AIG - GreenBay II - Draft Legal Memo (Compiled)

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To PT AIG Insurance Indonesia

: By
From Lubis, Santosa & Maramis Email
:
Re. Legal Memorandum on Green Bay II
:
Date (*) 2017
:
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Dear Sirs,
In reference to the email of (*), we, LUBIS, SANTOSA & MARAMIS, have
been requested to prepare a Legal Memorandum in connection with
A. LEGAL BASIS
1. (*)
B. LEGAL ISSUES
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1.
C. CONCLUSION
(*)
D. DISCUSSION
1. The Merits of Insurers Current Position Under Indonesian Laws
The merits of the Insurers (AIG) current position under Indonesian

laws and regulations (The Insurers Position) depends on whether
or not losses suffered by the Insured are claimable under the
Policy. The Insurers Position would be deemed strong if the losses
suffered by the Insured (PT KUS) are claimable under the Policy.
Conversely, the Insurers position would be deemed weak if the
losses suffered by the Insured are not claimable under the Policy.
Taking this into account, our explanation in this section will

encompass on whether or not the losses suffered by the Insured
are claimable under the Policy. Further, in order to determine
whether or not the losses suffered by the Insured are
claimable/recoverable under the Policy, Indonesian laws and
regulations recognize the significant role of adjuster. Thus, we
hereby provide you with our explanation on adjuster under
Indonesian laws and its implementation in this case.
1.1. General Overview on Adjuster Under Indonesian Laws and

Regulations
As we have mentioned above, Indonesian laws and regulations

recognize adjuster in relation to claim liability. Although the role
of adjuster is not mandatory, in Indonesian laws and regulations,
once an insurer engages an adjuster, it must comply to the result
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of the adjusters opinion. Based on our discussion with OJK official

on 31 July 2017, the provision is arranged based on the
development in practice whereas many insurance companies
wrongly perform their liability to the insured by not complying to
the adjusters recommendation. Further role of adjuster will be
elaborated below.
The Functions and Authorities of Adjuster Company
Based on Article 4 paragraph (3) of the Insurance Law, an

insurance adjuster company may only engage in the Business of
Insurance Adjuster.1 Pursuant to Article 1 paragraph 13 of the
Insurance Law2, Business of Insurance Adjuster is service business
for the assessment of claim and/or consultation service for
insurance object.
In engaging the Business of Insurance Adjuster, we understand that

an insurance adjuster company must have organization structure
that clearly describes function on insurance loss technical
3
assessment. In dealing with this function, an insurance adjuster
company must hire at least 1 (one) expert with authorities to, inter
alia:4
1
Article 4 paragraph (3) of the Insurance Law: Insurance adjuster company may only engage
Business of Insurance Adjuster.
2
Article 1 paragraph 13 of the Insurance Law: Business of Insurance Adjuster shall be
business of claim assessment service and/or consultation service on insurance object.
3
Article 13 paragraph (2) of OJK Regulation No. 68/2016 on Business Permits and
Organizational Structure of Insurance Broker Company, Reinsurance Broker Company and
Insurance Adjuster Company: Insurance adjuster company must have organization structure
that clearly describes at least function on:

b. insurance loss technical assessment;

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a. Conclude the responsibility of an insurance policy on an

insurance loss; and
b. Conclude the amount of the insurance indemnification.
That is to say, in engaging the Business of Insurance Adjuster, an

insurance adjuster company is authorized to conclude the
responsibility of an insurance policy on an insurance loss and the
amount of the insurance indemnification. This is also in
accordance with the Attachment of the Minister of Manpower and
Transmigration Decree No. 141 of 2013 Minister Decree No.
141/2013 which specifies that the main functions of an insurance
adjuster company are: 5
a. Gathering data and information;

b. Concluding policy responsibility;
c. Concluding the amount of indemnification;
d. Preparing report on the assessment on insurance
indemnification.
Here, we understand that in order to conclude the responsibility of

an insurance policy, an insurance adjuster company must first
determine the scope of risk covered under an insurance policy. If
4
Article 23 of OJK Regulation No. 70/2016: Expert in Insurance Adjuster Company as referred
to in Article 14 paragraph (1) has the following authority:
a. concluding the responsibility of an insurance policy on an insurance loss;
b. concluding the amount of insurance indemnification;

Article 14 paragraph (1) of OJK Regulation No. 70/2016: Insurance Broker Company,
Reinsurance Broker Company, and Insurance Adjuster Company in engaging with their
respective activity must have Expert that in accordance with their respective business field
and competence.
Article 39 paragraph (3) of OJK Regulation No. 68/2016: Expert of Insurance Adjuster
Company as referred to in paragraph (1) placed on responsible unit on loss assessment
technical function.
5
Chapter II, Section A, page 27 of the Attachment of Minister Decree No. 141/2014.
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the occurred damages or losses are within the scope of risk

covered under the insurance policy, the insurance adjuster
company will conclude that such risk falls under the insurance
policys responsibility. Taking this into account, one may conclude
that an adjuster insurance company has the authority to determine
the scope of risk covered in an insurance policy.
Our view above has also been confirmed by OJK, i.e. an adjuster
company has the authority and function to determine whether or
not a risk is covered under the insurance policy.
Legal Consequences of the Insurance Company (Insurer)

