Category: Insurance Act 2015 — claims provisions · Reviewed by Chrissie Anderson, Client Executive · Last reviewed 2026-06-11
Section 12 of the Insurance Act 2015 codifies the remedies available to an insurer where the insured makes a fraudulent claim, providing that the insurer is not liable to pay the fraudulent claim, may recover sums already paid in respect of it, and may treat the contract as terminated from the time of the fraudulent act.
Category: Insurance Act 2015 — claims provisions Also known as: s 12 Insurance Act 2015, statutory remedies for fraudulent claims, fraudulent claims remedy Related concepts: Fraudulent claim, Forfeiture clause, Versloot Dredging, Insurance Act 2015
Section 12 of the Insurance Act 2015 is the statutory provision codifying the remedies available to an insurer in non-consumer contracts where the insured makes a fraudulent claim. It came into force on 12 August 2016 and applies to contracts entered into on or after that date. The provision was introduced following the Law Commission and Scottish Law Commission’s recommendation in their 2014 final report that the common-law rules on fraudulent claims, which had developed over more than a century, should be put on a clear statutory footing to provide certainty for insurers and policyholders alike. Section 12 sets out a three-part remedy: first, the insurer is not liable to pay the fraudulent claim (section 12(1)(a)); second, the insurer may recover from the insured any sums already paid in respect of the claim (section 12(1)(b)); and third, the insurer may, by giving notice to the insured, treat the contract as having terminated with effect from the time of the fraudulent act (sections 12(1)(c) and 12(2)). Critically, section 12(3) provides that where the insurer chooses to terminate, the contract continues to apply to losses occurring before the fraudulent act, but the insurer is not liable in respect of losses occurring after that act and need not return any premium. This codifies and refines the common-law position established in Galloway v Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep IR 209 and AXA General Insurance Ltd v Gottlieb [2005] EWCA Civ 112. For consumer contracts, the parallel framework is in Schedule 1 to the Consumer Insurance (Disclosure and Representations) Act 2012 as amended by the 2015 Act.
Section 12 forms part of Part 4 of the Insurance Act 2015 (“Fraudulent Claims”). The provision is structured to displace the common-law rules to the extent of any inconsistency, while preserving their underlying logic. Section 12(1) sets out the three remedies. Section 12(2) requires that, to terminate the contract, the insurer give notice to the insured specifying the effective termination date (which is the date of the fraudulent act). Section 12(3) preserves the position regarding pre-fraud losses and premium retention. Section 12(4) confirms that nothing in section 12 affects the parties’ rights and obligations in respect of claims made before the fraudulent act, which remain governed by the terms of the contract. Section 13 makes parallel provision in respect of a group of insureds (e.g. partnerships), confirming that fraud by one insured does not necessarily forfeit the entitlement of innocent co-insureds.
The provision must be read alongside the common-law authorities, which continue to inform its application. Galloway established that a fraudulent claim destroys the entire claim, including any genuine element. Gottlieb clarified that the forfeiture sanction operates prospectively from the date of the fraud, not retrospectively, so that genuinely accrued claims paid before the fraud are not affected. The Supreme Court in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG (The DC Merwestone) [2016] UKSC 45 modified the common-law position on “fraudulent devices” or “collateral lies”, holding that a lie which has no effect on the merits of the claim does not forfeit the underlying genuine claim. Although Versloot Dredging was decided just after the 2015 Act came into force but on pre-Act facts, its reasoning informs the construction of section 12 and contractual forfeiture clauses operating in parallel.
The standard of proof for fraud under section 12 is the civil standard (balance of probabilities) with cogency commensurate with the seriousness of the allegation. The mental element requires dishonesty in the Derry v Peek (1889) 14 App Cas 337 sense: knowledge of falsity or reckless indifference to truth. Section 12 does not define “fraudulent claim” exhaustively, leaving the common-law concept to apply.
Contracting out of section 12 is permitted in non-consumer contracts under section 16, subject to the transparency requirements in section 17 and the prohibition on disadvantaging the insured below the statutory baseline being subject to those tests. Many commercial wordings supplement section 12 with contractual forfeiture clauses that go further than the statutory remedy (for example, by forfeiting all claims under the policy year, or by combining termination with cancellation ab initio).
