans continue to work from home – traveling less than ever in recent history due to the crisis – combined with the current oil price war between Russia and Saudi Arabia, the industry is in the midst of a predicament never seen before with an oversupply of oil and not enough people to buy it.
Following President Trump’s announcement that he was extending his administration’s social distancing guidelines through the end of April to fight the virus– according to Dow Jones Market Data – the biggest percentage drops on record for any month or quarter occurred. The pandemic has truly halted economic activity and global travel, leading to a drop in oil demand incomparable to any other time. Typically, consumers are driving cars more during any fuel price plummet, which helps the energy sector rebound.
But, due to the restrictions in place around quite literally everything, that recovery cannot occur like it previously has, leading to the expectation of an even more massive surplus of oil and lower prices in the near future.
In 1920, the Jones Act, a federal law that regulates maritime commerce in the United States, was propelled into law to help support jobs in that sector. To this day, it requires goods that are shipped between ports in the United States to be transported on ships that are built, owned and operated by United States citizens or permanent residents. The Act, while seemingly positive for U.S. citizens at glance, also substantially increases the cost of shipping to places like Hawaii, Alaska, Puerto Rico as well as other non-continental U.S. Lands that rely on imports by prohibiting the number of vessels that can deliver goods legally.
As such, the supply of American built, owned or operated vessels is relatively small compared to the global supply of ships while the demand for basic goods remains the same or grows. As a result, shipping companies can then charge a higher rate because of a lack of competition, with much of the increase in cost passed on to consumers.
This month, President Trump met with the heads of some of the largest U.S. oil companies to discuss measures to help the industry with the unprecedented oil crash. While nothing of major significance publicly resulted, there was – and still is – ongoing discussion among industry professionals and the legal sector of potentially supporting and/or issuing a waiver on the Jones Act. More ships would be able to transport oil around the U.S. as a result. For example, oil would be able to more freely shipped from the Gulf Coast to markets on the East Coast and upper West Coast, which are currently being inundated with imports from Saudi Arabia and Russia.
It’s important to mention, there have been previously granted waivers – roughly for two weeks – during other emergencies. Although, typically, these waivers have historically occurred after hurricanes due to a given storm’s impact on oil facilities.
No doubt, this preposition – and it merely is just that, an idea – is widely championed by oil companies. Although, ship-builders and trade unions are more likely to oppose it. Interestingly enough, both of these parties are of utmost importance to the Trump Administration, and there is not a single, easy solution that would ease tensions among both.
The American Exploration and Production Council (AXPC) supports a temporary waiver of the Jones Act to “allow American producers to move domestic products with greater ease within the U.S.” This viewpoint remains despite a historic deal last week by major oil producers to cut crude production by 9.7 million barrels a day.
Even though Russia and Saudi Arabia came to that agreement (after weeks of Moscow refusing to agree to cut output ahead of the expiration of the OPEC+ agreement – Opec+ being a top oil producer group) many experts agree that it did not appear to have much of an impact. Already, there are talks of implementing further reductions to meet falling demand amid global COVID- 19 shutdowns.
This means that producers are continuing to produce too much, yet demand is still extremely low. As a result, the buildup in inventory will be extremely difficult to fix in the near future. In fact, according to the terms of the accord, much of the details don’t go into effect until May 1. Even if the pandemic were to end tomorrow, the effects of the oil crisis will last long after that.
Issuing a waiver of the Jones Act is a popular current debate because it will lessen the overall impact for some within the oil and gas industry, especially as OPEC warned that even with a full implementation of oil production cuts, it would not prevent a surplus in the second quarter –that’s when demand for OPEC’s crude will fall to the lowest in three decades.
Not only is there concern over an overproduction of oil, the industry is generally considered an “essential activity or service” by governments and have been, essentially, exempt from any lockdown measures. This means that the industry is experiencing increased difficulties due to workforce shortages as employees become sick or as oil and gas companies work to abide by social distancing rules.
Months into the pandemic, companies are still struggling to operate on skeleton crews to help with continuing operations and to avoid any disruptions – especially when it comes to safety procedures like maintenance, repair, inspections and more.
Operators need to consult their legal counsel continually to help consider third-party contracts who both work on site and abide by current COVID-19 policies as well as develop a plan for potentially sealing of wells due to less personnel on drilling rigs.