Appointing an Adjuster Company
The legal consequences of the above can be seen from 2 (two)

perspective, namely: (a) the perspective of the Insurer; and (b) the
perspective of the Insured.
(a) From the Perspective of the Insurer
The legal consequence from the perspective of the insurer is

the insurer will be bound to the result of the insurance adjuster
companys assessment on the occurred damages or losses (the
Adjuster Report).
It is noteworthy that pursuant to Article 37 paragraph (2) of OJK

Regulation No. 69/2016, an insurance company (insurer) has the
right to appoint an insurance adjuster company to conduct an
assessment to a claim filed by an insured.6
Under Article 37 paragraph (3) of OJK Regulation No. 69/2016, in

condition where an insurance company engages an insurance
6
Article 37 paragraph (2) of OJK regulation No. 69/2016: The Insurance Company or Syariah Unit may appoint an
insurance adjuster company to have an assessment on the filed claim.
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adjuster company, the said insurance company will be

prohibited to disregard the result of the Adjuster Report, unless
there is a strong argument to do so. In other words, principally
an insurance company is obliged to comply with the Adjuster
Report. The following is the citation of Article 37 paragraph (3)
of OJK Regulation No. 69/2016:
In case the Insurance Company or Syariah Unit use an

insurance adjuster company as mentioned in paragraph (2), the
Insurance Company or Syariah Unit is prohibited to disregard
the result of loss assessment without basing it on a strong
argument.
Furthermore, in the event that an insurance company does not

comply with the Adjuster Report, Article 77 paragraph (1) of
OJK Regulation No. 69/2016 stipulates that the insurance
company can be imposed with administrative sanctions
consisting of:
(i) Written warning;

(ii) Limitation of business activities; and
(iii) Nullification of business permit;
(b) From the Perspective of the Insured
The Indonesian laws and regulations are silent in this regard.

However, please note that the Insured is supposed to concur
with the Adjuster Report since:
(i) The Adjuster Report in principle must be in a form of

neutral and impartial result and cannot tend to the
insurance company position7;
7
Even though the insurance adjuster company is paid by the insurance company as the employer.
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(ii) The Adjuster Report is ought to be made for the favor of

both the Insured and the Insurer.
The above is in accordance with code of ethics and code of

conducts of insurance adjuster company stipulated in Code of
Ethics, Code of Conduct and Work of Guidance made by
Association of Indonesian Insurance Adjuster (Asosiasi Penilai
Kerugian Asuransi Indonesia/APKAI) as follows:
Code of Ethics:
3. Insurance Adjuster in conducting its business activity has

to at all time preserves impartiality and protects itself from
any conflict of interests with its profession.
Code of Conduct:
(iv) Insurance Adjuster must free itself from any partys

influence.
(v) Insurance Adjuster seeks its best effort thus the loss
assessment performed by the Insurance Adjuster can be
agreed by the Insurer and the Insured.
Therefore, it is worth noting that the result of Adjuster Report

ideally involved the role and interest of the insured. However,
the insurance adjuster company has no obligation to report the
result of its adjustment to the insured (Article 43 OJK
Regulation 70/2016), except:
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(i) the claim or the interest is rejected by the insurance

company; or
(ii) there is no agreement regarding the amount of indemnity.
In insurance practice in Indonesia, the result of adjustment

report generally will be relied as the parameter for claim
settlement both for insurer and insured. Additionally, in an
insurance policy, several insurance adjuster companies would
be nominated in case of occurrence of the fortuitous event
(losses or damages). The foregoing will be determined by the
consent of both insured and insurer. Thus, it should be
understood that the result of adjustment report should have
accommodated the interest of insurer and insured.
Based on all of the above, it is clear that in case the insured files a
claim to the insurer, the assessment (report) from an insurance
adjuster company should be (i) the basis to determine whether or
not a claim from an insured is claimable; and (ii) complied by both
insurer and insured.
1.2. Crawford as the Adjuster Appointed by the Insurer
We understand that based on Point 16 of the Policy Endorsement, in

case of claim from the Insured, the Insurer must appoint an
adjuster to assess the claim. In this case, the Insurer has
appointed Crawford to be the Insurers adjuster.
Since the Insurer has appointed Crawford as their adjuster,

therefore under Article 37 paragraph (3) of the OJK Regulation, the
Insurer must comply to Crawfords report related to claim
assessment based on the Policy.
1.3. Crawfords Reports
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Referring to Point 1.1. above, since it is clear that under Indonesian

laws and regulations, a report from an insurance adjuster company
has significant role, we are of the view that it is necessary to
assess the reports produced by Crawford (the insurance adjuster
company appointed by the Insurer).
To the best of our understanding, to date, Crawford has issued a

Preliminary Report and 8 (eight) Interim Reports (Crawfords
Reports). Based on our reading to Crawfords Reports, we learn
that there are 3 (three) important points under Interim Report No.
6, as follows:
a) Cause of Damage
We learn that Crawford has appointed Dr. Julian Siedel of

