In a ruling that could impact millions of household, travel and motor insurance policies, the Supreme Court has determined it is OK to tell a “collateral” lie in an insurance claim.
Judges have voted by four to one to change one of the most crucial principles in insurance law following a case involving a Dutch cargo ship.
The ship ran into difficulties when its engine room flooded and the ship’s crew told a deliberate lie stating that they couldn’t investigate an alarm because the shipping was in a rolling motion on the heavy seas. In reality however, the accident was prompted by bad weather so their lie about not being able to investigate the alarm was deemed irrelevant.
This was despite the fact that the judge in the original case stated the lie was tantamount to a “fraudulent device”. The Court of Appeal had upheld the judgement – but now the Supreme Court has overruled it.
In a BBC report, one of the judges, Lord Mance, is quoted as stating: “The critical point is that, in the case of a collateral lie… the insured is trying to obtain no more than the law regards as his entitlement, and the lie is irrelevant to the existence of that entitlement. Such a lie is immaterial to the claim.”
As an example it suggests that someone who makes an insurance claim for a computer worth £1,000 – but who fabricates a receipt for that amount – would still be making a valid claim.
In response, the Association of British Insurers is said to be looking at the judgement carefully to determine its implications.