Now is the time, as the situation progresses, to review provisions in contracts to excuse any failures to perform. Depending on the situation, a party may seek to claim a “force majeure” – which means an unforeseeable circumstance is preventing someone from fulfilling a contact. No doubt, as instabilities increase as do uncertainties, the number of disputes on performance pegged to existing contractual obligations will as well.
Attorneys specializing in this area are crucial to make sense of any issued government support, too, as the energy sector is surely considered a national interest matter. There have been a number of key measures – differing from country to country – to support employment and performance in this area, so understanding them from an international lens is key.
Additionally, we’ll likely begin to see producers placed into default and many will consider consolidation or M&A work (mergers and acquisitions). This is a normal response to any downturn in the industry, as previously seen in the 2014 price slump.
Whether additional legislative changes here at home, permanent or temporary, will be made remains to be seen – like changes to the Jones Act. But indisputably, the manner in which the industry reacted due to the COVID-19 crisis – combined with the ongoing oil war between Saudi Arabia and Russia – will have a lasting impact on the industry going forward and certainly will result in changes regarding how both the public and private sectors react in a parallel, future catastrophe.
John Neocleous is the Founder and Managing Partner of NCI Law Group, a multinational law practice in the United States, United Kingdom and Switzerland.
As the world grapples with the continued spread of COVID-19, along with the unsettling public health and economic concerns, there are a number of uncertainties surrounding data security and privacy. Efforts to contain the virus differ from country to country, as do the strategies surrounding the collection of data to aid in “contact tracing” that will surely be the subject of debate for years to come with legal experts defining – or redefining – just how far governments and tech companies can go.
In order to counter the threat of the virus, countries have been adopting drastic measures, such as geolocation data and social contact history, leading to a number of complex privacy questions for both public and private entities involved in the process. This has created a substantial need for clarity from legal professionals and data protection authorities (DPAs) across the globe, many of whom are publishing guidance on best practices for collecting and processing personal data related to COVID-19 – in order to stay in line with obligations under privacy and data security laws.
Most discussed in the public eye currently is Google and Apple’s recent announcement about their extensive coronavirus partnership. In the next few months, they will unveil updates to their operating systems to enable contact tracing to help identify carriers of the virus so they can be isolated from the public. It works by tracking with whom you come into contact with by recording where your Bluetooth connects with other devices near you. Once approved, government health agencies will be able to utilize the app to track physical proximity between phones. The system is Bluetooth-only, fully opt-in and collects no location data from users.
It all sounds good in theory. Security experts, however, are pointing to potential flaws in the system, including techniques that could reveal the identities of COVID-19 positive users, help advertisers track them or false positives from users with malicious intent.
Most countries affected by COVID-19 are adopting their own version of contact tracing and nearly all are going digital and leveraging the power of smartphones through Bluetooth or geolocation data. The Google and Apple announcement has propelled public attention, and concern, on the topic of privacy laws.
In China, telecommunications organizations helped the government track and contact those who had traveled through Hubei province in the early days of the virus. Location data was then channeled to China’s Health Commission, which allowed them to re-form the steps of those infected.
In Israel, the government passed an emergency law to use mobile phone data for tracking those who test positive for COVID-19 as well as the ability to identify and quarantine others they have come into contact with and may have become infected. This method has typically been reserved to counter terrorism operations, but now, it’s being used to track infected patients and their phone contacts. If someone found to be positive for COVID-19 – or someone who was in close contact with one – disobeys quarantine, they receive a text message or call ordering them to return home. If they don’t, the police are called.
Since the start of the pandemic – countries to the west have been paying close attention to how countries like China and Israel have used data collection and apps as part of their public health response. And, many critics have raised concerns about privacy and potential illegal use of data, especially as the virus began spreading through Europe and the United States after that.
In the European Union, contact tracing must be compliant with the EU’s privacy law, the General Data Protection Regulation (GDPR), as well as separate laws specific to the given EU country. Still, EU nations can make their own exceptions to the rules temporarily for emergencies. For example, Italy adopted a decree to address the intersection between the GDPR and COVID-19, the need for processing special categories of personal data and how some data protection rights could be halted to combat the coronavirus.
The GDPR’s ‘Article 6’ says that processing personal data without consent is lawful where it’s necessary for compliance with a legal obligation to protect vital interests of the public interest or protection of an individual. In fact, it also provides specific language on not needing consent for monitoring epidemics, pandemics and their spread or in situation of humanitarian emergencies.