Foundation Specialists Group Pty Ltd to evaluate and
investigate the cause of damage on Insurers behalf. He is
basically of the view that the cause of damage are the
inappropriate method used by the Contractor to calculate
settlement and also the incorrect application of the chosen
method. Further, at the said report it is stated that the Insured
has confirmed that it could accept the explanation in Dr. Julian
Siedels report.
Since we understand that the Insurer has no objection toward

the report, we may conclude that in principle both Insurer and
Insured have been agreed with regard to the cause of damage.
b) Policy Liability
As we understand, Section 1 Material Damage of the Policy

states the following:
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"The Insurers hereby agree with the Insured that if at any

time during the period of cover the items or any part
thereof entered in the Schedule shall suffer any unforeseen
and sudden physical loss or damage from any cause other
than as specifically excluded, in a manner necessitating
repair or replacement, the Insurers will indemnify the
Insured in respect of such loss or damage as hereinafter
provided by payment in cash, replacement or repair (at
their own option) up to an amount not exceeding in respect
of each of the items specified in the Schedule the sum set
opposite thereto and not exceeding in any one event the
limit of indemnity where applicable and not exceeding in all
the total sum expressed in the Schedule as insured
hereby".
By referring to Section I Material Damage above, Crawford

concludes that the damage or loss due to cause as referred to in
Point (a): (i) occurred within the cover period 8; and (ii) can be
considered to fall under the policy.
However, in this Report (along with other Reports reviewed)

there are no elaborations and/or clarifications on other
significant elements in Section I Material Damage such as
...unforeseen and sudden physical loss or damage....
c) Payment on Account
In its report, Crawford refers to [Pasal ...] Payment on Account

Clause providing that:
8
Interim Report No. 6 dated 23 May 2016 page 6: The loss falls within the period from 25th
July 2011 to 31st July 2015 (after endorsement).
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it is hereby declared and agreed that progress payment on

account of any loss recoverable under this policy will be made
to the Insured at such stages..
Further, Crawford states that if the Insurer wish to make a

payment on account, Crawford suggests an advance payment in
the amount of IDR5,000,000,000 would be appropriate and the
Insurers ultimate liability will exceed this amount.
1.4. Analysis on the Insurers Position
Considering all of the above and current circumstances, we are of

the view that the loss suffered by the Insured is claimable under
the Policy, due to the following reasons:
a. Pursuant to Article 37 paragraph (3) of OJK Regulation No.

69/2016, the insurers liability will be determined by the
adjusters recommendation. Based on the provision, the
insurer shall not disregard the adjusters recommendation.
Apply to the case, the Insurer must comply with Crawfords
Interim Reports.
b. As Crawford has advised the Insurer to pay an interim payment

in the amount of IDR5,000,000,000, it can be concluded that
the claim is defined as recoverable by the following reason:
Under Article 37 paragraph (3) of OJK Regulation No. 69/2016,

the Insurer is prohibited to disregard Crawford Interim Reports
as the appointed adjuster. Crawford in its Interim Report No. 6
has advised the Insurer to pay interim payment to the Insured.
Further, in the said Report, Crawford has stated as follows:
The Policy is endorsed with a Payment on Account Clause

(25% of probable loss amount), which states that: It is hereby
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declared and agreed that progress payment on account of any

loss recoverable under this policy will be made to the Insured
at such stages as may be mutually agreed upon if designed by
the Insured and on production of an interim report by the loss
adjuster (if appointed) provided that such payment are
deducted from the finally agreed claim settlement figures.
As noted above costs have been incurred in respect of

structural work, architectural work and MEP work. Further to
our email instructions of 12th May 2016, our enquiries are
continuing however, if Insurers wish to make a payment on
account at this time, we would suggest an advance payment
(in lump sum amount) of Rp 5,000,000,000.- would be
appropriate at this time and that Insurers ultimate liability
will exceed this amount.
Based on the foregoing, we may learn that Crawfords Interim

Reports has deemed the Insureds claim as recoverable
because Crawford has advised the Insurer to pay interim
payment by referring the clause of Payment on Account in the
Policy. Furthermore, the Insurer has made the interim payment
and such payment has been acknowledged by the Insured
through Declaration of Acceptance dated 3 June 2016.
The clause of Payment on Account in the Policy provides that

such payment are deducted from the finally agreed claim.
Therefore it is clear that the interim payment is an
acknowledgement that there would be an amount of agreed
claim further to the current interim payment amount pointing
to the claim is payable. In addition to that, the Declaration of
Acceptance dated 3 June 2016 stated that the payment is
made in respect of material damage resulting from cracking
and excessive settlement. We understand that material
damage resulting from cracking and excessive settlement is
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the loss confirmed by Dr. Julian Siedel and agreed by the

