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In one of recent blogs, – ‘The Importance of Honesty in Personal Injury Claims’ – we reported on the case of Hughes, Kindon and Jones –v- KGM in which the Claimants in a personal injury claim had exaggerated their claims. The claims were dismissed and an order for costs made against the dishonest Claimants.
Now, only 3 months later, the Supreme Court has given judgment in a claim against an insurer for damage to a ship which had been incapacitated by an ingress of water that flooded the engine room. The Claimant’s manager developed a theory that the bilge alarm had sounded but the crew had been unable to investigate or deal with the leak because of the rolling of the ship in heavy weather. In fact this was a lie, invented at time when the cause of the flood was unclear, but the manager had believed that it would fortify the claim and accelerate payment from the insurer. In the event, the true cause of the flood was established and the lie proved to have been irrelevant to the merits of the claim. The claim succeeded, despite the lie, but why?
The Supreme Court identified 3 types of lie:-
1 The whole claim may have been fabricated.
2 The claim may be genuine, but the amount claimed exaggerated (as in Hughes etc).
3 The entire claim may be justified but the information given in support of it dishonestly embellished.
In the first 2 categories, the Supreme Court held, the insurer is not liable. However this claim fell into the third category – the claim would have been equally recoverable whether the statement was true or false. A collateral lie would not therefore lead to the claim failing.
Perhaps the Court had sympathy for the Claimant as the trial judge had found that the manager’s lie was “at the low end” of fraudulent conduct and “a reckless untruth, not a carefully planned deceit.” However one of the Supreme Court Justices, Lord Mance, dissented. He highlighted that the insurance relationship is one of good faith and stressed the importance of integrity and fraud deterrence. To permit Claimants to pursue a bad, exaggerated or questionable claim means that they can tell lies with virtual impunity and distort the claims process.
No doubt insurers will be looking carefully at the decision and in particular Lord Mance’s advice that they make clear their understanding and actions during the claims process.
Section 12 of the Insurance Act 2015, which restates that an insurer is not liable to pay a fraudulent claim, will apply to contracts concluded after 12th August 2016.