Fraud, Lies and the impact on insurance claims

I recently had cause to revisit something I wrote for Expert Guides back in 2017. Those interested can read what I said here.

Back in 2017 the insurance market was rocked by the Supreme Court’s decision in the DC Merwestone ⁽¹⁾. That case appeared to condone the telling of collateral lies in the context of an insurance claim. If an insured tells a lie thinking it might help a claim, but in fact it does not help the claim, then the insurer is not necessarily entitled to decline the claim based on the fact that a lie was told.

As one can imagine this did not sit well with insurers. They responded by beefing up fraudulent claim clauses in their policies. In the recent case of Malhotra Leisure v Aviva Insurance ⁽²⁾, the judge was asked to interpret a clause which stated as follows:

“If a claim is … fraudulent or fraudulently exaggerated, or supported by a false statement or fraudulent means or fraudulent evidence is provided to support the claim… we may … refuse to pay the claim…”

Whilst the judge Nigel Cooper KC decided that this clause was sufficient to reverse the effects of DC Merwestone, he held that it was not wide enough to disapply the law that prevailed before that case, which happened to be set out by Mance LJ (as he then was) in The Aegeon ⁽³⁾. Somewhat ironically, Mance was the only dissenting judge in DC Merwestone and he applied a slightly modified interpretation of the common law set out in The Aegeon. The relevant test therefore was whether the lie was (i) directly related to the claim, (ii) made with the intention of improving the insured’s prospects and, (iii) if believed, would have been objectively capable of improving those prospects in a non-trivial way. The judge found on the facts that there was no evidence of dishonesty and therefore no intention to improve prospects. On that basis, the claim succeeded. An alternative argument that the loss was deliberately caused by the insured also failed on the basis that the insurer did not meet the high evidential threshold required to prove fraudulent conduct.

The upshot of this is that it is still challenging for insurers to decline claims even where they might uncover misrepresentations made by the insured. At BDM we are often approached by brokers for advice on insurance claims where insurers have reserved their position. Unlike many firms, we are not prevented from acting against insurers. In most cases we manage to secure very favourable outcomes for our insured clients by focussing on the difficulties that insurers face when it comes to relying on circumstantial evidence in the face of an increasingly tough evidentiary burden associated with proving fraudulent actions.

1. Versloot Dredging BV v HDI Gerling Industrie Versicherung [2016] 2 Lloyd Rep 198.
2. Malhotra Leisure v Aviva Insurance Ltd [2025] EWHC 1090 (Comm).
3. The Aegeon [2002] 2 Lloyds Rep 42

Nick Burgess
Partner