Insurer and Insured. Taking this into account, the interim
payment made by the Insurer can be considered as an
acknowledgment to the existence of loss agreed and covered
under the Policy. Thus, one may conclude that the Insureds
claim is recoverable or claimable.
Based on all of the above, since the Insureds claim is recoverable,

then we are of the view that the current Insurers position is
relatively weak.
2. Pre-Litigation Advice and Strategy
2.1. Lawsuit: Breach of Contract
There is possibility that the Insured will file a breach of

contract lawsuit. The purpose of such claim is to obtain a
court judgment ordering the Insurer to pay insurance claim
and other damages as specified under Article 1243 of the Civil
Code, which we quote as follows:
Compensation for costs, damages and interests for the

breach of an obligation only becomes obligatory, if the debtor,
after having been declared to be in default, remains in default,
or in case of obligations where he/she must give or produce
something, is only given after the lapse of a period of time.
In order for such breach of contract claim to be granted, the

insured must be able to establish facts that the insurer has
been in breach of its obligations as well as other undertakings
under the policy. Considering the Crawfords Interim Report
No. 6 which concluded that: (i) the damage or loss has
occurred within the cover period; and (ii) the damage can be
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considered to fall under the policymeans that the insurers

obligation to pay insurance claim to the insured must not be
violated.
Should the insurer refused to pay such claim, considering the

fulfillment of such several elements in Section I Material
Damage of the policy i.e. the damage or loss has occurred
within the cover periodthe insured may argue that the
insurer has been in breach its obligations under the policy for
refusing the payment of insurance claim. However, we see that
the interpretation of the policy cannot be considered
completed until Crawford issued its final report.
In addition to the fulfillment of Section I Material Damage of

the policy elements, the Insured also may argue that the
insured has satisfied its obligation wherein the insured has
completed the premium payment under the policy and entitled
to receive indemnity for the restoration of cracking and
excessive settlement costs.
Payment on Account Clause
As we explained in number 1 paragraph (c) above, we may

learn that Crawfords Interim Reports has deemed the
Insureds claim as recoverable since Crawford has
recommended the Insurer to pay interim payment by referring
the clause of Payment on Account in the Policy. The clause of
Payment on Account in the Policy provides that such payment
are deducted from the finally agreed claim. Therefore, it is
clear that the interim payment is an acknowledgement that
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there would be an amount of agreed claim further to the

current interim payment amount pointing to the cracking
claim is payable.
Applied to this case, should the Insurer refused to make full

amount of insurance claim payment by the above
acknowledgement of cracking claim; breach of contract
lawsuit may be brought by the insured based on violation of
the payment on account clause. Subsequently, there is
possibility that the Declaration of Acceptance dated 3 June
2016 (DoA)as an acknowledgement by the insurer will be
served as evidence in court proceedings since the DoA can be
considered as an acknowledgement that there would be an
amount of agreed cracking claim further to the current interim
payment amount.
Defense Strategy
Based on the above elaboration, we noted that the interim

payment was only made as an acknowledgement for the
cracking restoration claim. In order to strengthen our
argument, we may produce an email from Crawford to AIG
dated 20 May 2016 as evidence in court proceedings in order
to explain that the interim payment was only made for the
cracking claim scope. This evidence can be strengthened our
argument that the excessive settlement claim would not be a
part of such acknowledgement stated in the DoA.
In addition to the above, we may also challenge the fulfillment

of the clause policy interpreted by the insured. Based on
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Crawfords reports provided to us, we are of the view that the

interpretation of such element has not been completed. The
clause may only be further interpreted by the relevant experts
and supported by technical aspect assessment. In relation to
determine whether or not the claim is recoverable, under
Indonesian laws, the Insured shall waiting for the final report
from the adjuster in order to conclude the assessment on the
fulfillment of the insurance policy clause.
Considering significant role of the adjuster assessment under

Indonesian laws, we also advised that the preparation of
subsequent adjuster reports should involves legal counsel
opinion thus next/final report will be strengthened the
insurers position that the payment on account made by the
insurer through the DoA only limited to the cracking claim.
Should the final report support our defense argument; it can
be served as evidence in the court proceedings.
With regard to the above, should the Insured submits the

lawsuit before the final report from adjuster issued, we can
have a defense point where the lawsuit is premature. In
Indonesian civil proceeding, after the court examination is
commenced, the defendant has opportunity to present its
defense points by way of Reply to the Lawsuit. If the
arguments is considered and accepted by the court, then the
plaintiffs claim can be deemed as admissible.
In light of this issue, we refer to Crawfords Interim Report No.

[...] whereas Crawford states that at this stage Arup is still
working and reviewing the risk occurence and has yet to
conlcude whether or not the claim submitted by the Insured is
recoverable/claimable. It is clear that the assessment on the
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Insurers liability to the Insured has not been finished,

therefore, pursuant to OJK Regulation No. [...], the Insurer is
not in position to declare whether or not the Insureds claim is
recoverable/claimable. In conclusion, any claim raised with
regard to the Insurers liability at this point can be deemed as
premature.
2.2. Lawsuit: Unlawful Act
Although the probability is minor, it is worth to be considered

that the Insured will attack the Insurers with unlawful act
pursuant to Article 1365 of the Civil Code . This circumstance
comes from the nature of the Insureds Letter dated [lalala]
No. [lalala] through its lawyer.
We are aware that in the said Letter, the Insured stated that
the Policy Endorsement has not comply with Indonesian
Regulation which in this case refers to OJK Regulation No.
23/POJK.05/2015 (OJK Regulation No. 23/2015) regarding
[lalala]. Two points raised by the Insured are as follows:
(i) Clarity of the Policy

The Insured states that Article 19 paragraph (1) of OJK
Regulation No. 23/2015 requires Insurance Policy to be
drafted clearly so that it can be easily understood by the
Insured and in the event there is an exclusion of the
insurance coverage under the Policy it must be printed in
bold or Italic;
(ii) Language of the Policy
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The Insured states that Article 20 of OJK Regulation No.

