Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and others [2016] UKSC 45

This Judgment was given by the Supreme Court on 20th July 2016 and has come as a surprise to many in the insurance industry. The Supreme Court has held that a collateral lie told by a policy holder in presenting a claim does not eradicate his/her right to recover so long as it is irrelevant to the insurer’s liability.

The Judgment will have implications for the defence of personal injuries cases and appears to be at odds with the current approach to dealing with personal injury claims where there has been fundamental dishonesty. In these cases the Insurer was previously entitled to repudiate a claim if the policy holder had attempted to rely on a dishonest statement.

In Versloot the engine of a cargo ship was severely damaged due to a flood caused by various reasons which were all covered under the ship’s insurance contract. The owners claimed for the damage under their marine insurance policy. In an attempt to advance the owners claim, one of the managers of the vessel informed the insurers that the crew had been unable to investigate a leak which had been alerted to them by an alarm, due to the rolling of the ship in bad weather. This in fact was a lie which the manager had told to encourage the insurers to grant indemnity. The Judge at first instance dismissed the entire claim as the result of this lie. This decision was based on the “fraudulent claims” rule and the case of Agapitos v Agnew (The Aegeon) [2003] QB 556 which established that an insured which supports a valid claim with a lie, forfeits the claim in its entirety.

The Court of Appeal upheld the decision of the lower court and the matter was subsequently considered by the Supreme Court. The Supreme Court drew a distinction between a claim where the amount of loss is exaggerated, which has the effect of voiding the claim in its entirety, and a justified claim which is supported by an immaterial lie. Essentially the collateral lie will be one which is irrelevant to the entitlement to recover or to compensation. Each individual claim will have to be dealt with on its own facts, and consideration will have to be given in each individual case as to the relevance of the collateral lie and its effect on the insurers liability.

The timing of this decision coincides with the introduction of the Insurance Act 2015. The Insurance Act does not provide definitions of “fraud” and “fraudulent claims” therefore common law definitions will apply. This Judgment is therefore very significant in terms of how potentially fraudulent cases will be assessed in future cases.

To read the full Supreme Court decision please click here:

If you have any queries please contact Kathy McGillie by T: 028 9055 3326 or
E: kathy.mcgillie@tughans.com