Supreme Court : ‘Collateral lies’ shouldn’t be used to reject insurance claims
Landmark ruling means some lies won’t invalidate your insurance claim. Here's what this might mean.
The Supreme Court has ruled that insurers can no longer use ‘collateral lies’ – which are untrue, but don’t directly impact the validity of an insurance claim – to avoid payouts.
Judges voted four to one to alter one of the most important rules behind current insurance law in a case involving a Dutch cargo ship.
The verdict is likely to impact how the claims we make on things like motor and home insurance policies are handled in the future.
The case
The case involved the owners of a cargo ship, DC Merwestone, who embellished the truth when presenting a claim for €3,241,310.60 for damage when its engine room was flooded at sea.
The accident was down to bad weather but the owners lied, saying the crew couldn’t investigate the alarm because the ship was rolling in heavy weather, in order to strengthen the claim and get a quicker payout.
In the original court case a judge ruled the lie was a ‘fraudulent device’ which invalidated the claim. The Court of Appeal upheld this judgement but now the Supreme Court has overturned it.
The judges decided because the accident was down to bad weather the fact the owner had lied about the detail was irrelevant.
Lord Clark, one of the judges on the case, 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."
Lord Hughes, another judge on the case, said: “The forfeiture of the entire claim is not a proportionate sanction for the teller of a collateral lie.”
Interpreting the judgement may be tricky but it suggests that someone who puts in a claim for a stolen laptop worth £1,000, but then fabricates a receipt for it, would still have a valid claim.
‘Blow for honest customers’
James Dalton, Director of General Insurance Policy at industry body the Association of British Insurers (ABI), was disappointed with the verdict.
He said: “Today’s Supreme Court decision could be a blow for honest customers. Allowing ‘collateral lies’ in the course of an insurance claim flies in the face of the work that the insurance industry and Government have been doing to crack down on the cheats and fraudsters."
Dalton also warned that the judgment would push up premiums for households and prolong the payout process.
"This decision risks pushing up the cost of insurance and prolonging the payout process for the vast majority of people who are honest customers. As the dissenting judge, Lord Mance said, allowing lies will ‘distort the claims process by the time and cost involved in unveiling the fraud and attempting to ascertain its true implications’.”
Save your lies
However, the ABI warned that the verdict doesn’t mean insurers will stop investigating dodgy claims.
Dalton added: "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 industry will study this judgment carefully. Insurers are in the business of paying all genuine claims, and have a duty to their honest customers to investigate suspected fraudulent claims.
“No insurer will decline any claim on the grounds of fraud unless they believe they have good grounds to do so. But as this judgment makes clear, inflating the value of an otherwise genuine claim still remains fraud. Anyone in any doubt if information is relevant to their claim should always play safe and tell their insurer.”
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@amwell44. Having been a victim of an accident caused by a third party, I can conclude that insurance companies do indeed try to limit their liability, and do try every trick in the book. Making out that insurance companies are honest and decent is a joke. My mother's injuries from the same crash were significant and life threatening. In fact, during her stay in hospital she had to be resuscitated three times. Yet, when the third party insurer made their initial offer for compensation, it was a joke, and not a funny one. History is littered with stories of people making genuine claims and being belittled by insurance giants wishing to dismiss genuine claims. As for the ruling, it does indeed mean that you CAN lie and get away with it. For example, on insurance applications you have to declare any criminal convictions regardless whether they would impact your insurance or not . If you failed to inform your insurer of a criminal conviction not related to driving, and you were involved in an accident, why should your policy be null and void? I do find some of the answers insurers wish to know rather invasive. If I have done time for a non driving related offence, what right does an insurer have to demand an answer from me? I like the ideal of discretionary disclosure, where you choose what you want to tell them, or where you only supply information directly required for the benefit of the insurance. (Why do they need to know how many other cars you have in your household? They should only be dealing directly with the vehicles you wish to insure with them.) With regards to insurers, they will endeavour to minimise a payout, and while this may benefit the 'genuine customer' wishing to take out a policy by reducing premiums, remember that those genuine customers could also be genuine claimants wishing pick up the pieces of their shattered lives, and being offered a pittance of a payout as compensation is not morally correct. (In my mother's case, her solicitor advised her what her injuries were worth, and the third party insurer came in below that threshold, and would not budge. Suffering a lengthy court case is not always advisable, so she was forced to accept a lower offer than what she would have been entitled to under Law Society guidelines). So amwell44, remember the next time you get on your high horse and defend the insurance industry, there are those of us who have been a victim of their self serving nature. We need insurance as a protection, but I am under no illusion that when I do need to genuinely claim again, I will need the services of a solicitor to fight my corner.
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Gr8it, the insurance industry does not try to find every possible loophole to dismiss a claim, and takes a pragmatic approach, in fact. The circulated stories to the contrary originate from people whose claims have been turned down for good reasons, by insurers protecting their honest customers. And, LandOfConfusion, they are in the business of paying genuine claims. Think of it this way: insurers have no money, only your money ad mine and the claims of the (relatively) few who suffer losses are paid from the premiums of the many. In addition, insurers must maintain adequate solvency margins and reserves. They are running a business, not a lucky dip. It is an ethical, regulated business and there is no reason for populist nonsense of the kind seen in these posts.
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If the insurance industry didn't try to find every possible loophole to dismiss a claim, and took a more pragmatic approach, eg. the customer is paying his insurance, the claim is sound, and the issue is an insured loss covered on the policy, finding out that the person has exaggerated the claim because they expect the insurer to devalue the claim for hundreds of reasons, is really trying to put the wit of the customer against the giant legal teams and underwriting teams, which means in most cases a loss for the customer. They insurers could have been more savvy and applied common sense in this and many other cases, and avoided the massive court and legal costs and the advertisement now that they are avoiding paying legitimate claims, and have been rumbled. I claimed for a leak years ago, had to rip out the shower cubicle, and the insurance paid for 50% of the claim saying that we would have to put up with the rest of the bathroom being a different tile. We coiuldnt afford to replace the tiles in the rest of the room, and they used their own plumber who cut corners, and we ended up with the plumbing failing again. By not doing the job properly, they cost themselves twice as much, they have made an industry out of reducing every claim to a minimum, their industry target is to eliminate the claim completely if possible. Whilst I admire the goal to keep costs as low as possible, if they applied common sense, the publicity would have been avoided, and the costs, and overall, I think we would all be better off for it. They want our business until they have to put their hand in their pockets, and even when they pay out, you and I know that for the next 10 years, they will ramp up our policy costs by 25% so in effect, we are paying for our own claim, they very rarely lose out. They could however, target fraud in a much more sensible way. Reduce premiums for people with dash cams, trackers, Increase excess payments, not premiums, if you've had a previous claim, but only for a short period, stop ripping people off for insurance they can get for free (eg Free Motor Legal Protection... google it, you don't need to pay for this cover!). The industry have themselves to blame in many ways for this.
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24 July 2016