23/2015 requires Insurance policy in Indonesia to be in
Indonesian Language or in bilingual format.
Other than Article 20 of OJK Regulation No. 23/2015,

obligation to use Indonesian Languange or bilingual
format is also stipulated in Article 31 paragraph (1) of Law
No. 24 of 2009 regarding the Flag, Language, National
Emblem, and National Anthem9. We anticipate that the
Insured may also consider this provision has been
breached by the Insurer in relation to the language of the
Policy.
Having said the above, the unlawful act of the Insurers which
is potentially claimed by the Insured is: the Policy does not
satisfy validity requirements for an agreement under the fourth
paragraph of Article 1320 of the Civil Code, namely legal
cause. The element of legal cause requires the Policy shall
not be prohibited by law or not contrary to the law, morality or
public order.
Applied to the case, we are of the view that the Policy can be
deemed in contrary to Article 19 paragraph (1) and Article 20
of OJK Regulation No. 23/2015, thus considered as unlawful
act. It can be expected that such arguments will be followed
by request for cancellation/annulment of the Policy.
You might recall our opinion in the previous Memo, whereas

the likelihood for the Insured to attack the Insurers with
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unlawful act lawsuit is slightly small. The legal consequence

of an insurance policy being annuled/cancelled is that the
rights and obligations between the parties (Insured and
Insurers) would revert back to its original state or in other
words it would be deemed that the insurance policy never
existed. This circumstance will lead the Policy being declared
void where on such grounds, the Insured can be deemed as no
longer having the right to make an insurance claim from the
Insurer since the (hubungan pertanggungan) between both
parties has been terminated.
Regardless, should the Insured will go for the Insurers with

unlawful act lawsuit, the petition that can be filed by the
Insured against the Insurers is for the refunding of all premium
payments completed by the Insured. In addition to this, refers
to the element of compensation in Article 1365 of the ICC, a
plaintiff in unlawful act lawsuit can also request compensation
for loss resulting from the defendants act. In practice, such
compensation includes material loss and immaterial loss.
Material loss covers direct loss suffered by the plaintiff as the
result of the act of the defendant. Where immaterial loss
covers (pengertian dan batasan jumlah). However, based on
case precedent in Indonesia, there is very small likelihood that
immaterial loss can be granted by judges.
It is also noteworthy that the premium completed by the

Insured is in the amount of IDR [...] which is far under the
amount of the claim arising out from the loss. Thus, the
Insured will likely prefer the lawsuit based on Breach of
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Contract to obtain the insurance claim rather than refunding

their premium.
2.3. Lawsuit Against the Co-Member Directors (Separately)
Before addressing the issue, we would like to explain the

principle of point daction point dinteret under Indonesian
laws and regulations. Based on this principle, a plaintiff may
have the right to file a claim against a defendant if such
plaintiff has a legal interest or legal relation with the
defendant.10
Considering the foregoing, if the Insured wish to file a lawsuit

against the co-member directors, then the Insured must firstly
prove that the Insured has a legal relation with the co-
members of directors.
In this case, we understand that the Insured entered into CAR

Insurance Policy with the Insurer which consists of several
insurance companies in the form of limited liability companies;
therefore the Insured has a legal relation, i.e. contractual
relation with the Insurer, not the organs, in this case, directors
of the Insurer (co-member directors).
Under Law No. 40 of 2007 on Limited Liability Companies

(Company Law), a limited liability company is a legal entity
which has rights and obligations has its own organs, i.e.
directors, commissioners and general meeting of
11
shareholders. In performing a legal action, e.g. entering into
an agreement, a limited liability company uses its organs, and
10
Supreme Court Judgment No. 294 K/Sip/1971 dated 7 July 1971: a lawsuit must be filed against parties having
legal relations.
11
Article 1 paragraph 2 of the Company Law: Organ of the Company is the General Meeting of Shareholders,
Board of Directors and Board of Commissioners.
20
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this shall mean such company can enter into an agreement

with other party or legal entity under its own name/identity.
However, please note that, basically, a board of directors of a

company cannot be sued (does not liable) due to an agreement
made for and on behalf of a company. This is because such
company is a separated legal entity with its organs.12
Applied to this case, the Insured has entered into the Policy
with the Insurer who consists of several limited liability
companies. Thus, the Insured only has a legal relation, i.e.
contractual relation with the Insurer (as limited liability
companies)--not with the management or directors of the
Insurer. If the Insured wishes to file a claim, then the correct
addressee of such claim should be the Insurer being the
Insureds counter-party under the Policy. Considering the
foregoing, we are of the opinion that any lawsuit against the
co-member directors would have no basis.
The Possibility of Lawsuit from the Insured directly to the Co-