Earlier this month, Human Rights Watch and more than 100 other organizations issued a joint call for legal protections on how government can use digital surveillance, including mobile phone location data, to fight the pandemic. Europe is under intense scrutiny by these groups as there is a scramble to develop coronavirus tracking apps by the European Commission seeking an “EU approach” to contain the disease. As a result, hundreds of researchers from eight countries in Europe have been working on the Pan-European Privacy Preserving Proximity Tracing Project (PEPP-PT) to develop a single app that any county can use and would be compliant with EU privacy laws.
While there’s no main data protection law at the federal level in the United States like those in Europe benefit from (like GDPR), there are several federal and state laws that offer privacy protection to certain types of data, like health information, employment, and location data.
As the U.S. continues to control the spread of the virus and develop plans to potentially reopen the economy, government agencies have put in place – or contemplated – a variety of tracking and surveillance tech that examines the limits of personal privacy.
Everything from geolocation tracking that oversees the locations of people through their mobile devices to facial-recognition programs that analyze pictures to determine who may have come into contact with those who later test positive for the coronavirus. In fact, we know that data- mining firm Palantir Inc. has worked with the Centers for Disease Control and Prevention (CDC) to model the virus and its outbreak and continue to do so.
This is leading to the tech industry and government officials to struggle in finding a balance between the deployment of technology and safeguarding patients’ data, specifically medical information. At the same time, privacy advocates worry that little has been announced about what has already been implemented or about to be deployed as governors across the country determine when and how to reopen their states.
Healthcare and location data biggest concern in U.S. Just like in the EU, the United States has issued guidance on privacy and data security relating to COVID-19. The Department of Health and Human Services (HHS) has waived sanctions and penalties against covered hospitals for certain provisions under HIPAA – the waiver includes the requirement to obtain a patient’s consent before speaking with friends or family members about care, the requirement to distribute a notice of privacy practices, the patients right to request privacy limitations and the patients right to request confidential communications.
As the crisis continues in the United States, additional guidance is being issued – and is needed – by local, state and federal agencies.
The U.S. does have The Health Insurance Portability and Accountability Act Privacy Rule which protects the privacy of a patient’s health information. Although, its protections aren’t unconditional. Just this last February, the U.S Department of Health and Human Services released a “Bulletin” outlining when disclosure of health data is permitted. It includes for public health reasons and “to prevent an imminent threat.”
The U.S. Constitution, specifically the Fourth Amendment, also protects certain expectations of privacy, including one’s physical location. Reference Carpenter vs. U.S., for example. The Supreme Court looked at how to apply the Fourth Amendment to cell phone records, particularly cell-site location information (that looks at a person’s past movements). The government had obtained the records as part of a criminal investigation. They argued Carpenter shouldn’t have an expectation of privacy because he voluntarily provided it to third parties (cell phone carriers).
But the Supreme Court ultimately ruled that the government invaded Carpenter’s reasonable expectation of privacy when it accessed cell-site location information from wireless carriers.
It is likely that, as the number of COVID-19 cases continue to exist creating the need for contact tracing, there will be more discussion in the U.S. on privacy interests like discussed in the Carpenter case. As such, the need to quickly address it because of this public health issue seems likely as well.
It’s evident that contact tracing and testing technology will very much play a role in forming a sound, strong recovery strategy.
Understanding what our privacy laws require in specific situations, like pandemics or public emergencies, as well as how they are applied are going to be crucial to continue managing COVID-19 and reopening our economies.
By tapping into people’s phones and medical records, researchers and public health authorities are hoping to quickly identify potentially infected patients and curb the pandemic. In fact, already, the federal agency in the United States in charge of policing data breaches announced it will back off enforcement of some privacy rules to make it easier for healthcare facilities and their vendors to share patient records with public health officials.
With the scaling back of these health privacy rules – and justifying them during a crisis – it does raise the question of what happens when the pandemic ends.
Will life return to normal or will we redefine what we historically knew as our right to privacy? Will we have another version of the Patriot Act in the United States? Will we have countries around the world tracing their citizens movements freely under the excuse of this pandemic?
And, in a more positive note, how will countries across the globe learn from one another to develop best practices for tracking diseases that, hopefully, respects our privacy?
