UKSC 45 has changed the landscape in respect of collateral lies in insurance claims dramatically.
A collateral lie within the sphere of an insurance claim is one which does not have an impact as to the viability of the claim but instead simply adds to one or other element. The best example is in circumstances where a claim is made for a product worth £100 that has been damaged. The product did exist, it was damaged and the insurance claim is valid; however, the Claimant falsifies a receipt substantiating the value of the product. In those circumstances, the lie told would historically have caused very severe difficulties to the Claimant.
In Versloot Dredgling v HDI Gerling Industrie, the Supreme Court held that in circumstances where a lie is merely collateral in nature and is therefore immaterial to the Insured’s right to recover, then the “fraudulent device” Rule does not apply and the insurance company will still have to pay out, providing the Claim itself is found to be legitimate.
On this matter, the ship, the DC Merwestone, was incapacitated by a flood in her engine room. As a result of the flood, the engine was damaged beyond repair and an insurance claim was made. It was clear that the flood was caused by human error.
The Owners presented an insurance claim to the Respondents’ Insurers for in excess of €3.2 million and told the Insurer’s Solicitors that the crew of the ship informed them that the bilge alarm had sounded at noon that day but that it could not be investigated because the ship was rolling on turbulent water. It was eventually found that this was a lie told by the Owners deliberately to strengthen their claim and accelerate the payment they sought and also to take the attention away from the defects in the vessel and the potential error caused by the crew.
On investigation, it was found that the lie was actually irrelevant to the claim as the damage was caused by the “peril of the seas”. At first instance, the Trial Judge found that because the lie was a fraudulent device the Insurers did not need to pay out under the Policy. The Court of Appeal agreed; however, the Supreme Court has overturned this decision. The Law Lords held that forfeiture of the entire claim was not an appropriate or proportionate sanction for the author of a collateral lie, given the other ways that he could be punished if the lie is discovered. The claim was entirely valid and therefore if the lies are of a collateral nature, it will not mean that the claim is doomed to failure.
It is worth noting that this does not open the floodgates to fraudulent claims everywhere. The claim must still be legitimate and evidence will still need to be submitted to prove that this is the case. In addition, the Court will take an extremely dim view of individuals who file falsely obtained or fraudulent evidence and in all likelihood they as individuals will be found in Contempt of Court. The lie is, potentially, still a fraud under the Fraud Act and there are likely to be ramifications for any individual who attempts to strengthen their claim by lying.
We have experience of acting for Insurance Companies and individuals, both bringing actions in respect of Fraud and in defending them. If you find yourself in this situation, please do not hesitate to contact our Specialist Team on 0161 834 6721 and we will be happy to help you in any way that we can.