Member Directors (personally liable)
Regardless of the above, it is possible for the Insured to file a

claim directly against the co-member directors without
involving the Insurer, i.e. by filing an unlawful act claim.
However, it is worth to note that in order to successfully file
such unlawful act claim, the Insured must establish/prove the
following:
12
Supreme Court Judgment No. 47 K/Pdt/1988 dated 20 January 1993: a director of a company cannot be sued for
the agreement that is made for and on behalf of the company. The one that can be sued is the company in
question, because the company is a legal entity, therefore it is a legal subject separated from its management
(Board of directors).
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a) The elements of unlawful act under Article 1365 of the ICC13
Under Indonesian civil laws and regulations, there are 4

(four) elements that should be satisfied if the Insured
wishes to file an unlawful act against the co-member
directors, i.e.:
(i) There must be an act violating certain laws;

(ii) There must be a fault;
(iii) There must be damages;
(iv) There must be a causal relation between the
damages and the act
b) The co-member directors have conducted an act surpassing

its authority under the articles of association of their
respective companies.
Article 1 paragraph 5 of the Company Law provides that the

board of directors has the authority and full responsibility
for the management of the company for the interest of the
company, in line with the purpose of the company as well
as representation of the company, inside or outside the
court, in accordance with the articles of association.14
Further, under Article 98 of the Company Law, the authority

of the directors to represent the company is limitless and
unconditional, unless stipulated otherwise under the
Company Law, the articles of association or the decision of
the general meeting of shareholders.15
13
Article 1365 of the ICC: Every illegal ct causing damage to another person shall oblige the person who caused
the damage to pay compensation.
14
Article 1 paragraph 5 of the Company Law:
15
Article 98 of the Company Law:
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Based on the abovementioned provisions, it is clear that

aside from the Company Law, the articles of association
may provide or stipulate the directors authorities.
For this purpose, the Insured must firstly determine the co-
members directors scope of authority under the articles of
association of their respective companies. Therefore, the
Insured should have the access to the articles of
association of such companies and also produce the
original of the said articles of association before the court--
which is unlikely.
In light of the above and considering the current circumstances,

we see that the likelihood scenario for any lawsuit against the co-
member directors would be small.
2.4. Criminal Proceeding
As we have mentioned in our previous Memo 16, taking legal

action such as filing police report in several cases in litigation
practice can be used as leverage for a party to press the other
party to agree to his demands. In consideration to this
circumstance, we are aware that there is likelihood where the
Insured can choose such legal action to push the Insurers to
indemnify the Insureds claim.
After reviewing the provided documents and assessing the

case, we are of the view that there are 2 (two) potential
criminal provisions that can be imposed to the Insurers
pertaining to their objection to indemnify the Insureds claim:
Article 378 of KUH Pidana regarding fraud and Article 75 of
16
Memo CAR dated ... page ...
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the Insurance Law regarding not providing information and/or

providing incorrect, false, and/or mislead information to the
insured.
It is noteworthy that in Indonesian law, corporation as a legal

subject for criminal action is merely recognized in particular
acts. KUH Pidana which arranges general crimes does not
recognize legal subject other than person. However,
Insurance Law is one of the regulations containing criminal
provisions that recognizes corporation as a legal subject for
criminal action.
(i) Article 378 of KUH Pidana: Fraud
As explained in the foregoing, KUH Pidana does not

recognize corporation as legal subject. Nevertheless, when
it comes to case precedents, Article 378 of KUH Pidana is
the primary criminal provision considered by insured when
there is allegation that an objection to claim indemnification
is involving criminal acts. Since the provision cannot be
imposed to the insurance company as a corporation, in most
cases the insured will go for the directors of the insurance
company.
We underline the element of crafty artificies of Article 378

of KUH Pidana in relation to this case.17 Crafty artificies
according to scholarly doctrine stands for an act of
17
Article 378 of KUH Pidana: Any person who with intent to unlawfully benefit himself or
another, either by assuming a false name or a false capacity, or by crafty artificies, or by web
of fictions, induces someone to deliver any property or to negotiate a loan or to annul a debt,
shall, being guilty of fraud, be punished by a maximum imprisonment of four years.
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deception in such degree causing someone with common

logic can be deceived.
In practice, the element of crafty artificies is casually

deemed to be fulfilled when the insurer is alleged for
interpreting the policy by involving lies and deception and
cover up actual facts which causing loss to the insured.
Based on research that we have conducted, there are high
numbers of cases submitted by the insured using this
provision that is granted by the Court [subject to further
research].
Applied to this case, we anticipate that the Insured can

accuse the Insurers fro conducting fraud as they have
forced the interpretetion of the Policy in unlawful way and
involving certain deceiving acts to conclude the claim as
not recoverable. Therefore, it may be concluded that AIG
could potentially be suspected of violating Article 378 of
KUH Pidana.
(ii) Article 75 of the Insurance Law: not providing

information and/or providing incorrect, false, and/or mislead
information to the insured
Different with KUH Pidana, Insurance Law recognizes

