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Ship Owner’s Collateral Lie Did Not Negate Insurance Policy

If you lie to your insurers, they generally have every right to refuse to cover any claim that you might make. However, in a ground-breaking decision, the Supreme Court has ruled in the context of a shipping case that the right to repudiate liability does not extend to dishonest statements which have no relevance to the validity of a claim.

A commercial vessel was incapacitated by a flood in her engine room and her owner made a claim for more than EUR 3.2 million on its insurance policy. The flood was caused by a combination of equipment defects and the negligence of the crew and others. The owner informed the insurers that the bilge alarm had sounded earlier that day but that there could be no investigation as the ship was rolling in heavy seas.

That statement was a lie which was designed to strengthen the owner’s claim and to accelerate payment under the policy. Both the High Court and the Court of Appeal ruled that the insurers were entitled to refuse payment under the policy on the basis that the owner had resorted to a fraudulent device.

In allowing the owner’s appeal by a majority, the Supreme Court noted that its claim was in any event valid, the loss having been caused by a peril of the sea. The collateral lie, which was told to embellish the claim, was irrelevant because the claim was justified whether the statement was true or false. The forfeiture of the entire claim would be a disproportionate sanction to impose in respect of an immaterial falsehood.