Supreme CourtOn the 16-17 March 2016 the Supreme Court was asked to consider whether the rule that precludes recovery for fraudulent insurance claims applies to fraudulent means or devices, in the appeal of Versloot Dredging BV & Anor v HDI Gerling Industrie Versicherung AG & Ors. If so, it will then have to ascertain whether the rule is contrary to the art 1 of the First Protocol to the ECHR.


The appellants were the owners of a cargo vessel which was damaged when the engine room was flooded off the coast of Poland. This had occurred as a result of the crew’s failure to close the sea inlet value and to drain the system, which had been necessary when they were required to respond to severe frost. This caused sea water to enter and freeze, and once this melted, the ingress occurred. The crew attempted to pump the floodwater overboard, but failed in their endeavours. The appellants presented an insurance claim to the respondents, who were hull and machinery underwriters insuring the vessel, for $3,241,310.60. The respondents denied liability, and asserted that the appellant had told a reckless untruth by asserting that crew members had heard the bilge alarm but did not investigate as it was attributed to the rolling of the vessel and not the ingress of water.

Commercial Court

The Commercial Court found that the loss was an insurable one as a peril of the sea. However, it formed the view that where a fraudulent claim was made, any lesser valid claim was forfeited. A fraudulent device was utilised where the insurer sought to embellish facts surrounding a valid insurable loss. It was the intent to deceive alone that attracted the penalty. The court found that the untruths told meant that any valid claim was forfeited. However, the Commercial Court made obiter comments which suggested that this conclusion was regrettable, as it was disproportionate that a reckless untruth would deprive the appellants of any recovery.

Court of Appeal

The appellant challenged this decision in the Court of Appeal, which affirmed the Commercial Court’s ruling. It found that the court had been entitled to hold that the appellant had been reckless about whether the explanation was truthful. It did not believe that the forfeiture was a harsh sanction, as it was necessary to deter the use of fraudulent devices in insurance claims.

Appeal to the Supreme Court

The appellant has now challenged this ruling in the Supreme Court. The Supreme Court will thus have to consider whether the lower courts were correct to conclude that reckless untruth precluded recovery under the rules about fraudulent insurance claims. If it finds that the rules do preclude recovery, it will have to determine whether this is contrary to First Protocol ECHR, art 1.