John Neocleous is the Founder and Managing Partner of NCI Law Group, a multinational law practice in the United States, United Kingdom and Switzerland.
In today's electronic world, there are several new instances of sophisticated financial fraud. Some cases are easier to detect, however, in an increasingly uncertain economic environment, mostly because of the unease of the US Dollar and the increasing strength and influence of the Euro. This has resulted in “banking instrument” fraud becoming increasingly common. I decided to write this article because as an international tax lawyer my offices have been receiving more than a dozen requests per month from honest clients looking to make money with a “sophisticated project” simply to discover that the “project” was on par with letters from Nigeria that promise unclaimed fortunes to appear on your doorstep because a dying uncle mentioned you in his will. I also compiled the list below with help from other credible sources I found on the internet.
In general, if you are approached to make a high yield income investment or to become involved in the prime bank investment fraud, then you should carefully look at the documentation that you are asked to sign and always use the advice of an experienced professional such as an accountant or a lawyer. Such documents are normally filled with meaningless legal gibberish that are relatively easy to spot if you are dealing with fraudsters.
Some of the typical phrases you should look for are set out below. Some of them are meaningless and have no legal definition, but they were inserted into the documents or proposal in order to impress unsuspecting investors:
If you see two or three of the above all in one document, then you ought to seriously consider whether or not fraud is involved and take reputable independent legal advice.
Usually, Russian companies would pay 35 percent tax on profits, plus a 20 percent VAT tax, and a 40 percent tax for social security and employee benefits, in Russia. However, when Russian business is structured in a way that a Cyprus company owns it (which does not require any physical presence in Russia), all its profits will be legally transferred to Cyprus and is liable for only a 4.5 percent tax on profits and a 15 percent VAT tax. Russian business escapes the 40 percent tax for social services, accordingly. This tax advantage makes it possible to channel profits in the form of dividends at a reduced rate.
As for example, a Cyprus Holding company can be used for international investment purposes. Basically, it is use of the tax incentives and the treaties for the avoidance of double taxation. The most important advantage of a Cyprus Holding Company is that the dividends received by the foreign company can flow totally tax free in Cyprus through the Holding Company, avoiding in this way the payment of any tax on dividends. Furthermore, payments made to non-Cyprus Resident Shareholders there is zero (0) withholding tax, so the Shareholder receives the dividends absolutely tax free.
Payment of interest on loans is another advantageous method for Russian businesses. Under the Cyprus Law, Russian Company partly owned by Cypriot Company and paying its interest on loans to the Cypriot company, effectively minimizing its taxation. However, the interest payments are not necessarily will be paid to the Cyprus Company. It is the most effective method which allows Russian company to avoid almost all its tax payments.
Russian businesses which structured into a Cypriot company for maintaining its business activities within territory of Russia, are able to transfer their revenue earned in Russia abroad in the form of dividends and interest, at considerable tax savings. Companies registered in Cyprus jurisdiction pay lower taxes than those paid in Russian jurisdictions.
All the above mentioned structures are based on "Cyprus economic zone” of reduced taxation and perfectly legal, furthermore its tax advantage may be enhanced even more when, under certain circumstances, is combined with other jurisdictions in appropriate legal structures.
In the last 30 years Cyprus has developed into a reputable international business and financial center due to the very favorable tax regime that the island offers. The admission of Cyprus to the European Union as full member in May 2004, established Cyprus as a prestigious, stable and attractive jurisdiction.
Though the offshore company status was abolished as from January 1, 2003 the favorable tax regime for the international investor has been maintained. In addition, the liberalization of investments coming from non-EU countries and the abolition of maximum and minimum participation percentages in investments in all the sectors of the economy in October 2004 (unless it is otherwise provided by the Law), has transformed Cyprus into a major destination for the location of international, holding companies and worldwide investments.
Cyprus is one of the most advantageous places of residency for Russian and Ukrainian companies. It offers a high level of banking, auditing, accounting and legal services, as well as its real estates, which developed Cyprus into a successful international business and financial center.
Some of the main factors and advantages which secure Cyprus’ attractiveness to international businesses and investments are the following:
One of the mentioned above factors is a double taxation treaty between Russia and Cyprus, which provides to Russians many tax advantages. Agreement was signed between Russia and Cyprus for the avoidance of double taxation with respect to taxes on income and capital, back on 17 August 1999. The treaty provides for either the exemption of income in the source country or the provision of tax credit in respect of the foreign tax paid by the country of tax residence.
The case of Onoufriou v Turkey is part of a number of pilot Cases brought upon by Greek-Cypriot refugees against the Turkish Government and will be presented by Mr. Andreas Neocleous and Mr. Ioannis John Neocleous before the European Court of Human Rights in Strasbourg.
On April 23rd 2008, the European Court of Human Rights (ECHR) decided that the applicant could not be deemed to have lost entitlement to his property.
Displaced Greek Cypriots such as the applicant may apply for compensation to the Court for losses due to the denial of access to and loss of control, use, and enjoyment of his property.
Thirty-two petitions of Greek Cypriot refugees against Turkey have been accepted by the European Court of Human Rights and will be examined soon.
Eight more applications will follow, which are considered pilot cases for determining the future of the so called compensation committee. This committee has been set up in the Turkish occupied areas of Cyprus, and it hopes to become an effective domestic remedy for Greek Cypriots, who must first apply with regards to claims on their property.
Apart from the above cases, 1.500 additional petitions are pending before the ECHR. The Court decided to freeze them in view of the decisions to be taken regarding the eight pilot cases.
Cyprus has been divided since 1974 when Turkey invaded and occupied its northern third.
At the present time, Neocleous & Neocleous Law Firm (NCI Law Group’s Cyprus Office) is handling over 15 cases which are currently under the consideration of the European Court of Human Rights (ECHR).
According to the International Association of Insurance Fraud Agencies (I.A.I.F.A.), Insurance Fraud is recognized internationally as a multi-billion dollar problem, and Canada is no exception to this nemesis. One should ask what exactly constitutes an insurance fraud? Some circumstances where a court of law will find an insured’s claim to be fraudulent include those where the insured claims for items that do not exist, increases the value of the property or goods that were damaged, claims for goods that are not damaged, falsifies documents as part of his claim, or makes false oral representation.
A misrepresentation has been defined as a false representation of facts, circumstances or information.
A false representation is fraudulent if made: (1) knowingly, (2) without belief in its truth, or (3) recklessly without care whether it be true or false.
The basic common law principles governing misrepresentation and fraud in proofs of loss are summarized in Britton v Royal Insurance Co.:
“A [fire] insurance policy is a contract of indemnity; that is, it is a contract to indemnify the insured against the consequences of a fire, provided it is not wilful. Of course, if the insured set fire to his house, he could not recover. That is clear. But it is not less clear that, even supposing it were not wilful, yet as it is a contract of indemnity only, that is, a contract to recoup the insured value of the property destroyed by fire, if the claim is fraudulent, it is defeated altogether. That is, suppose the insured made a claim for twice the amount insured and lost, thus seeking to put the [insurer] of its guard, and in the result to recover more than he is entitled to, that would be a wilful fraud, and the consequence would be that he would not recover anything… The law is, that a person who has made such a fraudulent claim could not be permitted to recover at all.
” It is therefore fraud if one makes a statement of fact about which he knows he is ignorant5 , or if he decides to inflate the claim and make a profit out of it.
The test for determining if a claim is fraudulent or not, as it was mentioned earlier in this paper comes from the British case of Derry v Peek:
“Fraud is proved when it is shown that a false representation has been made: (1) knowingly, or (2) without belief in its truth, or (3) recklessly, carelessly whether it be true or false.
This test was subsequently adopted both by the Supreme Court of Canada, in the case of Redican v Nesbitt7 , and courts in British Columbia in the cases of Kruska v Manufacturers Life Insurance Co. , and recently in McLean v Paul Revere Life Insurance Co. and Original Leather Factory Ltd. v Wellington Insurance Co.
In several cases where the insurer proved that the insured made a false or misrepresented claim, the insured could claim that the false statement or misrepresentation was not made knowingly, and therefore he could not be found guilty of fraud. This meant that the courts either had to decide on the basis of the evidence of each individual case, or find a reasonable formula that they could apply in each case.
