The Supreme Court has held that ‘collateral’ lies told to an insurer in support of a policy claim will not prevent recovery where the lies are immaterial to the insured’s right to recover.

It is well established law that an insurer is entitled to decline a policy claim on the basis of fraud where the policyholder has either fabricated the claim entirely or falsely exaggerated the size of an otherwise valid claim. However, a controversial issue has been whether an insurer can decline a valid claim on the basis of fraud where the policyholder has told a lie that made no difference to the validity of the claim.

The Supreme Court has now confirmed that immaterial, or 'collateral', lies told to insurers will not invalidate an otherwise valid insurance claim. In the instant case the policyholder falsely reported to its insurer that its ship started to flood due to heavy weather, knowing in fact that defects in the ship and negligence by the crew may be to blame. However, the loss was, as a matter of fact, caused by perils of the sea covered by the policy. Therefore, the policyholder's lie made no difference to validity of the claim.

While lying to an insurer is undoubtedly unadvisable, this is welcome clarification of a previously controversial area of law.

Versloot Dredging BV & Anor v HDI Gerling Industrie Versicherung AG & ORS [2016] UKSC 45