UK: Distinguishing ‘Collateral Lies' From The Fraudulent Claims Rules In Insurance Contracts: The Lie Is Dishonest But The Claim Is Not

In Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and others [2016] UKSC 45, handed down, last month, the Supreme Court ruled that a "collateral lie" made during the course of an insurance claim would not lead to repudiation of the claim. Lord Sumption, giving the lead judgment, used the phrase "collateral lie" to mean "...a lie which turns out when the facts are found to have no relevance to the insured's right to recover."

A distinction was drawn between, on the one hand, entirely fictional claims or dishonestly inflated claims (where the insurer will not be liable to pay the entirety of the claim) and, on the other, valid claims "embellished" by a collateral lie. Following an examination of the common law, it was held that the claim itself remained valid as the collateral lie was not material to the insurer's liability and to hold otherwise would be disproportionately harsh.

While this claim related to a marine insurance policy, the position would apply equally to (consumer and commercial) non marine policies.

The facts A claim was made under a marine insurance policy for approximately €3.2 million in respect of damage caused when the engine room of a vessel was flooded during a voyage. During the course of making the claim, one of the owners' directors made a false statement, seeking to fortify the claim and expedite payment. This was a collateral lie. In fact, the causes of the damage were covered by the policy and the lie was irrelevant to the merits of the claim.

The issue on appeal was whether the insurers were entitled to repudiate liability when the insured had told a lie when presenting the claim, if the lie was immaterial to the validity of the insured's claim. The appeal was upheld by the Supreme Court, with Lord Mance dissenting. The €3.2 million claim was therefore held to be valid.

You can read the full judgment here.

Matters considered

  • The court drew distinctions between three types of fraudulent claims. First, where the entire claim has been fabricated; secondly, where the claim is true but is fraudulently exaggerated; and thirdly (as was the case here), where the entire claim may be valid but the information given in support of the claim was embellished by a collateral lie, so as to secure faster payment or where the insured does not realise the strength of his or her claim.
  • Consideration was given to the common law, where the clear position is that if an insured makes a fraudulent claim on his insurer, whether that be an entirely fabricated claim or an honest claim dishonestly inflated, the insurer is not liable to pay any part of the claim – this is known as 'the fraudulent claims rule'. This position is now codified in the Insurance Act 2015 (which came into force on 12 August 2016). However, the issue before the Supreme Court was to resolve an issue not in any event dealt with by the Insurance Act, namely whether the fraudulent claims rule applies to valid claims supported by collateral lies.
  • Lord Sumption formulated the question before the court as "whether the insurer was entitled to repudiate a claim supported by a false statement, if the statement was irrelevant, in the sense that the claim would have been equally recoverable whether it was true or false." The Supreme Court found that it was not. The fraudulent claims rules did not apply to collateral lies.
  • The Supreme Court recognised the scale and significance to the insurance industry of fraudulent claims. Equally, the key themes arising out of its approach in allowing the appeal included materiality, public policy concerns and the rationale behind the fraudulent claims rules. The Supreme Court adopted a pragmatic and commercial approach, overturning the more 'technical' application of the law engaged in at first instance by Popplewell J and by the Court of Appeal.
  • The public policy behind the fraudulent claims rules was considered to be straightforward: the rules acted as a deterrent to fraudulent claims. The distinction drawn between claims which are entirely fraudulent or fraudulently inflated, as compared to ones where there is a valid claim but a collateral lie, is that in the case of the former, the insured seeks to obtain something from his dishonesty to which he is not entitled; conversely, the insured that has an otherwise valid claim but makes a collateral lie, seeks to obtain that to which he is entitled.
  • Materiality was important here. In order to test the materiality of the collateral lie in relation to the claim, one needs to consider the position with hindsight, as the merits of the claim are actually shown to be, rather than based on the limited facts known at the time the lie was uttered. A truly collateral lie makes no difference to the validity of the claim.
  • It was therefore considered disproportionately harsh to bar the entirety of the policyholder's valid claim in circumstances where the collateral lie was immaterial to the insurers' liability.
  • In their appeal, the appellants relied on both the common law and Article 1 of Protocol 1 of the Human Rights Convention. Having decided the position based on examination of the common law, Lord Sumption did not consider the position under the Human Rights Convention.

Commentary This case provides clarity on the implications of this type of dishonesty and its remedy, which are not identified in the Insurance Act 2015.

The message here is not, of course, that policyholders and brokers should consider it acceptable to act dishonestly or to tell reckless untruths in the presentation of a claim as a means to an end to get the claim paid as easily and quickly as possible. Lord Toulson made clear that lies in support of a valid claim were not risk-free and he warned that such lies could impact on the insured's credibility and were, for instance, likely to be reflected in a costs order.

It seems logical that an insured's duty of disclosure, when purchasing subsequent insurance, would require the disclosure of the insured's history of making what might ultimately be deemed a "collateral" lie in a past claim; such conduct is unlikely to be viewed favourably by an insurer.

It is not yet clear what impact this decision will have on the market and the drafting of policies. Collateral lies do not alter an insurer's liability, but may at least affect the way in which claims are handled, as a consequence of the collateral lie. It therefore remains to be seen whether, in response to this judgment, insurers will seek to include express provisions and remedies in the insurance contract to cover circumstances where collateral lies are told in the advancement of an otherwise valid claim.

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
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.