corporation as a subject of criminal action. Therefore, in this
circumstance, the criminal sanction can be imposed to the
insurance company as corporation. However, this condition
does not put aside the opportunity of allegation of criminal
act toward the directors or other personnel of the insurance
company.
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Article 75 of Insurance Law provides as follows:
Every person who deliberately does not provide any

information or provides incorrect, false, and/or mislead
information to Policy Holder, Insured, or Member as referred
to in Article 31 paragraph (2) shall be imposed with 5 (five)
years maximum of imprisonment and fine in the amount of
IDR 5,000,000,000 (five billion Rupiahs) at most.
We refer to Letter dated [...] No. [...] from the Insured by way
of its lawyer. The Letter indicates that there is a perception
of the Insureds side whereas the clauses in Policy
Endorsement especially MRE 115 are laden with unclarity
which mislead the interpretation of exclusions causing the
Insured to be aggrieved. We anticipate this matter can be
the Insureds stance to impose the Insurer with this
provision. However, it is worth noting that up to the date we
have not found any case presedent using this provision to
attack the insurance company.
Since Insurance Law recognizes insurance company as a

subject to criminal action, it is important to understand that
if a police report is filed against an insurance company,
according to Article 82 of Insurance Law, the only sanction
can be imposed to the insurance company shall be sanction
of fine. Further, the provision arranges that the fine that can
be imposed to the insurance company is limited to
IDR600,000,000,000 (six hundred billion Rupiahs).
26
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With regard to the above, if the Insured at certain point

takes criminal recourse by filing for police report, there are
several defense strategies to be considered by the Insurers:
(i) We are of the view that the most significant defense point
in this case is that the issue of claim liability falls within
the scope of civil law rather than being a criminal act.
Therefore it is very important that the Insurers prepare
adequate defense statements confirming so since the
beginning.
The defense points have to be clear about the actual

matter between the Insurers and the Insured which is claim
liability based on Policy. The potential allegation is in
connection with whether or not the Insurers are willing to
pay the entire insurance claim or the maximum amount
claimed by the Insured, therefore the dispute is merely a
matter of civil relations between the Insured and the
Insurers. Thus, it can be adequately settled through the
recourse of civil law. The filing of the police report
constitutes none other than bad faith and as a means of the
Insured to put pressure on the Insurers.
With the above stance, it is expected that the criminal

process would be terminated on grounds that it is not a
criminal act should the police agrees that this is a matter
for civil law. Notwithstanding of such possible of
termination, it is worth noting that legally police has full
discretion to determine whether or not this matter comes
under the domain of criminal law.
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For such purpose, as additional recourse, we can consider

an option to forward a carbon copy of the petition for the
protection of the law to the Head of the Indonesian Police
Force/Kapolri and Head of the Criminal Investigation
Agency/Kabareskrim. Delivery of such petition letter would
be made directly by LSM as legal attorney to the Insurer so
that LSM could concurrently proceed with the persuasive
approach at the Kapolri and Kabareskrim level.
(ii) Presenting relevant capable experts since the inquiry stage

to support the argument that such violation is merely
subject to civil law and not categorized as a criminal act.
(iii) We are aware that there has been approaches from both
parties to settle the dispute with amicable settlement.
Although legally speaking a settlement cannot be used as
basis for terminating an investigation, but in practice, there
are many precedents where this is acceptable to the police.
Taking the option of amicable settlement followed up by
drafting and executing of a settlement agreement to be
presented to police as the basis for petitioning the
termination of the proceedings at the police level is
advisable as a strategy to counter criminal report from the
Insured.
Based on the elaboration provided above, we are of the view that

the most probable legal recourse taken by the Insured is lawsuit
based on Breach of Contract. This view arises from consideration
that amount can be obtained by the Insured by way of Breach of
Contract lawsuit shall be much higher than refund of premium
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obtained through Unlawful Act lawsuit. Furthermore, the legal

relation between the Insured and the Insurer is in contractual basis
which is bind by the Policy, thus the Insured might choose Breach
of Contract lawsuit which should be easier to prove in court.
Further to several strategies explained, one of the worth

considering is out-of-court approach by amicable settlement. As we
briefly mentioned eariler, we are aware that there is sense of
settlement between both parties, where various amounts have
been raised by the Insured as well as the Insurer. It is noteworthy
that we are clear about the litigation cost that shall be in
numeruous amount and will develop along with the process.
Additionally, the nature of Indonesian judges in examining and
adjudicating insurance cases is merely in a simple manner by
considering whether or not the insurer has completed its premium
to the insurer. Therefore, in the current position, it is advisable to
avoid the litigation and approach the Insured with amicable
settlement.
3. The Appointment of Hotman Paris Hutapea as the Insureds Lawyer
Yours faithfully,
Lubis, Santosa & Maramis
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APPENDIX I
ASSUMPTIONS AND QUALIFICATIONS
A. ASSUMPTIONS
1. AIG is duly established and validly existing under the laws of the
Republic of Indonesia, and is properly qualified and entitled and
has the power and authority to own its respective assets and to
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carry on its business in accordance with the laws of the

