Companies are at risk of losing out on insurance claims if they try to over-egg their story, even if the claim would have been accepted on its own merit.
That is the stark message of a recent case in the Court of Appeal, Versloot Dredging BV and another v HDI Gerling Industrie Versicherung and others, which has left a company without an insurance payout after a manager decided to add his own spin on events.
He fell foul of the rule that says that if a person, knowingly or recklessly, makes an untrue statement in support of an insurance claim, then the claim will be forfeited even if it is otherwise sound.
So, if someone exaggerates the value of items lost or destroyed, or says something untrue to support their claim, as in this case, they will forfeit their whole claim.
The case arose when the main engine of a ship owned by Versloot was irreparably damaged by water leaking into the engine room. The leak was caused by negligence on the part of the crew, combined with a defective pumping system in the engine room.
The ship was insured with HDI Gerling and the shipowners made a claim for the cost of a new engine. Early in the claim, the ship's general manager told the insurers that the captain had reported a bilge alarm going off several hours before the engine was damaged, but he had not investigated because the ship was rolling in heavy weather at the time. It later became clear that the captain had not made any report about the alarm.
The insurers refused to pay up on three grounds, one of which was that the owners had made fraudulent statements in support of their claim.
The High Court Judge rejected two aspects of the insurers' defence, but agreed that the ship manager's statement about the bilge alarm going off had been made to speed up settlement of the claim. The intention had been to support the allegation of crew negligence, and distance the owners from any lack of due diligence.
The judgement resulted in the owners losing their entire claim, although the judge expressed concern that the law resulted in this outcome, as it would have been settled in full if it had been based solely on the true facts of the case. The owners appealed against the ruling, but the Court of Appeal has now upheld the High Court's decision, acknowledging the rule was harsh, but saying it was necessary to deter people from trying to deceive insurers.
Said commercial law specialist John Thorogood of Ward Gethin Archer Solicitors: "The outcome of this case is a reminder to keep to the truth, the whole truth and nothing but the truth.
"The decision may seem harsh, as the manager's statement was a reckless untruth rather than a carefully planned lie. Also, it was told on one occasion, was not followed up in the trial, and it was believed to be consistent with the events that actually happened.
"But the law says that any false statement invalidates a claim, even if the underwriter is not deceived or if the false statement is immediately retracted or corrected. So, it's a stark lesson - whether your claim is for the loss of a supertanker or the loss of a laptop - always to be absolutely straight with insurance companies."
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