Login Register Subscribe
Current Issue


BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Insurer must pay despite lies in claims documents


The United Kingdom's highest court has ruled that insurers still must pay a claim despite a false statement supporting the claim.

The court found the lie was irrelevant “in the sense that the claim would have been equally recoverable whether it was true or false.”

The U.K. Supreme Court's 4-1 ruling last week in Versloot Dredging BV et al. v HDI Gerling Industrie Versicherung A.G. et al. addressed the question of what constitutes a fraudulent claim and how what the court described as “collateral lies” affects a justified claim.

The case involved damage to a ship, the DC Merwestone, when its engine room flooded in January 2010 as it left the Lithuanian port of Klaipeda on its way to Bilbao, Spain. According to the high court, the engine room was damaged beyond repair.

During an investigation, a company official “developed a theory that the ship's bilge alarm had sounded, but the crew hadn't been able to investigate” or deal with the situation because of weather conditions. However, the official's story turned out to be false.

The official's “reason for acting in this way was that he was frustrated by the insurers' delay in recognizing the claim and making a payment on account,” according to the high court. “At a time when the cause of the flooding was not clear, he believed that it would fortify the claim and accelerate payment if the casualty could be blamed on the crew's failure to respond to the activation of the bilge alarm.”

While a lower court held that the ship's owners had a valid €3.24million ($3.6 million) claim, it also held that the “claim was lost as a result of the collateral lie about it.” The U.K. Court of Appeals agreed.

Dishonest embellishment

However, the high court reversed the lower courts. It noted that the Insurance Act of 2015, which takes effect next month, does not resolve what constitutes a fraudulent claim, adding that three situations are relevant to the case. The whole claim could have been fabricated or a genuine claim might have been dishonesty exaggerated. In either case, the insurer would not be liable to pay the claim, the high court ruled.

In the third case, the entire claim may be justified, but the information given to support it may have been “dishonestly embellished, either because the insured was unaware of the strength of his case or else with a view to obtaining payment faster and with less hassle,” Lord Jonathan Sumption wrote for the court. “The present appeal is concerned with embellishments of this kind.”

“Although a lie uttered in support of a claim need not have any adverse impact on the insurer, I consider that it must at least go to the recoverability of the claim on the true facts,” Lord Sumption wrote. “It does not apply to a lie which the true facts, once admitted or ascertained, show to have been immaterial to the insured's right to recover. It is true that the moral character of the insured's lie is in no way mitigated by the fact that it turns out to have been unnecessary.”

In his dissent, Lord Jonathan Mance said he would have upheld the lower courts in dismissing the claim.

In addressing what the majority said is the first U.K. Supreme Court or House of Lords ruling on the issue of “justified claims supported by collateral lies,” Lord Mance said “insurers will no doubt be advised” about “making express” in the future their understanding of and actions taken as a result of “fraudulent devices” used by policyholders during the claims process.