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Sections 12 and 13 of the Insurance Act 2015 put the remedies for a fraudulent claim on a clear statutory footing. For professional firms the provisions are a reminder that the integrity of a claim presentation matters as much as the integrity of the risk presentation.
Before the Act, the consequences of claim fraud were governed by a patchwork of common law rules that were powerful but not always predictable. The 2015 reforms did not soften the law; they codified it, so that an insurer and an insured can now read the same short set of provisions and know exactly where they stand. That certainty cuts both ways. It gives professional firms a fair and legible framework, and it removes any argument that the forfeiture of a tainted claim was a surprise or a technicality. Understanding these sections is part of understanding what a professional indemnity policy actually protects, and what can quietly put that protection at risk.
Where the insured makes a fraudulent claim, section 12(1) gives the insurer three cumulative remedies:
Section 12(2) confirms that if the insurer terminates from the time of the fraudulent act, it need not return any premium, and it may refuse liability for anything happening after that time — but earlier, legitimate claims under the same policy are unaffected.
These remedies are cumulative, not alternative, which means an insurer can decline the claim, claw back interim payments it has already made towards that claim, and end the contract prospectively, all at once. The termination is not retrospective to the start of the policy: cover that responded to genuine, unrelated matters earlier in the period stays intact. That structure is deliberate. It punishes the fraud on the specific claim it infects, denies the fraudster any windfall from cover that continues, but stops short of unwinding the whole relationship and stripping an otherwise honest policy year of its value. For a firm carrying a live notification history, that distinction can be the difference between a contained problem and a catastrophic one.
The remedy bites on the whole of the claim tainted by fraud, not merely the exaggerated part. A genuinely valid claim inflated by a fraudulent device — a fabricated document, an invented loss element — can be forfeited in full. That is a deliberate deterrent, and it reflects the pre-Act common law confirmed in cases such as Versloot Dredging v HDI Gerling on collateral lies.
It is worth being precise about where that line falls, because it is easy to misremember. The doctrine attaches to a claim that is fraudulent — where the insured has dishonestly manufactured or grossly exaggerated an entitlement. Where the underlying claim is genuine but the insured has told a lie in support of it that turns out to be irrelevant to the true right to recover, the courts have treated that "collateral lie" differently, declining to forfeit an otherwise valid claim on the strength of an immaterial untruth. The safe reading for any professional firm is not to try to locate the exact edge of that distinction under pressure. A lie told to strengthen a claim is a lie that puts the whole claim in jeopardy, and no honest claim needs one. The practical rule is simpler than the case law: present what happened, and only what happened.
Fraud in this context is not confined to inventing a loss from nothing. It covers a genuine matter dressed up to be worth more than it is, a loss that has been deliberately exaggerated, a supporting document created or altered to fill a gap in the file, and a claim maintained after the insured knows it is false. The common thread is dishonesty directed at the insurer — a knowing attempt to obtain more than the policy truly owes. Carelessness, an honest mistake in a schedule of loss, or a good-faith estimate that later proves too high are not fraud; the section is aimed at deception, not at imperfection. That said, the further a firm strays from contemporaneous records and towards reconstruction after the event, the harder it becomes to show that any overstatement was honest rather than manufactured. Good file discipline is not just good practice; it is the evidence that keeps a claim on the right side of the line.
Section 13 deals with group policies, where one person takes out cover that benefits others. If a fraudulent claim is made by one member of the group, the section 12 remedies apply in relation to that person's cover only, protecting the innocent members whose position is not affected by another's fraud.
This matters in a professional setting more than it might first appear. Partnerships, LLPs and multi-office firms frequently sit under a single policy that responds for a group of insured persons. Section 13 means that the misconduct of one individual — a partner who doctors a file, a fee-earner who invents a note — does not automatically collapse the protection the rest of the firm relies on. The dishonest member forfeits their cover for the tainted claim; the innocent do not inherit the penalty. For firms structuring cover across several principals, or arranging run-off for a group, that carve-out is a meaningful safeguard, and it is one reason the way an insured group is defined in the wording deserves a careful read.
Professional indemnity claims are usually made by a third party against the firm, and the firm's own conduct in presenting and handling the matter to its insurer falls under these rules. Overstating a defence cost, backdating a file note, or presenting a reconstructed document as contemporaneous can convert a covered claim into a forfeited one. Solicitors, accountants and insurance brokers — professionals who deal in documents and records — are particularly exposed to the temptation and the consequence. The discipline is straightforward: notify early, present honestly, and never improve the paperwork after the event. Apex supports firms in handling notifications so that the claim presentation is accurate and defensible.
The risk is rarely a bold, invented claim. It is far more often a small, well-intentioned tidy-up under stress. A file that should have been dated at the time was not, so someone adds the date now. A note that everyone remembers being written was never saved, so it is recreated from memory and presented as the original. A cost estimate for defending the matter is nudged upward "to be safe." Each of these can turn a defensible position into a fraudulent presentation, and each tends to happen at exactly the moment a firm feels most exposed — when a complaint has landed and the instinct is to make the record look as strong as it should have been. The professions that live in documents feel this pull most acutely, which is precisely why the answer has to be a rule, not a judgement call.
None of this is a reason to under-buy protection. A firm's limit of indemnity should be sized to the realistic worst-case claim it could face — the value of the matters it advises on, the scale of the loss a single error could cause a client, and any minimum terms set by its regulator or professional body — not to the fear that a claim might be lost to fraud. The fraudulent claims rules sit alongside that sizing exercise: they are about how a firm behaves once a claim is live, while the limit and the scope of cover are about how much protection stands behind an honest claim in the first place. The two work together. A well-sized policy, honestly claimed on, does what it is bought to do. A generous limit undermined by a doctored file may pay nothing at all.
Consider a surveyor facing an allegation of a negligent valuation. Presented honestly — the working papers as they were, the comparables as they stood, the defence costs estimated in good faith — the professional indemnity policy responds to defend the matter and to meet any liability up to the limit. Now change one fact: a comparable is added to the file after the complaint to make the valuation look better supported. The claim is no longer just about whether the original work was negligent; it now carries a fraudulent device, and section 12 puts the entire claim, including the genuine parts, at risk of forfeiture. The same shape recurs across disciplines — an accountant reconstructing a lost engagement letter, a solicitor backdating an attendance note, a broker producing an after-the-event record of advice. In every case the honest version is covered and the improved version is jeopardised. The cover that responds is the same policy; whether it responds at all can turn entirely on the integrity of the presentation.
Under section 12, where a claim is fraudulent the insurer is not liable to pay it — and that can extend to the whole claim, not just the inflated portion. A genuine loss wrapped in a fraudulent device can be lost in full. That is why an honest but modest presentation is always safer than a stronger one built on anything invented.
If the insurer terminates from the time of the fraudulent act, it can refuse liability for events after that point and need not return premium, but earlier legitimate claims under the same policy are unaffected. The penalty is targeted at the fraud, not applied retrospectively to honest claims already met.
Not under a group arrangement. Section 13 applies the section 12 remedies to the dishonest individual's cover only, protecting the innocent members of the group. How your insured group is defined in the wording matters, so it is worth checking.
No. These provisions are aimed at dishonesty — a knowing attempt to obtain more than the policy owes. An honest error, a good-faith estimate or an imperfect schedule of loss is not fraud. The risk arises when records are altered or manufactured after the event, because that undermines the argument that any overstatement was honest.
Notify early, present the file as it genuinely stands, and never improve the paperwork after a complaint has landed. If a document is missing, say so rather than recreating it as though it were contemporaneous. A careful, accurate notification is both the honest course and the strongest defence.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.
