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Collateral Lies & Fundamental Dishonesty - Aidan O'Brien, Farrar's Building

11/10/16. Personal Injury practitioners would be well advised to heed the recent Supreme Court decision in Versloot Dredging BV & anor v HDI Gerling Industrie Versicherung AG & ors [2016] UKSC 45, relating to ‘collateral lies’ and ‘the fraudulent claim rule’.

Versloot involveda ship-owner who appealed against a decision that insurers should be allowed to repudiate a claim made under a policy of marine insurance as a consequence of ‘collateral lies’. The claim related to the flooding of a ship’s engine room, causing damage in excess of €3 million. The ship-owner initially claimed that the flooding had occurred because the crew had been unable to deal with a leak due to the rolling of the ship in heavy weather. It later transpired that this account was fabricated and that the flooding was caused by the crew’s failure to close a sea inlet valve, the failings of contractors to appropriately seal bulkheads and faults in the engine room pumping system.

The true cause of the flooding fell to be defined as a ‘peril of the seas’, and as such, was covered by the insurance policy. The ship-owner’s initial falsehood was therefore irrelevant to the merits of the claim. Despite this, the Court of Appeal determined that the ship-owner’s initial account constituted a fraudulent device and thereby entitled the insurer to avoid the claim.

On appeal, the majority of the Supreme Court (Lord Mance dissenting) determined that... 

Image: public domain via pixabay.com/en/barent-zanen-dredge-ship-ship-895161/

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