Claims & policy principles

PI fraudulent claim clause explained

Category: Claims and policy principles · Reviewed by the Apex broking team · Last reviewed 2026-08-22 · ~4 min read

In short: A fraudulent claim clause is the term in a professional indemnity policy that sets out what happens if a claim presented under it is dishonest. Since the Insurance Act 2015 the baseline is statutory: under section 12 the insurer is not liable to pay a fraudulent claim, may recover sums already paid for it, and may by notice treat the contract as terminated from the time of the fraudulent act, refusing liability for later events and keeping the premium. A policy clause sits on top of that statutory floor and is worth reading, because it can be drafted more widely than the Act.

Category: Claims and policy principles
Also known as: fraudulent claims condition, fraud clause, claims fraud provision
Not the same as: the dishonesty exclusion, which deals with dishonest acts by the insured or its staff giving rise to a claim, rather than dishonesty in presenting one

Definition

A fraudulent claim clause is a policy condition dealing with dishonesty in the presentation of a claim. It typically states that if a claim is in any respect fraudulent, or if fraudulent means or devices are used to obtain a benefit under the policy, the claim is forfeit and the insurer may have further rights — commonly the right to recover payments already made and to bring the contract to an end.

It is distinct from the pre-contract regime. Dishonesty at proposal or renewal is dealt with by the duty of fair presentation and the remedies for deliberate or reckless breach, not by the fraudulent claim clause. See fair presentation and PI warranties versus representations for that side of the line.

The statutory floor: section 12 of the Insurance Act 2015

The Insurance Act 2015 received Royal Assent on 12 February 2015 and came into force on 12 August 2016, applying to contracts entered into, and variations agreed, on or after that date. Section 12 provides that if the insured makes a fraudulent claim, the insurer is not liable to pay the claim, may recover from the insured any sums it has already paid in respect of that claim, and may in addition, by notice to the insured, treat the contract as having been terminated with effect from the time of the fraudulent act. If the insurer does terminate on that basis, it may refuse all liability for a relevant event occurring after the time of the fraudulent act, and it need not return any of the premium.

Two features of that structure matter in practice. Termination is forward-looking from the fraudulent act, so genuine claims that arose before it are unaffected. And termination is an option the insurer exercises by notice, not something that happens automatically. Section 13 makes parallel provision for group insurance, where the person making the fraudulent claim is a member of the group rather than the policyholder.

Notably, the Act does not define “fraudulent claim”. The meaning comes from the common law, which is why the case law on the fraudulent claims rule remains directly relevant to a modern policy.

Collateral lies: Versloot Dredging

The leading modern authority on the boundary of the rule is Versloot Dredging BV v HDI-Gerling Industrie Versicherung AG [2016] UKSC 45, decided on 20 July 2016. The claim itself was genuine: the vessel had suffered a real, covered casualty. In pressing insurers for payment, however, the owners’ management gave an untrue account of a bilge alarm having sounded and been reported, in order to head off any suggestion of crew negligence and speed payment up. The lie made no difference to the entitlement — the loss was recoverable on the truth.

The Supreme Court held by a majority that such a “collateral lie”, a fraudulent device deployed in support of a claim that is in substance good, does not forfeit the claim. The fraudulent claims rule bites where the fraud is material to the insured’s right to recover; it does not extend to an irrelevant untruth told to smooth the path of a valid claim.

The practical reading for a policyholder is narrower than it first appears. The decision is not a licence to embellish. A lie that touches quantum, causation, or the existence of the loss is not collateral, and dishonesty in a claim presentation will in any event damage the relationship with insurers and complicate the next renewal long before anyone reaches the legal test.

What a policy clause can add

Section 12 is a floor, not a ceiling. A fraudulent claim clause can go further — for example by expressly capturing fraudulent devices, by defining whose knowledge counts, or by extending consequences across a claim series or to other policies in the same programme. Points worth checking on a professional indemnity wording include whose dishonesty is attributed to the firm, whether the innocent partners or members of an LLP are protected by a severability or innocent non-disclosure provision, and whether the consequences of one fraudulent claim reach beyond that claim.

Our longer treatments are at the fraudulent claims clause in UK PI insurance and Insurance Act 2015: remedies for fraudulent claims.

Not to be confused with the dishonesty exclusion

A professional indemnity policy will usually also carry a dishonesty or fraud exclusion, which removes cover for loss arising from dishonest acts of the insured — the underlying wrongdoing, not the claim presentation. Regulated professions often require that exclusion to be softened so that innocent principals remain covered for the acts of a dishonest colleague. The two provisions do different jobs and can both be in play in the same matter. See the PI fraud and dishonesty exclusion.

What it means in practice

Present claims carefully and put the file in front of the broker before it goes to insurers. Correct anything inaccurate as soon as it is spotted, in writing, rather than allowing it to sit on the file. Where a firm has multiple people contributing to a claim narrative, decide who owns the account being given. And read the clause at renewal rather than at notification — the width of the attribution wording is the part that most often surprises partnerships and LLPs.

Frequently asked questions

What happens if a professional indemnity claim is found to be fraudulent?

Under section 12 of the Insurance Act 2015 the insurer is not liable to pay that claim, may recover any sums already paid in respect of it, and may by notice treat the contract as terminated with effect from the time of the fraudulent act. If it terminates on that basis it can refuse liability for later relevant events and need not return premium. Earlier genuine claims are not disturbed.

Does a lie told in support of a genuine claim destroy the claim?

Not automatically. In Versloot Dredging BV v HDI-Gerling [2016] UKSC 45 the Supreme Court held that a collateral lie, one that is irrelevant to the insured's actual entitlement to recover, does not forfeit an otherwise valid claim. A dishonest statement that goes to whether or how much the insurer must pay is a different matter and is not collateral.

Is the fraudulent claim clause the same as the dishonesty exclusion?

No. The fraudulent claim clause deals with dishonesty in presenting a claim. The dishonesty exclusion deals with dishonest conduct by the insured that gives rise to a claim in the first place. Many professional indemnity wordings contain both, and regulated professions usually require the exclusion to preserve cover for innocent principals.

Can one partner's dishonesty affect the whole firm's cover?

That is a question of attribution, and it is answered by the policy wording rather than by the statute. Some wordings attribute the knowledge and conduct of any partner, member or director to the insured; others sever, protecting those who were not party to the dishonesty. It is worth checking before renewal.