Telling a "collateral lie" will not invalidate an insurance claim, the Supreme Court has ruled.
A collateral lie, which is an untruth that does not affect the overall validity of a claim, was examined today in a case involving a Dutch cargo ship which ran into difficulty after its engine room flooded.
The crew claimed untruthfully that they were unable to investigate an alarm because of poor weather conditions. As the accident was itself caused by bad weather, the lie was deemed irrelevant.
Judge Lord Mance said: "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."
James Dalton, director of general insurance policy at the Association of British Insurers said: "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."
Jim Cashman, partner at law firm HFW, said: "The question the Supreme Court had to address was whether the claim would have been equally recoverable if the statement by the vessel's managers had been true or false.
"The Supreme Court recognised the difference between an assured who uses fraud in an attempt to gain something to which he is not entitled, and one who makes a reckless statement but stands to gain nothing beyond what he is legally due.
"The judge at first instance considered that forfeiture of the claim was disproportionately harsh, and I am delighted that common sense has ultimately prevailed."
