The ‘DC MERWESTONE’ suffered a water ingress of water flooding the engine room. This resulted from (i) the negligence of the crew in failing to close the sea inlet valve of the emergency fire pump and drain down the system, after they had used the hoses to clear ice chips from the hatch covers; (ii) damage to the emergency fire system pump casing and filter after the vessel had sailed from Klaipeda, as a result of the freezing and expansion of the seawater inside them; (iii) the negligence of contractors employed on an earlier occasion, who failed to seal the engine room bulkheads after passing cables through them, with the result that they were not watertight; and (iv) defects in the engine room pumping system, which was unable to cope with the rate of ingress. The main engine was damaged beyond repair. On investigation by the insurers, a reply was given which proved false. In fact, the lie was irrelevant to the merits of the claim. The court was now asked as to the established common law rule which said that an insured makes an element of his claim fraudulently, the entire claim is lost.
Held: Versloot’s appeal was allowed (Lord Mance dissenting) The common prohibits recovery from an insurer where the insured’s claim has been either fabricated or dishonestly exaggerated (‘the fraudulent claims rule’). That rule deters fraud. This had been more recent extended into a rule to as ‘fraudulent devices’, ‘collateral lies’ told by the insured to embellish their claim, but which are irrelevant because the claim
is justified whether the statement was true or false.
The fraudulent claims rule does not apply to collateral lies. The dishonest lie is typically immaterial and irrelevant to the honest claim: the insured gains nothing by telling it, and the insurer loses nothing if it meets a liability that it has always had. If a collateral lie is to preclude the claim, it must be material. To be material, a collateral lie must have been told in the making a claim must and must go at least to the recoverability of the claim on the true facts as found by the court.
Judges:
Lord Mance, Lord Clarke, Lord Sumption, Lord Hughes, Lord Toulson
Citations:
[2016] UKSC 45, [2016] WLR(D) 403, UKSC 2014/0252, [2016] 4 All ER 907, [2016] 3 WLR 543, [2016] 2 Lloyd’s Rep 198, [2016] Lloyd’s Rep IR 468, [2016] 2 All ER (Comm) 955, [2017] AC 1
Links:
Bailii, SC, SC Summary, WLRD, Bailii Summary
Jurisdiction:
England and Wales
Citing:
Cited – Goulstone v The Royal Insurance Company 1858
In his claim under the insurance policy for the loss of furniture, the insured exaggerated the value by four times.
Held: Pollock CB glossed a fraudulent claim as one ‘wilfully false in any substantial particular’ . .
Cited – Johnson And Another v Chapman 10-Jul-1865
Deck-cargo {timber) lawfully laden pursuant to charterparty, having broken adrift in consequence of stormy weather, and impending the navigation and endangering the safety of the vessel, was necessarily thrown overboard.
Held: that the shipper . .
Cited – Chapman v Pole 1870
In the context of exaggerated value Cockburn, CJ spoke of one who ‘knowingly preferred a claim he knew to be false or unjust’ . .
Cited – Reid and Co Ltd v Employer’s Accident and Livestock Insurance Co Ltd 1899
The genuine part of a fraudulently inflated claim is recoverable. . .
Cited – Lek v Mathews 1927
Mr Lek was alleged to have dishonestly exaggerated a claim on the insurers of his stock. The policy required that if one part fell, all the claim fell: ‘As to the construction of the false claim clause, I think that it refers to anything falsely . .
Cited – Wisenthal v World Auxiliary Insurance Corpn Ltd 1930
A claim was made under an all risks policy on goods in transit and in storage pending sale. The insurers disputed the insured’s title and accused her of fraudulently exaggerating her claim. They also alleged that facts and documents relevant to . .
Cited – Black King Shipping Corpn and Wayang (Panama) SA v Massie (The ‘Litsion Pride’) 1985
The LITSION PRIDE was insured against war risks. The terms required of her owners, notice as soon as practicable of her entry into specified war zones and then to pay an additional premium. The owners traded her into a war zone without giving . .
Cited – Continental Illinois National Bank and Trust Co Of Chicago And Xenofon Maritime SA v Alliance Assurance Co Ltd 1986
(‘The Captain Panagos DP’) The ship ran aground in the red sea. While aground it suffered a major fire. The owners submitted a claim on the basis that it was a total loss, or in the alternative, that they could recover a partial claim arising from . .
