The insurance industry has been forced to reassess its position on a number of current and future claims by a landmark decision by the Supreme Court handed down on 20th July 2016 in the case Versloot Dredging BV v HDI Gerling Industrie Versicherung AG.
It has always been a basic principle of Insurance Law that the policy holder must at all times deal in good faith, disclose all relevant information and of course, tell no lies. Lawyers call this a duty of “uberrima fides” (utmost good faith – in Latin).
Insurers have in recent years been forced by fraud to investigate claims more thoroughly, and have used any irregularity, and certainly an untruth, to deny indemnity on claims. Honest claimants have often been frustrated or even denied because of this increased level of scrutiny in claims.
The case in question concerned The DC Merwestone, a Dutch cargo ship which took on water at sea with the result that it was incapacitated and the engine permanently damaged. The owners made a claim for 3.2 million Euros. In presenting their claim, they said that the crew had been unable to make safety checks because of the rough weather and heavy seas. This was a lie, intended to strengthen the claim, accelerate payment out, and to deflect attention from other defects in the vessel.
As would be expected, when the lie was discovered, the insurers repudiated the policy cover. The matter nevertheless went to court, and the UK’s highest Court, the Supreme Court ruled that since the underlying claim was valid, and was caused by the bad weather in any event, the “fraudulent device” used by the owners, described by the Court as a “collateral lie”, did not invalidate the cover.
So the important thing is the validity of the claim itself, and not a “white lie” told to strengthen the claim. The Court’s reasoning was that the owner was doing no more than trying to secure something which it was legally entitled to anyway. The lie itself was “immaterial to the claim”.
This is a material change in the law as we understood it to be, and the decision takes away an important defence that insurers have used against fraudulent claims. It will inevitably have an effect on household and business policies alike.
A spokesperson for the industry described the verdict as a “blow for honest customers” and the Association of British Insurers has warned that additional payouts will cause premiums to rise.
This is of course not a licence to make fraudulent claims – there has to be an underlying actual loss. My insurance contacts give an example of a claim for the loss of a sit-on lawn mower by a client who has a tiny lawn. Clearly a fraud, and if the claim itself is thus fraudulent, then it will still be rejected and criminal charges may well follow.
We have long experience at Thursfields in advising on insurance matters and especially claims. Please contact Tim Lawrence on 01905 677055 if you have a problem or enquiry.