The decision in Derry v Peek provided the Canadian courts with the test for determining whether a misrepresentation or a false statement was made knowingly by applying an objective test, i.e. trying to determine whether a reasonable man would actually behave in the same way as the insured. It is stated:
“Whether it is necessary to arrive at a conclusion as to the state of mind of another person, and to determine whether his belief under given circumstances was such as he alleges, we can only do so by applying the standard of conduct which our own experience of the ways of men has enabled us to form; by asking ourselves whether a reasonable man would be likely under the circumstances so to believe
Generally, the onus of proving fraud is on the insurer12 who must establish it on the balance of probabilities. This was clearly illustrated in the case of Hanes v Wawanesa Mutual Insurance Co., by the Supreme Court of Canada, where Ritchie J. stated:
“When a right or defence rests upon the suggestion that the conduct is criminal or quasi-criminal the Court must be satisfied not only that the circumstances are consistent with the commission of the criminal act but that the facts are such as to make it reasonably probable, having due regard to the gravity of the suggestion, that the act was in fact committed.”
In essence, while the Court recognizes the degree of probability within the standard, depending upon the seriousness of the case, and notwithstanding that the fact alleged involves criminal conduct, the burden of proof remains on the balance of probabilities.
However, as it was stated in Continental Insurance Co. v Dalton Cartage Ltd., it is clearly accepted that in Canada the courts are “scrutinizing evidence with greater care if there are serious allegations to be established by the proof that is offered.18” This was illustrated in an earlier case decided before the Ontario Court of Appeal. In
Adams v Glen Falls Insurance Company, Meredith C.J.O. for the Ontario Court of Appeal stated that:
“The evidence ought, if not such as would warrant conviction for fraud and perjury, to be at least clear and satisfactory and leave no room for any reasonable inference but that of guilt.”
In Continental, Laskin C.J.C. adopted the words used by Lord Denning in Bater v Bater:
“It is true by our law there is a higher standard of proof in criminal cases than in civil cases, but this is subject to the qualification that there is no absolute standard in either case. In criminal cases the charge must be proved beyond reasonable doubt, but there may be degrees of proof within that standard. Many great Judges have said that, in proportion as the crime is enormous, so ought the proof to be clear. So also in civil cases. The case may be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject-matter. A civil court, when considering a charge of fraud, will naturally require a higher degree of probability than that which it would require if considering whether negligence were established. It does not adopt so high a degree as a criminal court, even when it is considering a charge of criminal nature, but still it does require a degree of probability which is commensurate with the occasion."
This standard of proof for insurance fraud cases is therefore different from a normal criminal case where the charge must be proved beyond reasonable doubt. However, it does not mean that in insurance fraud cases there is an “infinite variety of a standard of proof22” which varies on an ad hoc basis according to the subject matter at hand. What will vary is simply the amount of evidence required to satisfy the burden of proof.
In British Columbia, the approach of the Courts was summarized in Tumbers Video Ltd. v INA Insurance Co. of Canada:
“Where fraud is alleged in an insurance claim, the onus is initially on the defendant insurance company to prove fraud and the Court will require a higher degree of probability than that which it would require if considering whether negligence were established.”
A finding of fraud renders a contract voidable at the option of the injured party. The injured party may rescind the contract and recover back what he gave. Even though the right to rescind cannot be exercised if the other party cannot be restored to his status quo, that does not mean that he must be placed literally in as good a position as he was at the beginning of the contract.
In Canada, where the fraud that is proved relates only to part of the claim, (and where statutory or policy provisions state that only the claim and not the whole policy is avoided,) the entire claim is vitiated. Note that although fraud will disentitle the insured from any further compensation, if the insured has filed an interim proof of loss that was not fraudulent and the insurer pays funds on the strength of that document, subsequent fraud, even relating to the same loss, will not allow the insurer to recover the money paid.
A finding of innocent misrepresentation, will not totally preclude an insured from recovering. In the case of Chapman v Pole it was held that:
“A man may make a mistake in his claim and it may be quite honestly. If for instance a man either fails to recollect the precise quantity of goods he has on his premises at the time of the fire, or mistakes the value of those of which he was in possession, and thus he presses a claim according to what he believes honestly to be true, but which may, in the end, turn out to be mistaken, the only consequence which ensues is, that inasmuch as the contract of insurance is simply a contract of indemnity, he can only recover to the extent of the real value of the goods which he has actually lost."
Uberrima fides is defined as “a phrase used to express the perfect good faith, concealing nothing, with which a contract must be made; for example in the case of insurance, the insured must observe the most perfect good faith towards the insurer."