When an insurer suspects a fraudulent claim, the practical steps are well-established. The insurer will instruct loss adjusters and, where indications are strong, specialist fraud investigators. Evidence may include forensic analysis of the loss site, financial records, social media and surveillance, and intelligence from the Insurance Fraud Bureau and CUE. Where fraud appears established, the insurer should consider three possible courses: (1) repudiate the claim under section 12(1)(a) and any contractual forfeiture clause; (2) seek recovery of any sums already paid under section 12(1)(b); and (3) consider whether to terminate the contract under section 12(1)(c) and (2).
The decision whether to terminate the contract requires careful consideration. Termination is prospective only: it leaves intact any earlier crystallised claims and allows the insurer to keep the premium. Termination protects against further claims under the policy but also brings finality. Where the policy is one of several layers of a programme, termination of the primary may have knock-on effects on the excess layers. Termination notice must be in writing, must specify the effective date (the date of the fraudulent act), and should reserve the insurer’s other rights.
Litigation under section 12 typically involves: pleadings of fraud particularised in detail; disclosure of the claims file and investigation materials; witness evidence from the policyholder, witnesses to the loss and investigators; expert evidence on quantum and causation; and sometimes a parallel referral to the police or IFED. The insurer bears the burden of proof on fraud. Once fraud is established, the section 12 remedies follow automatically subject to the insurer’s notice of termination.
For policyholders, the practical implications are stark. Even modest exaggeration of a claim can trigger forfeiture of the entire claim and termination of the policy, with consequential loss of future cover and adverse market reporting. Insurers participate in industry information-sharing through the Insurance Fraud Register, MIAFTR (motor) and CUE (claims), which can mean that a fraudulent claimant finds future insurance difficult or impossible to obtain.
The application of section 12 varies by class of business and policy structure. In motor insurance, fraudulent claims are typically resolved through repudiation under section 12 and contractual forfeiture, often combined with referral to IFED and the Insurance Fraud Register. In household insurance, similar processes apply, with the additional concern of the rights of co-insured spouses or partners. In commercial insurance, fraud cases can be complex, involving multiple insureds, layers of cover, and contractual provisions that supplement section 12.
The position of innocent co-insureds is governed by section 13 of the 2015 Act. Section 13 provides that where a contract of insurance provides cover for the insured and one or more other persons, and a fraudulent claim is made by one of those persons, the remedies in section 12 apply only to the rights of the fraudulent insured; the rights of innocent co-insureds are preserved. The detailed application depends on the policy structure (joint or composite) and the wording of the relevant clauses.
Where the insurer chooses not to terminate the contract under section 12(1)(c), the contract continues but the fraudulent claim is repudiated. This may be the preferred course where the insurer is approaching the end of the policy period or where there are reasons to preserve future cover (for example, to maintain rights against third parties).
Contracting out of section 12 is permitted in non-consumer contracts. Many commercial policies include forfeiture clauses that mirror section 12 and add further consequences such as cancellation ab initio, retention of premium, and forfeiture of all benefits under the policy year, regardless of whether the additional claims relate to the fraudulent loss. The validity of such clauses depends on satisfaction of the section 17 transparency requirements.
A wholesale distribution company holds a commercial combined policy. A fire damages stock in a warehouse, and the company submits a claim of ÂŁ800,000, supported by invoices that the loss adjuster establishes are partly fabricated; the genuine loss is approximately ÂŁ500,000. The insurer establishes dishonesty in the fabrication of the invoices and serves notice under section 12(1)(c) of the Insurance Act 2015 treating the contract as terminated with effect from the date of the fraudulent submission. Under section 12(1)(a), the insurer is not liable to pay the claim (including the ÂŁ500,000 genuine element). Under section 12(1)(b), the insurer recovers an interim payment of ÂŁ100,000 made before the fraud was discovered. Under section 12(3), the contract remains in force in respect of any earlier crystallised claims, and the insurer is entitled to retain the premium. The company suffers reputational damage and finds future insurance difficult to obtain owing to industry information-sharing. The example demonstrates the full operation of section 12, including the forfeiture of the genuine element, recovery of sums paid, prospective termination, and retention of premium.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Next review: 2026-12-11.
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