Republic of Indonesia, and holds all material licenses, permits
and certificates required by law and necessary for the conduct
of its respective business as now conducted.
2. Signatures and stamps in all documents provided or shown by

AIG to us are true and executed by the authorized parties, and
the original of such documents are authentic, and its
copies/duplicates are in conformity with the original.
3. Documents, data, information, explanations, facts, and

statements as well as confirmations provided or shown by
AIG to us are true, accurate and complete, and carried out by
the authorized persons in accordance with their capacities,
and consistent with the factual condition, and have not
undergone any changes up to the date of this Legal
Memorandum.
4. We have found nothing to indicate that the abovementioned

assumptions are not fully justified.
B. QUALIFICATIONS
This Legal Memorandum is subject to the following qualifications:
1. We only express a Legal Memorandum in the context of laws of

the Republic of Indonesia effect on the date of this Legal
Memorandum and we express no analysis on the laws of any
other jurisdiction. To the extent that the Legal Memorandum
expressed above may be taken referring to governmental
guidelines or policy statements or to court orders or arbitral
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awards or contractual agreements between the parties as

mentioned in this Legal Memorandum, hence this Legal
Memorandum, to the extent of such references, are expressed
with reference to such guidelines or policies or agreements,
documents and matters which are in the public domain at the
date hereof.
2. The substance of this Legal Memorandum constitutes the

statement of our view and is not intended to bind AIG or any
third party in any way, but merely an exposure of existing issues
from legal perspective and recommendation with respect
thereof.
3. This Legal Memorandum is addressed to and for the interest of

AIG and not to be used by other party for any purpose or even
quoted or mentioned in public documents or disclosed to or filed
to any government or institution or any other person without
prior written approval from us.
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33

AIG - GreenBay II - Draft Legal Memo (Compiled)

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Equity Tower, 12th Floor

Sudirman Central Business District (SCBD)

To PT AIG Insurance Indonesia

1. The Merits of Insurers Current Position Under Indonesian Laws

The merits of the Insurers (AIG) current position under Indonesian

Taking this into account, our explanation in this section will

1.1. General Overview on Adjuster Under Indonesian Laws and

As we have mentioned above, Indonesian laws and regulations

of the adjusters opinion. Based on our discussion with OJK official

The Functions and Authorities of Adjuster Company

Based on Article 4 paragraph (3) of the Insurance Law, an

In engaging the Business of Insurance Adjuster, we understand that

a. Conclude the responsibility of an insurance policy on an

That is to say, in engaging the Business of Insurance Adjuster, an

a. Gathering data and information;

Here, we understand that in order to conclude the responsibility of

the occurred damages or losses are within the scope of risk

Legal Consequences of the Insurance Company (Insurer)

The legal consequences of the above can be seen from 2 (two)

(a) From the Perspective of the Insurer

The legal consequence from the perspective of the insurer is

It is noteworthy that pursuant to Article 37 paragraph (2) of OJK

Under Article 37 paragraph (3) of OJK Regulation No. 69/2016, in

adjuster company, the said insurance company will be

In case the Insurance Company or Syariah Unit use an

Furthermore, in the event that an insurance company does not

(i) Written warning;

(b) From the Perspective of the Insured

The Indonesian laws and regulations are silent in this regard.

(i) The Adjuster Report in principle must be in a form of

(ii) The Adjuster Report is ought to be made for the favor of

The above is in accordance with code of ethics and code of

3. Insurance Adjuster in conducting its business activity has

(iv) Insurance Adjuster must free itself from any partys

Therefore, it is worth noting that the result of Adjuster Report

(i) the claim or the interest is rejected by the insurance

In insurance practice in Indonesia, the result of adjustment

1.2. Crawford as the Adjuster Appointed by the Insurer

We understand that based on Point 16 of the Policy Endorsement, in

Since the Insurer has appointed Crawford as their adjuster,

1.3. Crawfords Reports

Referring to Point 1.1. above, since it is clear that under Indonesian

To the best of our understanding, to date, Crawford has issued a

We learn that Crawford has appointed Dr. Julian Siedel of

Since we understand that the Insurer has no objection toward

As we understand, Section 1 Material Damage of the Policy

"The Insurers hereby agree with the Insured that if at any

By referring to Section I Material Damage above, Crawford

However, in this Report (along with other Reports reviewed)

In its report, Crawford refers to [Pasal ...] Payment on Account

it is hereby declared and agreed that progress payment on

Further, Crawford states that if the Insurer wish to make a

1.4. Analysis on the Insurers Position

Considering all of the above and current circumstances, we are of

a. Pursuant to Article 37 paragraph (3) of OJK Regulation No.

b. As Crawford has advised the Insurer to pay an interim payment

Under Article 37 paragraph (3) of OJK Regulation No. 69/2016,

The Policy is endorsed with a Payment on Account Clause

declared and agreed that progress payment on account of any

As noted above costs have been incurred in respect of

Based on the foregoing, we may learn that Crawfords Interim

The clause of Payment on Account in the Policy provides that

the loss confirmed by Dr. Julian Siedel and agreed by the

Based on all of the above, since the Insureds claim is recoverable,