In brief - Decision that fraudulent devices forfeit insurance claims upheld

England's Court of Appeal has recently confirmed in a shipping case that employing fraudulent devices forfeits an insurance claim. While its decision is interesting for marine insurance in Australia, section 56 of the Insurance Contracts Act 1984 may mean that non-marine insurers still need to pay if the court finds it just and equitable.

England's Court of Appeal upholds decision in shipping case

In November 2013, we reported on the decision of Mr Justice Popplewell in the Commercial Court in England in Versloot Dredging BV & Another v HDI Gerling Industrie Versicherung AG & others (2013) EWHC 1666 (Comm.). (Please see our earlier article Court rejects insurance claim of ship owners because of "fraudulent device" used in making claim.)

The Court of Appeal in England has now reconsidered that decision and confirmed that an insured who employs a "fraudulent device" in presenting an insurance claim forfeits the claim, even if the claim would otherwise have been recoverable under the policy.

Crew's negligence contributes to damage

While loading a cargo of scrap metal in Lithuania in January 2010, the crew negligently failed to clear water from the emergency fire pump of the vessel DC Merwestone and failed to close the sea valve. Due to the extremely low temperature, the water in the pump froze and expanded, causing it to crack and creating a direct opening between the seawater outside the vessel and the interior of the vessel's bow thruster space.

Ship's engine submerged, insured tells untruth to underwriters

When the ice melted after the vessel sailed into warmer waters, there was an ingress of water into the vessel and the bilge alarm did not alert the crew until the water had reached about one metre above the floor plates in the duct keel. The engine was completely submerged and required replacement.

In presenting the claim to insurers, the insured recklessly told the underwriters an untruth - stating that the bilge alarm had gone off but was ignored.

Case tests whether fraudulent claims rule applies to fraudulent means or devices

Lord Justice Mance said in Agapitos v Agnew (The "Aegeon") (2003) QB 556 that:

A fraudulent device is used if the insured believes that he has suffered the loss claimed, but seeks to improve or embellish the facts surrounding the claim by some lie.

While it is clear from a long line of authority that if an insured makes a fraudulently inflated claim under the policy, he forfeits any lesser claim which he could properly have made, the issue in Versloot Dredging was whether the same rule about fraudulent claims applies to fraudulent means or devices.

The "Aegeon" case establishes that fraudulent devices forfeit the claim

Considering various authorities, Lord Justice Mance concluded that a "bright line" rule is that the use of a fraudulent device forfeits the claim, provided that the fraudulent device was:

  • directly related to the claim;
  • intended by the insured to promote prospects of success; and
  • would have tended to yield a not insignificant improvement in the insured's prospects of success.

The Court of Appeal held that the principles in The "Aegeon" were applicable and that Justice Popplewell had correctly decided that the owners' claim was fraudulent by reason of the use of a fraudulent device and that the claim should be forfeited on that account.

Effect of section 56 in relation to non-marine insurance

While the decision is clearly of importance to the law of marine insurance in Australia, the effect of section 56 of the Insurance Contracts Act 1984 in relation to non-marine insurance should also be noted.

Section 56(2) of that Act provides that "...if only a minimal or insignificant part of the claim is made fraudulently and non-payment of the remainder of the claim would be harsh and unfair...", then the court may order the insurer to pay such amount as is just and equitable in the circumstances.


This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.

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