Fraudulent claims: Insurance Act 2015, section 12

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

The three remedies

Section 12(1) provides that if the insured makes a fraudulent claim under a contract of insurance, then (a) the insurer is not liable to pay the claim, (b) the insurer may recover from the insured any sums paid by the insurer to the insured in respect of the claim, and (c) in addition, the insurer may by notice to the insured treat the contract as having been terminated with effect from the time of the fraudulent act.

The three remedies are cumulative, and the third is optional and requires a notice. Section 12(2) sets out what termination means: the insurer may refuse all liability to the insured under the contract in respect of a relevant event occurring after the time of the fraudulent act, and it need not return any of the premiums paid under the contract.

What survives the fraud

Section 12(3) is the counterweight. Treating the contract as terminated does not affect the rights and obligations of the parties with respect to a relevant event occurring before the time of the fraudulent act. A genuine, unrelated claim that arose before the fraud is therefore unaffected. Section 12(4) defines “relevant event” as whatever gives rise to the insurer’s liability under the contract, giving the occurrence of a loss, the making of a claim and the notification of a potential claim as examples, depending on how the contract is written.

The result is a forward-looking remedy rather than avoidance from inception. That is a significant change from the old common law analysis, under which the consequences of claims fraud were sometimes argued to reach back to the start of the policy.

What section 12 does not do

The Act does not define a fraudulent claim. The content of the concept — a claim that is fabricated, deliberately exaggerated, or supported by evidence known to be false in a way that matters — is left to the common law. Section 12 governs the consequences once fraud is established, not the test for establishing it. Wordings frequently add an express fraud condition; where one exists, the contractual remedy and the statutory remedy sit alongside each other, and the drafting needs reading carefully to see which is intended to prevail.

Group insurance: section 13

Section 13 deals with the group case, where A takes out a contract that provides cover for other persons who are not parties to it. If one of those covered persons makes a fraudulent claim, section 12 applies as if the cover for that person were provided under an individual contract between the insurer and that person. The insurer’s section 12 rights are exercisable only in relation to the cover provided for the fraudster, and exercising them does not affect the cover provided for anyone else under the same contract. Section 13 then makes detailed modifications to who counts as “the insured” for the purposes of recovery of sums paid and retention of premium.

This matters for schemes, affinity arrangements and group covers arranged by an employer or an association, where the alternative — one member’s dishonesty destroying cover for everyone — would be commercially intolerable.

Collateral lies and Versloot Dredging

A separate question is what happens when the claim itself is genuine but the insured has lied in support of it. The Supreme Court addressed this in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2016] UKSC 45, known as the DC Merwestone. The majority held that the fraudulent claims rule does not extend to a collateral lie — a lie that is irrelevant to the insured’s entitlement, in the sense that the claim would have succeeded whether or not the lie had been told. Such a lie does not forfeit an otherwise valid claim.

Two practical points follow. First, the distinction is between a lie that goes to the recoverability of the claim and one that does not; the former is still fatal. Second, the case was decided under the pre-Act law and the Act does not define fraudulent claims, so the reasoning continues to inform what counts as a fraudulent claim for section 12 purposes. Insurers responded in part by strengthening express fraud conditions in wordings, which is where a broker’s review is worth spending time.

Contracting out

Section 12 sits in Part 4 of the Act. In a consumer insurance contract, section 15 makes any term putting the consumer in a worse position as respects Part 4 matters of no effect. In a non-consumer contract, section 16(2) permits a more insurer-favourable term only if the transparency requirements of section 17 are satisfied — the term must be drawn sufficiently to the insured’s attention before the contract is entered into, and must be clear and unambiguous as to its effect.

Frequently asked questions

Does a fraudulent claim cancel the policy from the start?

No. Under section 12 the insurer may treat the contract as terminated with effect from the time of the fraudulent act, not from inception. Section 12(3) preserves the parties' rights in respect of a relevant event occurring before that time, so an earlier genuine claim is not destroyed.

Can the insurer keep the premium?

If it exercises the section 12(1)(c) right to treat the contract as terminated, section 12(2)(b) provides that it need not return any of the premiums paid under the contract.

Is exaggerating a claim always fraud?

Deliberate exaggeration of the amount claimed is capable of being a fraudulent claim. A lie that is collateral, in the sense that the claim would have succeeded without it, is treated differently following Versloot Dredging. The line is a question of fact and the safest course is simply to claim what can be evidenced.

What happens under a group policy if one member is fraudulent?

Section 13 confines the insurer's remedies to the cover provided for that member, treating it as if it were an individual contract. Cover for everyone else under the same contract is unaffected.

Related entries

• Section 12 of the Insurance Act 2015
• Section 11 of the Insurance Act 2015
• Fraud and dishonesty exclusions
• Material disclosure at claim
• Notification of claim
• Commercial insurance UK

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

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.