Galloway v Guardian Royal Exchange (UK) Ltd

Category: Case law · Reviewed by the Apex broking team · Last reviewed 2026-08-22 · ~3 min read

The decision

The Court of Appeal handed down judgment on 15 October 1997; the case is most commonly cited from the insurance law reports as Galloway v Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep IR 209. Two distinct defences ran together. First, the proposal form: the insured had stated that he had no convictions when he had recently been convicted of obtaining a pecuniary advantage by deception. That was a misrepresentation of a material fact and entitled the insurer to avoid the policy. Second, and separately, part of the claim itself was dishonest — an item said to have been stolen was supported by a document the insured knew to be false.

It is the second limb that gives the case its lasting significance. Millett LJ held that the fraudulent part contaminated the whole claim: the contract of insurance being one of utmost good faith, an insured cannot make a fraudulent claim, then abandon the dishonest portion and pursue the honest remainder. He forfeits all benefit under the policy “whether there is a condition to that effect or not”.

Why the rule is severe

The forfeiture rule is deliberately punitive rather than compensatory. Insurance claims are, in the main, proved by the insured’s own account of what was lost and what it was worth. Insurers rarely have independent evidence, so the system depends on honesty in a way that ordinary commercial contracting does not. The courts have long taken the view that the only effective deterrent is the loss of the whole claim, not merely of the dishonest slice — because a rule that only stripped out the fraud would leave the dishonest claimant no worse off than if he had told the truth.

That reasoning explains why the proportion of the claim that was dishonest does not, of itself, save the claim. The question is whether the insured knowingly advanced a claim he knew to be false in a material respect, not whether the falsity was large or small relative to the whole.

What the case does not decide

Galloway is about a claim that is itself fraudulent in part. It is not authority that any lie told during a claim destroys the claim. That distinction was settled by the Supreme Court in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG (The DC Merwestone) [2016] UKSC 45, which held that a “collateral lie” — a fraudulent device deployed to support a claim that is in fact valid and honestly quantified — does not engage the forfeiture rule. If the claim as presented is true, a lie told to speed it up or bolster it does not forfeit it.

Nor does the case decide anything about the consequences of a fraudulent claim for the policy going forward, or for co-insureds. Those questions are now dealt with by statute.

The statutory position today

For contracts entered into on or after 12 August 2016, the remedies for a fraudulent claim are set out in section 12 of the Insurance Act 2015. The insurer is not liable to pay the claim, may recover 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 — but earlier, honest claims are unaffected, and the insurer must return premium only in accordance with the section. In group insurance, section 13 confines the consequences to the fraudulent member.

Section 12 largely codifies the common law position that Galloway illustrates, but it also tidies up the questions the common law had left uncertain, particularly the effect of the fraud on the rest of the contract. Galloway therefore remains the readable statement of principle, while the remedies now come from the statute for modern policies. The disclosure limb of the case has also been overtaken: the duty of the insured is now the duty of fair presentation, and avoidance is no longer the automatic remedy for every innocent or careless misrepresentation.

What it means for a commercial policyholder

Three practical points follow. Presenting a claim is not a negotiation in which an opening figure can be pitched high and argued down; a knowingly inflated head of loss is a fraudulent claim, not a bargaining position. Estimates and reconstructions are perfectly proper, but they must be labelled as what they are, and supporting documents must be genuine. And where a claim is being prepared by employees or by an external consultant, the business remains responsible for what is put forward in its name.

If something has already gone into a claim that is wrong, the answer is to correct it promptly and openly through the broker. A correction made before the insurer has been misled is a very different thing from a falsity maintained.

Frequently asked questions

Does an exaggerated claim always forfeit the whole claim?

It does if the exaggeration is dishonest — if the insured knowingly puts forward a figure or an item he knows to be false. That is the rule Galloway illustrates. An honest but mistaken estimate, or a genuine difference of opinion about value, is not fraud and does not forfeit the claim.

Is Galloway still good law?

The principle it states remains the classic English formulation of the fraudulent claims rule. For policies made on or after 12 August 2016 the remedies come from section 12 of the Insurance Act 2015, and the Supreme Court in Versloot Dredging (2016) confirmed that collateral lies supporting an otherwise valid claim are outside the rule.

What is a collateral lie?

A lie told in support of a claim that is in fact genuine and correctly quantified — for example, an untrue explanation of how a loss happened, where the loss itself is real and insured. Since Versloot Dredging it does not forfeit the claim, although it can damage the insured's credibility on everything else.

Does the fraud of one director affect the whole company's claim?

Generally yes, where the individual's act is attributed to the company under ordinary principles of corporate attribution. Section 12 of the Insurance Act 2015 governs the remedy. In group schemes, section 13 limits the consequences to the member who acted fraudulently.

References

• Insurance Act 2015, section 12 (remedies for fraudulent claims), legislation.gov.uk
• Versloot Dredging BV v HDI Gerling [2016] UKSC 45, BAILII

Related entries

• Utmost good faith
• Pi insurance utmost good faith explained
• Section 12 insurance act 2015
• Fair presentation
• Material misrepresentation

This entry is part of the Apex Insurance Wiki. It is general insurance information, not legal advice, and states the position as at August 2026. Last reviewed 2026-08-22. Next review: 2027-02-22. Always read the policy wording and take advice on your own facts.

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.