A report from the BBC regarding a Supreme Court ruling states that incorrect information supplied to an insurer does not invalidate a claim if the incorrect information has no bearing on the cause of the loss. This will affect every type of insurance, including household and motoring.
Some quotations from the report:
'A collateral lie is one which is untrue, but does not affect the overall validity of the claim.
The judges voted by four to one to change one of the important principles behind current insurance law.
One of the judges, Lord Mance, said: "The critical point is that, in the case of a collateral lie….the insured is trying to obtain no more than the law regards as his entitlement, and the lie is irrelevant to the existence of that entitlement. Such a lie is immaterial to the claim."
The Association of British Insurers said that it was looking at the judgement carefully, to work out the implications of the ruling. But it is thought that the principle will apply to millions of household, travel and motor policies.
Kevin Pratt, consumer affairs expert at MoneySuperMarket, said the change would not amount to a blank cheque for fraudsters. "It will still be a fraud if you fabricate a claim, and it will still be a fraud if you exaggerate a claim," he said. "But insurers can no longer use so-called 'collateral lies' to reject a valid claim. The one worry is that, if insurers are paying more claims as a result of this ruling, then they will increase premiums."'
I'm wondering if failure to declare cosmetic modifications to a car (e.g. blinged-up wheels and exhaust) will not therefore invalidate most claims, as it is unlikely such modifications would directly or indirectly cause an accident.
I can certainly envisage legal arguments about whether other types of false information supplied to an insurer are, or are not, a "collateral lie". (For example, was the performance chip you fitted, and didn't declare, the cause of the accident you had?)
The full report: www.bbc.co.uk/news/business-36845617
Edited by FP on 20/07/2016 at 14:47
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Ahh, but if you fitted the performance chip and didn't tell the company, then you obtained insurance under false pretences. Same for wheels, lowering, exhaust, etc. 'Any modifications from factory' is usually used as wording. In such a case, the insurance company would probably take the approach of knocking the cover back to the statutory minimum.
I can foresee someone challenging that - but if they did so, you could quite feasibly see an insurance company taking such a person through a private prosecution for fraud. The recording of the purchase of the insurance on the phone would be enough to convict, I'd imagine.
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"...if you fitted the performance chip and didn't tell the company, then you obtained insurance under false pretences. Same for wheels, lowering, exhaust, etc. 'Any modifications from factory' is usually used as wording. In such a case, the insurance company would probably take the approach of knocking the cover back to the statutory minimum."
With respect, Rob, I think that this is exactly what the new ruling says will NOT happen. "Obtaining insurance under false pretences" is not relevant. Unless any undeclared modifications can be shown to have been implicated in any accident and therefore any claim, then the undeclared information counts as a "collateral lie".
That's my reading of it. However, I'm not a lawyer, only a lay person with interest in the law.
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Not declaring a modification, when required to, amounts to deception and breach of contract nullifying the insurance contract totally - the ruling affects lies made in pursuit of a claim so quite different - at least that's my take, but not qualified either.
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The insurance companies will fight where they can - giving false information in a contract of utmost good faith (as an insurance contract is) is a risk that is simply not worth taking.
Using the superchip example, a barrister would 'put it to you' that because the car had been chipped, therefore you drove faster / more recklessly etc. and somehow contributed to the accident in question.
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Insurance contracts are no longer subject to the doctrine of uberrimae fidei (utmost good faith) where consumers are concerned. See Consumer Insurance (Disclosure and Representations) Act 2012.
If the insurer asks a question it has to be answered honestly. If the issue is not raised, then there is no reason to disclose. Naturally, insurance firm will ask if a vehicle is modified from standard. More here: www.out-law.com/page-11391 So, errors in answering questions are weighted by the requirement to take reasonable care. Outright lies, would be a qualifying misrepresentation.
This came up here about speeding where licence points and fines are not imposed if a course is accepted. If the insurer doesn't ask about a speeding course there is no disclosure required. Lying about points however might be a "qualifying misrepresentation" which could result in voiding the contract.
The BBC article was relevant to marine insurance which is still subject to uberrimae fidei requirements but even so, it is not without the issue of relevance. The writer seems not to be up to speed on CIRDRA. BTW, I'm not an expert either.
Edited by nortones2 on 21/07/2016 at 10:34
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Link to the Supreme Court's official summary is here:
www.supremecourt.uk/cases/docs/uksc-2014-0252-pres...f
The claim was for damage to a ship's engine(s) due to flooding of the engine room. Lies were told concerning events preceding the inundation so as to make ship's operator appear to have tried to comply with good practice when in fact they had not.
The court held the lies irrelevant as the damage was insured in any event.
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