Cited – Pan Atlantic Insurance Co Ltd and Another v Pine Top Insurance Co Ltd HL 27-Jul-1994
The plaintiff had written long term (tail) insurance. The defendant came to re-insure it. On a dispute there were shown greater losses than had been disclosed, and that this had been known to the Plaintiff.
Held: ‘material circumstance’ which . .
Cited – Orakpo v Barclays Insurance Services and Another CA 1995
The insured sought to claim under his policy. The insurance company declined any payment, saying that part of the claim was fraudulent.
Hoffmann LJ said: ‘In my view, the claim also fails on the ground that it was substantially fraudulent. The . .
Cited – Royal Boskalis Westminster NV and Ors v Trevor Rex Mountain and Others ComC 18-Dec-1995
Marine insurance – assured – revocation of notice abandonment – before or after commencement of action – effect : Marine insurance – assured – declaration of intention not to make claim for total loss – recovery of property – effect : Marine . .
Cited – Royal Boskalis Westminster NV and others v Mountain and others CA 28-Feb-1997
Effect of illegality on a contract.
Held: Reversed . .
Cited – Galloway v Guardian Royal Exchange (UK) Limited CA 15-Oct-1997
The claimant’s policy had been declared void ab initio by the court. On the application form he had falsely stated that he had no convictions, but had only shortly before been convicted of obtaining a pecuniary advantage by deception. Part of the . .
Cited – K/S Merc-Scandia XXXXII v Underwriters to Lloyd’S Policy 25T 1054 87 and Others QBD 20-Jul-2000
The Insurers had avoided a policy after a claim had been brought, and the insured had produced a fraudulent document. Having won their case, the applicants sought to enforce the award against the insurers. The insurers were held not to be excused . .
Cited – Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd and Others HL 23-Jan-2001
The claimant took out insurance on its fleet of ships (the Star Sea). It had been laid up in its off season. The ship’s safety certificates were renewed before it sailed. It was damaged by fire. The insurers asserted that the ship had been . .
Cited – Direct Line Insurance Plc v Khan and Another CA 11-Oct-2001
If part of an insurance claim is shown to be fraudulent, the entire claim is avoided. . .
Cited – Agapitos and Another v Agnew and others CA 6-Mar-2002
Insurers resisted a claim saying that fraudulent acts of the defendants to promote an otherwise valid claim, made the entire claim void. The insurance required certificates to be obtained before ‘hot’ works were undertaken as part of the ship’s . .
At CA – Versloot Dredging Bv and Another v Hdi Gerling Industrie Versicherung Ag and Others CA 16-Oct-2014
. .
Cited – K/S Merc-Scandia XXXXII v Underwriters to Lloyd’s Policy 25T 1054 and Others CA 31-Jul-2001
The owners of the ‘MERCANDIAN CONTINENT’ had obtained judgment in earlier High Court proceedings against a Trinidadian shipyard for damage caused by negligent repair work. Jurisdiction in the earlier proceedings had been founded on an agreed . .
Cited – AXA General Insurance Limited v Gottlieb CA 11-Feb-2005
The defendant made a claim under an insurance policy. The insurer made an interim payment, but then asserted that the claim was fraudulent, and sought recovery of the interim payment.
Held: At common law, fraud in an insurance claim, once . .
At ComC – Versloot Dredging Bv and Another v Hdi Gerling Industrie Versicherung Ag and Others ComC 14-Jun-2013
The claimant shipowners suffered damage to their vessel and claimed under their policy with the defendants. The defendants argued that part of the evidence supporting the explanation of the claim was fabricated, thus excusing any payment.
See Also – Willers v Joyce and Another (Re: Gubay (Deceased) No 1) SC 20-Jul-2016
Parties had been involved in an action for wrongful trading. This was not persisted with but the claimant sought damages saying that the action was only part of a campaign to do him harm. This appeal raised the question whether the tort of malicious . .
Lists of cited by and citing cases may be incomplete.
Insurance
Updated: 02 June 2022; Ref: scu.567276