It has long been established in English law that an insured cannot successfully claim from an insurer where the insured’s claim has been fabricated or dishonestly exaggerated. This is known as the Fraudulent Claims Rule (“the FCR”). Obviously the FCR was designed to deter fraud. However on the 20th July 2017 the Supreme Court, the highest court in the United Kingdom, considered a more recent extension of the FCR to “collateral lies” which are lies told by the insured to embellish the claim but which are irrelevant because the claim is justified whether the statement is true or not.
An example of a “collateral lie” being the insured producing a false receipt for a stolen computer worth £1,000 when the computer has been stolen and is actually worth £1,000.
The Supreme Court held, by 4 judges to 1, in Versloot Dredging BV and Another v HDI Gerling Industrie Versicherung AG and Others that the FCR does not apply to “collateral lies” which are immaterial to the insured’s right to recover.
The Versloot Case
The Versloot Case
The insured’s boat had been damaged beyond repair by a peril of the seas, namely very inclement weather. The insured presented a claim to its insurers for a sum in excess of €3 million claiming that the crew had heard the bilge alarm but could not investigate because the vessel was rolling in heavy waters. This was a lie but it was irrelevant to the claim since it was found that a peril of the seas had caused the loss. Initially the courts held that the lie was a “fraudulent device” which did mean that the insurers did not have to pay out under the policy.
The Supreme Court however held that the FCR did not apply to “collateral lies” as the lie was immaterial and irrelevant to the honest claim. The loss was caused by the bad weather and as such the lie was irrelevant.
Daven Naghen head of our Dispute Resolution Team has commented on the case as follows:-
“This ruling does distinguish between on the one hand fraudulent claims which are fabricated or dishonestly exaggerated, and valid claims supported by irrelevant lies or embellished evidence. In the latter these false statements stand to gain nothing more for the insured beyond what it is legally due. I do think that this is a victory for common sense. However I would continue to encourage persons to be entirely frank and honest with insurers in such circumstances, since in particular if the lie is deemed material to the claim then there is a very strong chance that the claim will be rightly rejected by the insurer. In particular inflating the value of an otherwise genuine claim still remains fraud and is likely to lead to a rejection of the claim.”
If you require advice on an insurance claim then please contact Daven on 01775 722261 or email firstname.lastname@example.org or Gemma Mayer on 01775 722261 or email email@example.com or arrange an appointment or visit our offices at 23 New Road, Spalding, Lincolnshire, PE11 1DH.