In brief - Decision that fraudulent devices forfeit insurance
England's Court of Appeal has recently confirmed in a
shipping case that employing fraudulent devices forfeits an
insurance claim. While its decision is interesting for marine
insurance in Australia,
section 56 of the Insurance Contracts Act 1984 may mean that non-marine
insurers still need to pay if the court finds it just and
England's Court of Appeal upholds decision in shipping
The Court of Appeal in England has now reconsidered that
decision and confirmed that an insured who employs a
"fraudulent device" in presenting an insurance claim
forfeits the claim, even if the claim would otherwise have been
recoverable under the policy.
Crew's negligence contributes to damage
While loading a cargo of scrap metal in Lithuania in January
2010, the crew negligently failed to clear water from the emergency
fire pump of the vessel DC Merwestone and failed to close
the sea valve. Due to the extremely low temperature, the water in
the pump froze and expanded, causing it to crack and creating a
direct opening between the seawater outside the vessel and the
interior of the vessel's bow thruster space.
Ship's engine submerged, insured tells untruth to
When the ice melted after the vessel sailed into warmer waters,
there was an ingress of water into the vessel and the bilge alarm
did not alert the crew until the water had reached about one metre
above the floor plates in the duct keel. The engine was completely
submerged and required replacement.
In presenting the claim to insurers, the insured recklessly told
the underwriters an untruth - stating that the bilge alarm had gone
off but was ignored.
Case tests whether fraudulent claims rule applies to fraudulent
means or devices
Lord Justice Mance said in Agapitos v Agnew (The
"Aegeon") (2003) QB 556 that:
A fraudulent device is used if
the insured believes that he has suffered the loss claimed, but
seeks to improve or embellish the facts surrounding the claim by
While it is clear from a long line of authority that if an
insured makes a fraudulently inflated claim under the policy, he
forfeits any lesser claim which he could properly have made, the
issue in Versloot Dredging was whether the same rule about
fraudulent claims applies to fraudulent means or devices.
The "Aegeon" case establishes that
fraudulent devices forfeit the claim
Considering various authorities, Lord Justice Mance concluded
that a "bright line" rule is that the use of a fraudulent
device forfeits the claim, provided that the fraudulent device
directly related to the claim;
intended by the insured to promote prospects of success;
would have tended to yield a not insignificant improvement in
the insured's prospects of success.
The Court of Appeal held that the principles in The
"Aegeon" were applicable and that Justice Popplewell had
correctly decided that the owners' claim was fraudulent by
reason of the use of a fraudulent device and that the claim should
be forfeited on that account.
Effect of section 56 in relation to non-marine insurance
While the decision is clearly of importance to the law of marine
insurance in Australia, the effect of section 56 of the
Insurance Contracts Act 1984 in relation to non-marine
insurance should also be noted.
Section 56(2) of that Act provides that "...if only a
minimal or insignificant part of the claim is made fraudulently and
non-payment of the remainder of the claim would be harsh and
unfair...", then the court may order the insurer to pay such
amount as is just and equitable in the circumstances.
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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