Insurance: how 'collateral lies' ruling affects you Supreme Court ruling expected to impact insurance claims

26 July 2016

Crash for cash

More genuine insurance claims could be accepted as a result of last week's ruling

Lying on an insurance claim may no longer invalidate it, following a landmark ruling by the Supreme Court.

Last week, the Court said that untruths made on an insurance claim that do not affect its overall validity - known as 'collateral lies' - can be acceptable. 

It's expected that the ruling will result in fewer insurance claims being thrown out due to form-filling errors and simple mistakes.

Espe Fuentes, head of legal operations at Which? Legal, said: 'This decision from the Supreme Court should help to make sure that insurance policyholders aren't denied payouts when they have genuine claims.  

'It means that insurance companies will only be able to consider relevant evidence when deciding a claim. However, it's important to note that this ruling only refers to making claims, not to purchasing your insurance in the first place.'

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Supreme Court overturns case involving flooded Dutch cargo ship

The Supreme Court overturned a case involving a Dutch cargo ship, which was significantly damaged after its engine room flooded. 

When making their insurance claim, the crew deliberately lied by saying they couldn't investigate an alarm that sounded due to bad weather. 

The insurance company discovered this was a lie and invalidated the claim. The Court of Appeal upheld that judgment, but the Supreme Court overturned it, finding that the lie didn't affect the overall validity of the claim.

One of the judges, Lord Mance, stated: '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 a lie is immaterial to the claim.'

Insurance premiums to rise? 

The ruling will set a precedent for insurance claims in the future, and it's expected that more genuine claims will be successful as a result. 

If insurance companies end up paying out more in claims, it's possible that this cost will be passed on to customers in the form of higher premiums.

The Association of British Insurers (ABI) has expressed concerns that the Supreme Court's ruling could encourage dishonest people to make fraudulent insurance claims. 

James Dalton, ABI director of general insurance policy, said: 'Allowing collateral lies in the course of an insurance claim flies in the face of the work that the insurance industry and government have been doing to crack down on the cheats and fraudsters.

'This decision risks pushing up the cost of insurance and prolonging the pay-out process for the vast majority of people who are honest customers.'

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