You may have read a recent headline or two from well established media outlets along the lines of “Insurance Industry Slams Court over ‘Collateral lies’”.
The substance of the reporting suggests that it does not matter whether you lie or not during your application or claim for insurance because such a lie may not impact on the claim.
Outraged insurance companies scream “Lies are lies” stating that the ruling puts at risk the integrity of honest customers and encouraging those not to tell the truth. They warn that as a consequence they will “have” to put insurance premiums up. The writer thinks that this is just a convenient lever for increasing premiums without justification.
The ruling comes about as a consequence of a majority decision in the Supreme Court that held that “collateral” lies do not necessarily prevent the insurance company from having to pay out.
In the case in question, a ship had its engine damaged beyond repair through flood-water. The ship’s owners lied by saying that the crew could not attend an alarm due to the vessel being tossed about on the sea. They lied. They did so for fear that otherwise the insurance company would not pay out.
However, the actual damage was caused by the weather in any event and so the lie made no difference to the claim.
In other words, insurance companies cannot use statements wrongly made by a claimant as an excuse for not paying out – where those wrong statements do not impact on the value of the payment.
The writer agrees with the court. Insurance companies often try to find spurious ways to avoid paying out and this ruling means that they cannot do so. A lie is not a lie. There a differing degrees of lie.
As shown in another recent Supreme Court decision. An insurance company signed an agreement in court agreeing to end litigation and to pay the Claimant nearly £135,000. The individual involved was injured at work and obtained the payment from his employer’s insurance.
The neighbours of the Claimant then reported him for deceit. They felt that he had recovered fully and must have grossly exaggerated his injuries. The appeal court then reduced the payment by 90% but on further appeal the Supreme Court had to then consider whether it was possible to set aside the settlement agreement after it had been agreed by all parties before the court (in what is known as a “Tomlin” Order).
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The Supreme Court held that they were entitled to do so because even though the insurance company suspected that the Claimant was lying from the outset, they opted to settle just in case a court believed the Claimant and awarded an even higher sum that the £134,973.11 that they settled for.
And so the point is this – insurance pay-outs have to be paid back where there is clear fraud that affects the amount of that pay-out. But conversely, where a wrong statement does not impact on the value of a pay-out then insurance companies cannot hide behind it as they previously could.