UK: Fraudulent Claims: the Rights of Underwriters Clarified

Last Updated: 13 January 2005
Article by Robert Merkin

Two recent cases have clarified the effect in English law of allegations of fraud in the claims process.

Fraud As An Alternative Defence

In the first, Super Chem Products Ltd v American Life and General Insurance Co Ltd [2004] 2 AII ER 358, the Privy Council rejected a long-standing suggestion that an insurer who defends a claim by alleging fraud against the assured is unable to rely upon any other defence, a suggestion which leads to the possibility that if fraud is not proved then the assured is entitled to recover come what may. In Super Chem the assured’s chemicals factory in Trinidad was damaged by fire in April 1990. The assured’s insurance covered material damage and business interruption. The policies contained provisions to the effect that the making of a fraudulent claim deprived the assured of all benefit under the policy and that any action by the assured on the insurance had to be brought within 12 months of a loss. In November 1991 the insurers denied liability on the grounds that the assured had been guilty of arson and that proceedings had not been brought against the insurers within the stipulated period. The assured brought an action against the insurers in the Trinidad courts, and allegations of fraud were found not to have been made out. That left the defence based on the contractual limitation period, and it was the ability of the insurers to rely upon this clause which ultimately reached the Privy Council.

The assured relied on Jureidini v National British and Irish Millers Insurance Co Ltd [1915] AC 499. In that case insurers pleaded fraud against their assured, and were then sued in the courts. The insurers applied to have the judicial proceedings stayed, on the ground that the policy contained an arbitration clause. The House of Lords held that the arbitration clause extended only to disputes as to the amount of loss and not as to allegations of fraud, so that it could not operate. Viscount Haldane, however, based his decision on the notion that a plea of fraud was a repudiation of the insurers’ obligations, which disentitled them from relying upon the conditions of the policy, including the arbitration clause.

In Super Chem the Privy Council rejected the views of Viscount Haldane, and ruled that a plea of fraud did not remove the entitlement of the insurers to rely upon other terms of their policy. As Lord Steyn pointed out, an allegation of arson by insurers was not a breach of contract at all, let alone a repudiation of contract, but instead was a reliance on their right (expressed in the contract itself in Super Chem) not to pay a fraudulent claim. Further, even if there was a repudiation, as a matter of law this could be effective only if the assured chose to accept it by bringing the contract to an end: however, making a claim on the policy was the very opposite of accepting any repudiation. Lord Steyn also noted that the argument was not open to the assured in the present case, because the contractual time limit had expired by the time that the insurers pleaded arson, so that the assured’s rights had been lost long before the insurers had chosen to respond. The more general point from the reasoning in Super Chem is that insurers are not required to put all of their eggs in the basket of fraud, and are fully entitled to plead fraud as an alternative to other defences.

The Use Of Fraudulent Devices And Means

The second decision, Eagle Star Insurance Co Ltd v Games Video Co SA, The Game Boy [2004] 1 Lloyd’s Rep 238, confirms that a claim which is perfectly genuine, in that there has been a loss by an insured peril rather than by the hand of the assured, can become fraudulent if the assured deliberately makes false statements to the insurers in the hope of obtaining speedy payment. The case concerned a floating casino insured under a valued policy for US$1.8 million although in fact it was worth only about 10 per cent of that amount, as scrap value. The vessel became a total loss. Simon J held that the policy could be set aside for pre-contractual misrepresentation as to the value of the vessel, but independently of that defence he held that the assured had lost any rights by virtue of a fraudulent claim. After the loss the assured had shown to the insurers’ loss adjusters a series of documents which purported to demonstrate that the vessel had been worth the full US$1.8 million. These included the contract by which the assured had purchased the vessel, a charterparty of the vessel after its purchase, and receipts for payment and invoices showing that repair and refurbishment works had been carried out.

After a careful review of the evidence, the Court concluded that each of these documents was false, and had been created by the assured after the loss in order to paint a picture of the value of the vessel. Thus, even if it had been the case that the policy had been valid from the outset, the way in which the claim had been made deprived the assured of an indemnity.

The lesson is clear: fraud encompasses not just the circumstances of the loss, but also the manner in which the claim is made.

Robert Merkin is a Consultant at BLG and Lloyd’s Law Reports Professor of Commercial Law at the University of Southampton.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions