• 08 AUG 16
    Is it OK to lie to your insurer?

    Is it OK to lie to your insurer?

    The Supreme Court has allowed an insurance claim – even though it involved a lie. Here, Sara Beaumont explains what this mean for policy-holders.

    Policy-holders could be hit by ‘pro-lie’ judgment

    A Supreme Court ruling that lying on an insurance claim does not necessarily invalidate it, could increase the price of millions of household, travel and motor policies.

    The judgment says that ‘collateral lies’ – false statements that do not affect the overall validity of a claim – can be accepted. Judges in the hearing voted by four to one to change a lynchpin principle of insurance law.

    Insurance industry insiders have branded the decision a ‘blow for honest customers’ and warn that insurance policy prices could rise. They also claim it undermines initiatives to stamp out fraudulent claims.

    The nub of the case

    The judgment follows a case involving a Dutch cargo ship that got into difficulty as a result of flooding in its engine room. The court heard that the ship’s owners deliberately lied, claiming the crew were unable to investigate an alarm due to the vessel rolling in heavy seas.

    The court found that the accident was caused by severe weather conditions, which meant the lie was immaterial to the claim.

    The Supreme Court ruling reversed an original County Court case and a Court of Appeal hearing in which judges ruled that the lie amounted to a ‘fraudulent device’ that rendered the claim invalid.

    Why lies can be excused in some circumstances

    An official summary of the judgment said a collateral 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.”

    This suggests that someone who put in a claim for £500 after a laptop was stolen and forges a receipt for the same amount would still be entitled to a pay-out from the insurer.

    Price hikes are more likely if lies can be told

    The judgement is being examined by the Association of British Insurers (ABI) which says cover could become more costly as a result.

    ABI director of general insurance policy James Dalton said the decision ‘flies in the face’ of efforts by the industry and government to combat fraudsters.

    He added that, as well as pushing up the cost of insurance, the judgment could also prolong the pay-out process for the vast majority of honest customers.

    His statement followed comments from the dissenting judge, Lord Mance, who said allowing lies of any kind would ‘distort the claims process by the time and cost involved in unveiling the fraud and attempting to ascertain its true implications’.

    Consumer experts say fraud free-for-all is unlikely

    However, consumer affairs experts say the change does not represent a blank cheque for fraudsters.  They point out that a claim will still be invalid if it is fabricated or exaggerated.

    And they add that the ruling means insurers can no longer use ‘collateral lies’, including genuine mistakes by honest policy-holders, to reject valid claims.

    It is too early to be sure, though it seems that in trying to bring insurance law up to date, the Supreme Court may have made insurance premiums more expensive.

    For further advice on insurance claims, call partner Sara Beaumont on 0161 761 4611, or email her at Sara.Beaumont@whnsolicitors.co.uk