The Supreme Court rules that a collateral lie embellishing a
valid claim does not amount to a fraudulent claim.
Versloot Dredging BV and another (Appellants) v HDI
Gerling Industrie Versicherung AG and others  UKSC
The vessel DC Merwestone was incapacitated by an
ingress of water which flooded the engine room. A claim was made in
respect of damage to the engines under a policy of marine hull
insurance in the sum of approximately €3.2 million.
The relevant individual employed by the vessel's managers
was frustrated by the delay in the insurers recognising the claim
and making a payment on account. At a time when the cause of the
flooding was unclear, the individual said that the bilge alarm had
sounded but that the crew had been unable to investigate the leak
because of rolling of the ship in heavy weather. The employee said
that members of the crew had told him this when, in fact, it was
merely his own theory.
The individual thought that, by making the statement, he could
speed up payment of the claim when the insurers might otherwise
focus on, for example, the potentially defective condition of the
ship. In fact, the loss was covered by the policy and the issue of
whether the bilge alarm had sounded was irrelevant.
Categories of fraud
The Supreme Court drew distinctions between:
entirely fabricated claims;
claims which are true but fraudulently
claims which are valid but the
information given in support of the claim was embellished by a
collateral lie, for example, so as to secure faster payment or
where the insured does not realise the strength of the claim.
An entirely fabricated claim is manifestly fraudulent.
Similarly, where a claim is exaggerated, the law declines to sever
any invented portion of the claim from the honest part.
However, the Supreme Court found important differences in
quality between the fraud involved in cases (a) and (b) on the one
hand, and collateral lies in case (c) on the other. Where
collateral lies are concerned, the Supreme Court emphasised that
the insured does not gain anything from the lie which it was not
entitled to anyway. The immateriality of the lie to the claim
therefore makes it appropriate to distinguish a collateral lie as a
form of fraudulent device from a fraudulent claim in the true sense
of the word.
In the context of insurance law, the courts have always been
alive to policy considerations surrounding fraud, the cost of which
ultimately falls on the general body of policy holders in the form
of increased premiums.
However, the extension of the fraudulent claims remedy to
collateral lies was thought to be disproportionate and not
justified by a policy of deterrence. Furthermore, Lord Toulson
doubted whether the Supreme Court's decision would, in fact,
have an impact on any given individual's decision to lie in
support of a claim.
Lord Mance, the only dissenting judge, thought that the
majority's analysis ignored the obvious reality that lies are
told for a purpose, almost invariably to obtain the advantage of
having the claim considered and hopefully met on a false premise
and, in Lord Mance's view, a person who uses fraudulent devices
in the context of an insurance relationship deserves no real
The Insurance Act 2015, which came into force last week,
addresses the issue of fraudulent claims. The Act preserves the
rule that a fraudulent claimant recovers nothing, including any
unexaggerated element of a claim. However, the Act does not deal
with the position where a valid claim is supported by a collateral
lie. The Supreme Court's decision clarifying that a collateral
lie made in the course of the claims process will not deprive the
insured of its claim will therefore have continued relevance.
The decision of the Supreme Court is consistent with a more
general movement away from protecting insurers by limiting the
scope of application of potentially harsh remedies and, instead,
applying a more proportionate approach.
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.
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