Policyholder Defeats Insurer’s Fraud Allegations: Malhotra Leisure Ltd v Aviva Insurance Ltd [2025] EWHC 1090 (Comm): Part One – the substantive case

The Commercial Court’s recent decision in Malhotra Leisure Ltd v Aviva Insurance Ltd EWHC 1090 (Comm), which was handed down on 7 May 2025, cautions insurers on the high bar they must clear when alleging fraud and the potential consequences of advancing such an allegation without sufficient proof.

The claim arose from an escape of water at the New Northumbria Hotel in Newcastle (“the Hotel”) on 11 July 2020 for which the owner, Malhotra Leisure Ltd (“the Insured”), sought indemnity under its Aviva policy for property damage and associated business interruption (“the Policy”).

Aviva (“the Insurer”) declined cover, alleging the loss was deliberately and dishonestly induced by the Insured and that there were associated breaches of the fraud condition in the Policy.

What happened at the Hotel and how did the Policy respond?

The escape of water emanated from a cold-water storage tank in the hotel’s loft, causing significant damage to refurbished rooms and the bar below. The parties agreed the policy would otherwise respond, subject to Aviva’s fraud and fraud-condition defences.

The fraud clause in the policy allowed Aviva to refuse the claim, recover sums paid, and cancel from the date of any fraudulent act if the claim made was “fraudulent or fraudulently exaggerated or supported by a false statement or fraudulent means or fraudulent evidence”, which is what Aviva contended.

What did the Court decide?

The court stated that the Insurer bears the burden of proof to show that the escape of water was the result of an intentional act carried out by the Insured. In assessing the balance of probabilities, the court must weigh the fact that owners of property do not generally resort to destroying their own property, and the starting point is that fraud and dishonestly are inherently improbable. The burden of proof is not discharged if the evidence is not substantial and cogent.

After extensive factual and expert evidence, the judge found that there was no evidence that mechanisms were deliberately interfered with and that the pattern of water damage found made it at least unlikely (i.e. less than probable) that the escape of water was deliberate.

Aviva’s allegation that the insured deliberately caused the escape and advanced a fraudulent claim was therefore rejected. The judge held that:

• no cogent physical evidence of tampering existed; alternative deliberate mechanisms were inconsistent with the damage pattern and lacked corroboration.
• there was no convincing financial motive sufficient to explain why the Insured would engage in serious criminal conduct. The wider Malhotra Group held significant cash and assets, and any interim or final insurance payments would mainly fund remediation, not provide free liquidity.
• the Insured’s cooperative conduct post-incident was inconsistent with a staged loss, including prompt attendance by contractors, access for Aviva’s investigators, and open interviews.

The court declared the loss a fortuity and held that Aviva was obliged to indemnify under the property damage and business interruption sections.

Practical risks for insurers when alleging fraud

This judgment underscores several risks and implications for insurers:

• Burden and standard: alleging fraud without cogent, case-specific evidence capable of excluding substantial innocent explanations risks rejection at trial.
• Forensic alignment: the physical evidence must align with the fraud. Absence of tool marks, patterns of water, or other forensic indicators may be fatal.
• Motive matters: where alleged fraud would result in limited financial benefit, courts will be slow to infer a premeditated fraudulent plan.

Policyholders facing fraud allegations can take confidence from the court’s clear articulation of the high threshold insurers must meet—particularly where their own conduct, finances, and cooperation point in the opposite direction.

In our next blog, we will examine the court’s subsequent costs judgment and the significant consequences Aviva faced for pursuing serious fraud allegations that ultimately failed.

Should you require legal advice in relation to the implications of fraud allegations in respect of an insurance claim, please contact a member of our Insurance Disputes team.