Insurers will have to pay liars

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'."