Reckless untruths and fraudulent devices

In the recent Commercial Court case of Versloot Dredging BV v HDI Gerling and others [2013] EWHC 1666 (Comm) Mr Justice Popplewell launched a major attack on the concept of ‘fraudulent devices’ in insurance claims.

Fraudulent devices

It has long been established that an insurer can avoid liability for a claim which is found to be fraudulent. The case of Agapitos v Agnew [2003] QB 556 extended this concept so that an insurer can also avoid liability where an insured gives a false statement to improve (not insignificantly) the facts of a genuine claim; i.e. where an insured utilises a fraudulent device.

Versloot Dredging

Versloot Dredging was a marine insurance claim. The Claimant claimed £3,241,310.60 for loss following the flooding of its ship’s engine room.

The Defendant underwriters advanced three defences to the claim including that the claim was forfeit because the presentation of the claim was supported by fraudulent statements. This defence succeeded.

It was with regret that Mr Justice Popplewell found in favour of the Defendants in relation to the Defendants’ fraudulent devices defence. He found that the Claimant’s behaviour was “a reckless untruth, not a carefully planned deceit” and thus was at the “low end” of fraudulent conduct. Nevertheless he was bound by the materiality test in Agapitos (i.e. a “not insignificant improvement”). In coming to this conclusion he heavily criticised the test stating that he was “strongly attracted to a materiality test which permitted the court to look at whether it was just and proportionate to deprive the assured of his substantive rights”.

Mr Justice Popplewell noted that both the reasoning of Mance LJ in Agapitos and the decision of the Privy Council in Stemson v AMP General (a Privy Council case which applied Agapitos) were not binding on him, but determined, it seems solely on the basis that he had not heard full argument on the point, that he should “ignore his…tentative inclination to apply a test of what is just and proportionate” and apply the materiality test proposed by Mance LJ.

Appeal

Leave to appeal has since been given, limited solely to the issue of “materiality”. It will be interesting to note the arguments that will be raised in favour of, it seems, overhauling the current test and whether these arguments convince the Court of Appeal that the test should be one which takes into account justice and proportionality.

If you would like any further information about this issue, please contact me by emailing katie-ann.oleary@edwincoe.com.

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