UK Supreme Court rules insurance claims cannot be refused over white lies
21 July 2016
Insurers will no longer be able to refuse to pay a customer who has told a white lie – so long as it did not affect the claim - the UK Supreme Court ruled yesterday.
The landmark decision will affect millions of car and home policies and increase the number of successful claims.
Insurers had been rejecting claims over small inconsistencies or mistakes on forms, even if these had no impact.
According to consumer experts, the change overturned 'centuries of insurance practice' and would be beneficial to policy holders.
According to one of the Supreme Court judges, Lord Clarke, the key point was that the lie was irrelevant to the claim
However, the decision had been criticised by the insurance industry, which claimed the result was a "blow for honest customers" and added that the price of policies could rise as a result.
The Supreme Court case involved a Dutch cargo ship, which had its engine room flooded in stormy seas. The owners lied while claiming that the crew could not respond to an alarm because the ship was struggling in large waves. However, even if staff had responded, the ship still would have suffered damage. The lie was therefore not relevant according to the judges.
At first, even as a Court found that the loss suffered by the vessel was caused by an insured peril, and upheld the underwriters' fraudulent device defence that the individual of the vessel's managers had recklessly given a false account of the circumstances surrounding the bilge alarm, which was intended to promote the claim.
Under common law, the insurer is not liable to pay when a fraudulent claim is made by an assured.
However, the Supreme Court reversed the earlier judgments by a 4 to 1 majority, and held that the rule on fraudulent claims did not apply to a "collateral lie" which turned out when the true facts are revealed to have been immaterial to the assured's right to recover.