One of the basic principles of insurance law is that of ‘uberrimae fidei’ which, roughly translated from the Latin, means that the parties to a contract of insurance are required to act in the ‘utmost good faith’. Basically this meant that, as a consumer seeking insurance, you had a duty to accurately disclose to your insurer any material information and not to make any material misrepresentations in answer to any questions on a proposal or claim form.
Until very recently the insurance industry would seek to avoid paying any claims where they were able to establish that a claimant had lied, even if the misrepresentation or lie did not affect the overall validity of the claim.
However, in a recent case the Supreme Court considered the law relating to, what are technically described as, ‘collateral lies’ in a case involving an insurance claim for damage sustained by a Dutch cargo ship. The ship was insured and had suffered damage by way of an engine room flood. The owners lied on the claim form about the cause of the flood and the reasons why they had failed to investigate and so the claim was not paid by their insurers. The owners of the ship challenged the High Court decision to uphold the insurers position and the Court of Appeal upheld that Judgement. The matter was then referred to the Supreme Court whose ruling in favour of the owners clarifies the law to the effect that lies that DO NOT affect the overall validity of the claim (collateral lies) cannot be used to reject a claim.
Lord Mance said, “The critical point is that, in the case of a collateral lie … 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 lie is immaterial to the claim”.
For example, a person who has lost a receipt for an item that was genuinely stolen would probably be successful in their claim whilst someone in a similar position who inflated the value of items that were genuinely stolen would be unlikely to be successful.
This landmark ruling is seen a great news for the honest majority and means that insurers will no longer be able to use the principle of ‘uberrimae fidei’ to throw out valid claims. It is not thought likely that this will lead to a wave of fraudulent claims.
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