Formulated by Lord Mansfield in 1766 in the case of Carter v Boehm, the doctrine affirms the necessity of utmost good faith in an insurance contract:
“Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only; the under-writer trusts to his representation, and proceeds upon confidence that he does not keep back any circumstances in his knowledge, to mislead the under-writer into a belief that the circumstances does not exist, and to induce him to estimate the risque as if it did not exist. The keeping back such circumstance is a fraud, and therefore the policy is void… The governing principle is applicable to all contracts and dealings. Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary…."
The doctrine of uberrima fides is reciprocal, applying obligations to both the insured and insurer. The extent of the insurer’s presumed knowledge was addressed by the Supreme Court of Canada in Canadian Indemnity Co. v Canadian Johns-Manville Co., where it was held that an insurer could not use his own lack of due diligence as a basis for avoiding a policy. The Court held that if an insurer does not have the requisite degree of knowledge prior to considering a particular risk, then it must acquire that knowledge by means of inquiry or investigation.
The doctrine has generally been considered to apply to the claim stage and not only at the time of the contract formation. This was confirmed by the Supreme Court in Co-operators General Insurance Co. v Porteous where it was stated that:
“The duty to exercise the utmost good faith not only exists at the time when the contract is made but throughout the dealings between the parties both before and after the loss."
The British Columbia Court of Appeal recently tried to restrict the application of uberrima fides, as it stated in Tumbers Video Ltd. v INA Insurance Co. of Canada:
“The concept of uberrimae fidei comes into play in an insurance setting at the time of the formation of the contract of insurance. It plays no part when it comes to an allegation of fraud in the proof of loss. In this case the onus is on the insurer to prove fraud and nothing short of that will do."
It seems that although the doctrine applied for many years both during the formation stage as well as the claim stage, recently the Canadian courts recognized the need to apply stricter rules in the application of the doctrine,and in Coronation Insurance Co. v Taku Air Transport Ltd. where the British Columbia Court of Appeal restricted its application even further on its application to the contract formation stage as well.
Canadian insurance legislation has one more tool in its effort to combat insurance fraud, and this comes through statutory legislation enacted both by the Federal and Provincial Governments. Even though, the Courts usually prefer to follow the precedent set by court cases, statutory legislation exists, and although long in nature, it provides an additional help to the lawmakers. Statutory legislation covers almost every aspect of insurance legislation, but as it is the case with most common law jurisdictions it cannot change become as adoptable or as fast as a court decision.
Some examples of statutory legislation that are related to the cases that were mentioned above are the following: (1) Statutory condition 6 of the Fire Statutory Conditions set out in section 220 of the B.C. Insurance Act the information that an insured under a fire policy must provide to the insurer in a proof of loss verified by a statutory declaration.
(2) In British Columbia, as of September 1997, the Traffic Safety Statutes Amendment Act sets out stiff penalties for driving offences and insurance fraud. The Insurance Corporation of British Columbia will level a fine of $25,000 for a first time fraud conviction by an individual and $100,000 for a corporation’s first insurance fraud offence. The second time around brings fines of $50,000 and $200,000.
Finally, there are some organizations in Canada which are operated with the assistance of the public, and are proving to be of great help in the battle against insurance fraud in Canada.
The Canadian Coalition against Insurance Fraud (CCAIF), an organization consisting of insurers, adjusters and claim managers, was established mainly in order to educate insurance customers about the high cost of insurance fraud for the public at large. “Crime Stoppers” is an international, non-profit civilian program that assists police in solving crime through tips reported by citizens. The cooperation between Crime Stoppers and the Canadian Coalition Against Insurance Fraud is operational in all regions of Canada, except Quebec.
Last year, this innovative alliance between Crime Stoppers and the Canadian Coalition Against Insurance Fraud resulted in 37 arrests, 45 denied claims and has nationally provided the payment of more than $1.1 million worth of fraudulent home, car and business insurance claims.38 There are currently 104 independent Crime Stoppers units across the country. Some examples of tips received include: a backhoe that had been reported stolen, but was in fact buried in the yard of the insured; a boat, also reported stolen, was stored one block away from the insurance industry investigators’ national office. Another tip led to the arrest of a man who had sold his car stereo and then reported it stolen.
Recently, the B.C. Chapter of the Canadian Coalition against Insurance Fraud was established and they estimate that approximately $1.3 billion each year is spent on insurance fraud cases. The message to the public is: “They Cheat/You Pay.”