Category: Insurance Act 2015 — claims provisions · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed 2026-06-11
A fraudulent claim is one which the insured makes knowing it to be false or with reckless indifference to its truth, intending to gain a benefit to which they are not entitled, triggering the statutory remedies in section 12 of the Insurance Act 2015 and any contractual forfeiture provisions.
Category: Insurance Act 2015 — claims provisions Also known as: insurance fraud claim, fraudulent insurance claim, dishonest claim Related concepts: Section 12 Insurance Act 2015, Forfeiture clause, Insurance fraud, Material disclosure at claim
A fraudulent claim, in English insurance law, is one which the insured presents to the insurer knowing it to be false, or which is supported by representations the insured knows to be false, or which the insured makes with reckless indifference as to whether it is true or false, and in each case with the intention that the insurer will pay a benefit to which the insured is not entitled. The concept covers a spectrum of dishonesty, from wholly fabricated claims (the staged theft, the manufactured fire), through claims that exaggerate quantum (overstating values, inflating repair costs), to claims that conceal material facts (failing to disclose pre-existing damage, hiding contributory conduct). The doctrine encompasses three principal sub-categories: wholly fabricated claims, where no loss has occurred or the loss is entirely contrived; partially fabricated or exaggerated claims, where a genuine loss is dishonestly inflated; and the use of “fraudulent devices” or “collateral lies”, where an essentially genuine claim is supported by lies told to bolster the claim. The Supreme Court in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG (The DC Merwestone) [2016] UKSC 45 held that collateral lies, which do not affect the claim’s merits, no longer attract the forfeiture sanction at common law. Wholly and partially fabricated claims continue to engage the full rigour of forfeiture and the statutory remedies in section 12 of the Insurance Act 2015 for non-consumer contracts, and the equivalent regime for consumer contracts under the Consumer Insurance (Disclosure and Representations) Act 2012.
The legal regime governing fraudulent claims has both common law and statutory components. At common law, the foundational principles were laid down in cases including Britton v Royal Insurance Co (1866) 4 F & F 905, Galloway v Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep IR 209 and AXA General Insurance Ltd v Gottlieb [2005] EWCA Civ 112. The common law rule is that a fraudulent claim destroys the claim in its entirety, including any genuinely valid element. The rationale, as articulated in Galloway, is that the law will not permit an insured to pursue a dishonest claim in the hope of obtaining more than the entitlement and then, if caught, retreat to the genuine element with impunity.
The mental element for fraud follows the test in Derry v Peek (1889) 14 App Cas 337: dishonesty requires either knowledge that the representation is untrue or reckless indifference as to its truth or falsity. Mere negligence or honest mistake is not enough. The civil standard of proof applies, but the cogency of evidence must be commensurate with the seriousness of the allegation, per Re H (Minors) [1996] AC 563 and Re B (Children) [2008] UKHL 35.
Section 12 of the Insurance Act 2015 codifies the consequences of a fraudulent claim in non-consumer contracts entered into on or after 12 August 2016. Where the insured makes a fraudulent claim, section 12(1)(a) provides that the insurer is not liable to pay the fraudulent claim; section 12(1)(b) provides that the insurer may recover sums already paid in respect of the claim; and section 12(1)(c) and (2) permit the insurer, by giving notice, to treat the contract as terminated with effect from the time of the fraudulent act, in which case the insurer remains liable for claims occurring before the fraud but not after it, and the insurer need not return any premium. For consumer contracts, parallel provisions in Schedule 1 of CIDRA apply. The position regarding “fraudulent devices” or “collateral lies” was reformed by Versloot Dredging, in which the Supreme Court held by majority that a collateral lie which has no effect on the claim’s merits should not result in forfeiture.
In practice, the identification, investigation and resolution of fraudulent claims proceed in stages. First, an indication of possible fraud may emerge from inconsistencies in the claim story, evidence from the loss adjuster, intelligence from the Insurance Fraud Bureau (IFB) or the Claims and Underwriting Exchange (CUE), or social media and surveillance evidence. Second, the insurer typically appoints specialist fraud investigators and may instruct counsel. Investigation must be conducted in accordance with the Police and Criminal Evidence Act 1984 (PACE) for any criminal element and with regulatory rules on claims handling under ICOBS and the Consumer Duty. Third, the insurer must decide whether to pursue a defence of fraud, to repudiate the claim, to seek a settlement on commercial terms, or to refer the matter to the police or the Insurance Fraud Enforcement Department (IFED).
Pleadings of fraud must be particularised. The insurer must identify the specific representations alleged to be false, the knowledge or recklessness alleged, and the materiality of the fraud. Allegations of fraud carry significant litigation risk and reputational sensitivity; insurers will often plead in the alternative (e.g. non-disclosure, breach of warranty, exaggeration) to maintain flexibility. Defending insureds must be alert to the cost consequences of withdrawing a claim once fraud is alleged.
The Civil Procedure Rules treat exaggerated claims with particular severity. In Fairclough Homes Ltd v Summers [2012] UKSC 26 the Supreme Court considered the power to strike out a claim for fraudulent exaggeration, holding that such strikeout was theoretically available but should be exercised only in exceptional cases. CPR 44.16 enables the court to disapply qualified one-way costs shifting where the claim is found to be fundamentally dishonest, and section 57 of the Criminal Justice and Courts Act 2015 requires the court to dismiss a personal injury claim that is fundamentally dishonest unless to do so would cause substantial injustice.
Fraudulent claims arise in many forms across all classes of insurance. In motor insurance, “crash-for-cash” staged accidents, exaggerated personal injury claims and “ghost broker” placements are common types of fraud. In household insurance, staged thefts, deliberate fires and overstated contents claims are the principal categories. In commercial property, deliberately ignited fires (often for cashflow reasons), inventory and stock overstatements and exaggerated business interruption claims feature prominently. In professional indemnity, fraudulent claims are typically presented as a claim by a third party against the insured where the insured colludes with the claimant. In marine, the DC Merwestone itself involved a collateral lie about engine maintenance, but other marine frauds include scuttling and cargo claims based on overstated values.
Specific variations also arise from the identity of the fraudster. Where the fraud is committed by the policyholder personally, the consequences fall directly on the policy. Where the fraud is committed by a co-insured, the law typically treats the fraudulent co-insured’s interest as forfeit but preserves the position of innocent co-insureds, subject to the wording of the policy. Where the fraud is committed by an agent or employee, the position depends on whether the agent had authority to act for the policyholder and whether the policyholder was complicit. Where the fraud is committed by a third-party claimant rather than the policyholder, in liability insurance, the policy generally responds because the policyholder is innocent, although the insurer may pursue the claimant directly.
A taxi driver insures a vehicle under a commercial motor policy. After damaging the vehicle in a single-car incident, he reports the loss as a theft of the vehicle on a particular date and location, supported by a witness statement from a relative. The insurer becomes suspicious, instructs investigators, and obtains CCTV evidence showing the vehicle being driven by the driver before, and damaged after, the alleged theft date. Confronted with the evidence, the driver maintains the theft account. The insurer repudiates the claim and the policy under section 12 of the Insurance Act 2015 and the policy’s forfeiture clause, recovers a small interim payment that had been made, retains the premium, and notifies the Insurance Fraud Register. The driver may face prosecution by IFED for fraud by false representation under section 2 of the Fraud Act 2006. The example illustrates the operation of section 12 in a typical motor fraud scenario and the multiple consequences that follow once dishonesty is established.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Next review: 2026-12-11.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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