Fraudulent devices and collateral lies

Category: Claims and policy principles · Reviewed by the Apex broking team · Last reviewed 2026-08-22 · ~5 min read

The distinction that matters

English law has long treated a fraudulent claim as forfeiting the whole claim. The difficulty was categorising a narrower species of dishonesty: the insured whose loss is real and covered, but who embellishes the account — inventing a detail, backdating a document, overstating an event — in order to speed the claim along or to deflect blame. That is the fraudulent device, or collateral lie.

The distinction is between lying about whether you are entitled to be paid, and lying about something else while being entitled to be paid. The first is a fraudulent claim. The second, since 2016, is not.

Versloot Dredging v HDI-Gerling

The case concerned the vessel DC Merwestone. Water entered the engine room and the main engine was damaged beyond repair. The loss was, on the findings, caused by a peril covered by the policy, and the owners were entitled to be indemnified. In presenting the claim, however, someone on the owners’ side told the insurers that the bilge alarm had sounded but had not been investigated because of heavy weather. That was untrue. It was told to strengthen the claim and to move it along.

The lower courts held that the lie was a fraudulent device and that it forfeited the claim. The Supreme Court, in Versloot Dredging BV v HDI-Gerling Industrie Versicherung AG [2016] UKSC 45, handed down on 20 July 2016, allowed the owners’ appeal by a majority. The majority reasoned that the fraudulent claims rule is a deterrent whose severity is justified where the insured is trying to obtain something to which it is not entitled. Where the claim is good, the insured gains nothing by the lie and the insurer loses nothing by paying a liability it always had, so forfeiture would be disproportionate. Lord Mance dissented, preferring a test that would have caught lies which significantly improved the insured’s prospects.

The full case note is here.

What is still fatal

The decision is narrower than it is sometimes reported to be. A claim that is exaggerated, or that includes items never lost, remains a fraudulent claim and is forfeit in its entirety — the insured does not recover the honest part. A claim founded on a fabricated loss is plainly fraudulent. And a lie that is not collateral, because the claim would fail without it, is not saved by Versloot: the whole basis of the majority’s reasoning is that the insured was entitled to be paid anyway.

Nor does the decision touch fraud in the placing of the risk. Dishonesty at inception is dealt with under the law on misrepresentation and fair presentation, with its own and quite different consequences. And a policy may contain an express fraud condition; whether such a clause can achieve more than the general law is a question of construction of the particular wording.

Why the argument arises so often

Claims are reconstructed after the event by people who were not there, from records that were not kept for the purpose. Under pressure, statements get tidied. An operations manager who cannot remember whether an inspection happened may say that it did. A driver may improve the account of a road layout. None of this is planned fraud, and in many cases the claim is entirely genuine, but each of these is potentially a collateral lie.

Before 2016 an insurer that found one had a powerful, and to policyholders a disproportionate, defence. After 2016 the question changes: the insurer must ask whether the claim was good without the lie. If it was, the lie does not defeat it — though it may well destroy the relationship, prompt a wider investigation of the file, and affect the insurer’s appetite at renewal.

Practical points for policyholders

Three rules. Say what you know and mark clearly what you do not; “I do not recall” is a complete and safe answer. Do not let anyone tidy a document, a log or a maintenance record after a loss — alteration of records is where a recoverable claim turns into a disputed one. And route the narrative through one person who has actually checked it, because contradictions between accounts given by different employees are what trigger the fraud enquiry in the first place.

For brokers, the point at which to intervene is the first written statement of the circumstances. That document tends to be produced quickly, by the person closest to the incident, and it is the one that gets tested line by line eighteen months later.

Frequently asked questions

What is a collateral lie?

A lie told in support of a claim that is in fact valid and recoverable — the loss happened, it was covered, and the insured would have been paid without the lie. The lie is collateral because it is irrelevant to the entitlement to recover.

Did Versloot Dredging abolish the fraudulent claims rule?

No. It held that collateral lies fall outside the rule. Fabricated and exaggerated claims remain fraudulent claims and are forfeit in full, including the honest element of an exaggerated claim.

Does an exaggerated claim still lose everything?

Yes. Where a claim is dishonestly exaggerated, the whole claim is forfeit, not merely the exaggerated part. That is the position Versloot left undisturbed.

Can an insurer still investigate after an untrue statement?

Yes. A false statement will normally prompt a much wider examination of the claim and the placing, and it can affect the commercial relationship at renewal, even where it does not give the insurer a defence to the claim itself.

Related entries

• Versloot Dredging v HDI-Gerling [2016] UKSC 45
• Utmost good faith
• Material disclosure at claim
• Fraud and dishonesty exclusions
• Notification of claim

This entry is part of the Apex Insurance Wiki. This entry states the position as at August 2026. It is insurance information, not legal advice. Last reviewed 2026-08-22. Next review: 2027-02-22.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.