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Telling your insurer a lie to enhance your claim or your chances of getting it paid has long been regarded as entitling your insurers to decline the claim in its entirety. The Supreme Court has dismissed that tactic in a judgment with wide-ranging implications in the case of Versloot Dredging v Gerling. Nobody condones a lie, and we at Thompson and Bryan always stress to our policyholder clients the need to be open and truthful in their dealings with insurers.
In the Versloot case the owners of a damaged vessel lied to the insurer about the actions taken to mitigate the loss and to deal with a progressively worsening situation. However, the court found, at the time of the lie the vessel had already suffered a loss clearly covered by the policy and insurers’ liability was engaged. The court described this as a “collateral lie”. The essence of the Supreme Court judgment – a majority 4:1 opinion – was that for insurers to use the lie as a reason to get out of the claim was a disproportionate remedy.
A collateral lie is one that isn’t relevant to the existence of insurers’ liability and doesn’t affect the amount of the claim. If it affects either of those things it is still a fraudulent device and the remedy of forfeiture of the claim survives – if not, the claim is the survivor. Essentially, a collateral lie is not enough on its own to render a claim fraudulent under S.12 of the Insurance Act 2015.
The judgment deals with the common law position relating to fraudulent devices in a claim. It doesn’t deal with the position where a policy contains a condition entitling the insurer to avoid a claim by reason of fraud or exaggeration. We have yet to see what the courts will say when such cases come before them, but we are reasonably confident that the Financial Ombudsman Service will, in cases referred by eligible complainants, decide that it would be neither fair nor reasonable to apply the contractual provision above the Supreme Court criteria. As and when we have FOS decisions on such matters we shall post them on this site.
In the meantime, should any of you, brokers or policyholders, have reason to appeal a decision to which the judgment applies, please contact us.