Insurers will have to pay liars

Woman wearing white shirt having her fingers crossed behind her back.

There's good news for people making a claim on their insurance who deliberately or accidentally fudge the truth on the claim form. The Supreme Court has ruled that 'collateral lies' are OK, and that the claims should be paid. It sounds like a cheat's charter, offering people the chance to lie their way to a bigger payout, but is it?

Collateral lies are defined as something that's on an insurance claim form that's not true, but doesn't affect the overall validity of the claim. In the past, if the insurance company could find something untrue on a claim, they could chuck the whole claim out on the basis of the 'collateral lie'. Now, the judges have ruled four to one that this shouldn't happen.

The case they were assessing was one involving a Dutch cargo ship. The crew lied, by saying they couldn't investigate an alarm because the ship was in heavy seas. This wasn't true, but the judges decided it didn't change the fact that the accident had been caused by the bad weather.

What it means for you

This has implications for home and motor insurance. Let's assume, for example, you were burgled and a bike worth £150 was stolen. The insurers asked for the receipt for the bike, and you knocked one up on the computer, but the insurer spotted it wasn't genuine. In the past, they could chuck the claim out, now, the ruling would suggest they would have to pay.

Kevin Pratt, consumer affairs expert at MoneySuperMarket, is adamant that this doesn't change the fact that you have to be honest about the claim itself. He says: "It will still be a fraud if you fabricate a claim, and it will still be a fraud if you exaggerate a claim. But insurers can no longer use so-called 'collateral lies' to reject a valid claim. It is great news for honest insurance customers. It's not a cheat's charter, and it's not a blank cheque for would-be fraudsters. But it does mean that insurers will not be able to throw out perfectly valid claims on little more than a technicality."

James Dalton, Director of General Insurance Policy at the Association of British Insurers, is less convinced. He says it could be "a blow for honest customers. Allowing "collateral lies" in the course of an insurance claim flies in the face of the work that the insurance industry and Government have been doing to crack down on the cheats and fraudsters."

He added: "Lies are lies. Insurers will investigate all suspicious claims and we make no apology for doing so as it keeps premiums down for honest customers."

Pratt admits that it will mean insurers may have to pay out more to customers. He explains: "The one worry is that, if insurers are paying more claims as a result of this ruling, then they will increase premiums. That will make it more important than ever for people to shop around every time their car, home or travel policy comes up for renewal, to ensure they get the best price."

This also worries Dalton. He says: "This decision risks pushing up the cost of insurance and prolonging the pay-out process for the vast majority of people who are honest customers. As the dissenting judge, Lord Mance said, allowing lies will 'distort the claims process by the time and cost involved in unveiling the fraud and attempting to ascertain its true implications'."

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Top Ten Weirdest Holiday Home Insurance Claims

The owner of a holiday home in Spain returned to inspect his property after he had let it to a group of young people in their 20s for two weeks, to find that they had created an indoor beach including sand and water to emulate the sea. The youngsters explained that the local beach “hadn’t lived up to their expectations”.

A slightly oblivious swan didn’t see what was coming his way. It was flying happily through the air, completely unaware of a set of high voltage power cables in its flight path which it duly hit. The swan had the shock of its life and dived straight for the roof of a holiday home underneath, crashing through the roof and leaving a massive hole in need of fixing.

At a holiday home in France, a cow walked over a swimming pool cover. As the cow was considerably heavier than the cover could hold, the cover broke and the unsuspecting cow took an involuntary dip in the pool; resulting in considerable damage to the pool and the need for a winch to rescue the distraught bovine.

Holiday guests staying in a Spanish property moved items of furniture from inside the holiday home they were renting, including a sofa, single bed and chest of drawers, into the shallow end of the swimming pool. The guests had been under the influence of alcohol when they’d decided to rearrange the furniture in such a way and claimed they "couldn’t remember" why they had done it.

A particularly passionate couple managed to not only badly scratch the wooden floor of their bedroom by causing the bed to move vehemently, but also caused the bed to break, as well as the bedside lamp and bedside table. The couple explained that all damage had been caused during one session of lovemaking and they apologised profusely.

Following a rental, a holiday home owner made a gory discovery; he found blood splattered all over carpets and walls. After further investigation, he discovered a makeshift cardboard coffin containing a pig’s head in the bin, suggesting that a sacrifice had taken place at his property.

A young couple tried to pursue a claim against the owner of their holiday apartment in Spain on the basis that both bed sheets and towels were "too hard" and caused scratches and irritations on the skin, which prevented them from using the pool and sunbathing comfortably.

A holiday cottage in Devon needed completely redecorating after the holiday guests had decided to have an indoor barbecue on the flagstone floor, as ‘the weather didn’t allow for having it outside’.

One unsuspecting holiday property owner in Italy was shocked to find out that his house had been turned into a brothel by his guests during a four week rental period, resulting in the need for a deep clean and replacement of soft furnishings.

A lady in her late 30s from Manchester sought compensation from the owner of her holiday home in Marbella as the gravel on the driveway "had wrecked" four pairs of her designer stilettos and forced her to replace them with new ones.

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