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Collateral lies OK in insurance claims, rules Supreme Court 'Collateral' lies need not spoil insurance claims, rules Supreme Court
(about 1 hour later)
It is OK to tell a "collateral" lie on an insurance claim, the Supreme Court has ruled, in a judgement that could affect millions of household policies. Lying on an insurance claim should not necessarily invalidate it, the Supreme Court has said, in a judgement likely to affect all household policies.
A collateral lie is one which is untrue, but does not affect the overall validity of the claim. It said collateral lies - which are untrue, but do not affect the validity of the claim - can be acceptable.
The judges voted by four to one to change one of the important principles behind current insurance law.The judges voted by four to one to change one of the important principles behind current insurance law.
The precise case involved a Dutch cargo ship, which ran into difficulty after its engine room was flooded.The precise case involved a Dutch cargo ship, which ran into difficulty after its engine room was flooded.
The crew deliberately lied, by saying they couldn't investigate an alarm, because the ship was rolling in heavy seas.The crew deliberately lied, by saying they couldn't investigate an alarm, because the ship was rolling in heavy seas.
In fact the accident was caused by bad weather, so the lie was irrelevant, it was ruled. In fact the accident was caused by bad weather, so the lie was irrelevant, the court ruled.
The judge in the original court case said the lie amounted to a "fraudulent device", which invalidated the claim.The judge in the original court case said the lie amounted to a "fraudulent device", which invalidated the claim.
The Court of Appeal upheld that judgement, but the Supreme Court has now overturned it.The Court of Appeal upheld that judgement, but the Supreme Court has now overturned it.
'Increased premiums''Increased premiums'
One of the judges, Lord Mance, said: "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."One of the judges, Lord Mance, said: "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."
The judgement suggests that someone who puts in an insurance claim for a stolen computer worth £1,000 - but who fabricates a receipt for that amount - would still have a valid claim.The judgement suggests that someone who puts in an insurance claim for a stolen computer worth £1,000 - but who fabricates a receipt for that amount - would still have a valid claim.
The Association of British Insurers said that it was looking at the judgement carefully, to work out the implications of the ruling. The Association of British Insurers (ABI) said it was looking at the judgement carefully, but it still had a duty to investigate fraudulent claims.
But it is thought that the principle will apply to millions of household, travel and motor policies. "No insurer will decline any claim on the grounds of fraud unless they believe they have good grounds to do so. " said James Dalton, the ABI's director of general insurance policy.
"But as this judgement makes clear, inflating the value of an otherwise genuine claim still remains fraud."
It is thought that the principle will apply to millions of household, travel and motor policies.
Kevin Pratt, consumer affairs expert at MoneySuperMarket, said the change would not amount to a blank cheque for fraudsters.Kevin Pratt, consumer affairs expert at MoneySuperMarket, said the change would not amount to a blank cheque for fraudsters.
"It will still be a fraud if you fabricate a claim, and it will still be a fraud if you exaggerate a claim," he said."It will still be a fraud if you fabricate a claim, and it will still be a fraud if you exaggerate a claim," he said.
"But insurers can no longer use so-called 'collateral lies' to reject a valid claim. The one worry is that, if insurers are paying more claims as a result of this ruling, then they will increase premiums.""But insurers can no longer use so-called 'collateral lies' to reject a valid claim. The one worry is that, if insurers are paying more claims as a result of this ruling, then they will increase premiums."