Collateral lies need not spoil insurance claims
The Supreme Court has stated that lying on an insurance claim shouldn’t necessarily invalidate it.
It went on to say that collateral lies that are untrue but do not affected the validity of a claim are acceptable.
The votes were in at four to one in favour of the change to one of the important principles behind the current insurance law.
This has not been met with the same view as the insurance industry warned that policy prices could rise and called it a “blow for honest customers”.
The decision came about after a case involving a Dutch cargo ship. The engine room was flooded however the owners ‘deliberately’ lied by claiming the crew could not investigate an alarm due to heavy seas. It was deemed that the accident was caused due to bad weather and therefore the lie was irrelevant according to the court.
The judge that dealt with the original court case felt the lie ‘amounted to a fraudulent device’ which in turn invalidated the claim. The Court of Appeal upheld the judgement however after it was presented to the Supreme Court, they overturned the decision.
One of the four judges, Lord Clarke stated “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 would suggest that if someone lost a receipt so fabricates one for the same amount, would still be able to make a valid claim.
The Association of British Insurers (ABI) has warned that insurance policies could be on the rise as a result and that they will be looking into the judgement carefully.
The ABI director of general insurance, James Dalton said “This decision risks pushing up the cost of insurance and prolonging the pay-out process for the vast majority of people who are honest customers. Lies are lies. Insurers will investigate all suspicious claims and we make no apology for doing so as it keeps premiums down for honest customers.”
The principle is thought to apply to millions or household, travel and motoring policies.
Consumer affairs expert at MoneySuperMarket, Kevin Pratt 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.”
