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Your Latin term for the day is ‘uberrimae fidei’. This vaguely seasonal-sounding expression means ‘utmost good faith’. It’s an implied term in any insurance contract. A recent case is an example of how important it is.
In this case, a ship was permanently damaged by water leaking into the engine room. The leak was partly caused by a defective pumping system, and partly by the crew’s negligence. For some reason the ship’s general manager falsely told the insurers that the crew had reported a bilge alarm going off some hours before the damage. It seems the manager wanted to make it look more as though the crew’s negligence was to blame, rather than the shipowner in failing to keep the engine room shipshape. He hadn’t really thought through what he was trying to achieve, so was more reckless in his lying than anything else.
The judge confirmed that based on what actually happened the shipowner’s claim would have been settled in full anyway. But because the ship manager had lied the shipowner lost the entire claim. 3.2m Euros. The judge said he wasn’t too happy that he had to rule this way, and would prefer to have been able to order something more proportionate, but the law was the law. This was sort of a nod and a wink suggesting the case should be appealed so the Court of Appeal could reconsider the law. But when the shipowner appealed the Court of Appeal didn’t change the first judges’ decision. It agreed that the law here (it’s called ‘the doctrine of fraudulent claims’) was harsh but said that it was needed to deter people from trying to deceive insurers.
So the decision was made on a point of principle – better for one person to suffer disproportionately from their crime if it discourages others. The shipowner had argued that this approach would be in breach of Article 1 of the First Protocol to the European Convention on Human Rights (“the ECHR”) effected in English law by the Human Rights Act 1998 (the “HRA”). The HRA says that it is unlawful for a public authority, including a Court, to act in a way which is incompatible with an ECHR right. The Article 1 right is a right not to be deprived of your possessions. Even the insurers had conceded that the forfeiture of the insurance claim would be an interference with the rights under Article 1. But the Court of Appeal ruled that the legitimate policy aim of the doctrine of fraudulent claims was already sufficiently ‘legitimately proportionate’ which meant it could outweigh the Article 1 right.
I’m sure you’ve never done it, but some people will be inclined to exaggerate their insurance claims. This may be partly because they feel the insurers will try to find ways to whittle down their claims, so they feel that exaggerating the claim to start with is more likely to end up with them getting a fair compensation for their actual loss.
This case makes clear that you should never knowingly or recklessly make an untrue statement in support of an insurance claim. You run the risk the whole claim will be forfeited, even if the statement is retracted soon after.
And never be caught if you do.
Case: Versloot Dredging BV and another v HDI Gerling Versicherung AG and others  EWCA Civ 1349