Insurance Fraud and the Role of the Civil Law
P. J. Rawlings and J. P. Lowry∗
Two UK Supreme Court decisions have considered insurance fraud. The ﬁrst, Versloot Dredging
BV vHDI-Gerling Industries Versicherung (The DC Merwestone), concerned the use of a fraudulent
device being harnessed to support a legitimate claim which, in the view of the majority, was
an area of insurance law in need of re-evaluation. The second, Haywood vZur ich Insurance Co,
concerned the use of fraud to increase the settlement paid by the insurer and whether an insurer,
which suspects fraud but has nevertheless chosen to settle a claim, is entitled to set aside the
settlement under the tort of deceit where it subsequently discovers proof that it was in fact
fraudulent. This case note examines not only the legal implications of the decisions and their
likely impact on industry practice, it also focuses on the broader issue of the proper province
of the civil law and whether general deterrence can be justiﬁed as a proper objective where the
criminal law is deﬁcient in punishing fraud because of its higher standard of proof.
THE FRAUDULENT CLAIMS RULE
As a common law subject, the development of insurance law depends on the
happenchance of litigation, which is problematic since insurance disputes rarely
end in court – consumers prefer the Financial Ombudsman and commercial
parties use arbitration. This means that two Supreme Court appeals within days
of one another constitute riches. Both concerned fraud: in one, a lie was used
in connection with a legitimate claim,1and in the other it was used to increase
the settlement paid by the insurers.2But these cases also draw attention to the
broader issue of the proper province of the civil law.
Typically, insurance fraud occurs either when a proposal is made for cover,
or, as in these cases, when there is a claim.3There is fraud if the claimant
knowingly, or recklessly, claims for a loss that has not occurred or exaggerates
its amount, or conceals some circumstance that might provide the insurers with
a defence to the claim.4The other area of claims fraud is where a third party
dishonestly alleges a loss suffered as the result of the policyholder’s breach of
∗Respectively, The Roy Goode Professor of Commercial Law, Insurance Law Institute, Centre for
Commercial Law Studies, Queen Mary University of London and Emeritus Professor of Commercial
Law, Faculty of Laws, UCL.
1Versloot Dredging BV vHDI-Gerling Industrie Versicherung (The DC Merwestone)  UKSC 45.
3 Pre-contractual fraud is often only discovered when there is a claim, and insurer s, who suspect
claim fraud but lack evidence, may seek other reasonsfor refusing payment, such as breach of the
pre-contractual duty of fair presentation or lack of insurable interest: Wes te r n Tra d in g L td vGreat
defence, the courts have long been ill-disposed towards insurers who seek to rely on it where
they are fully cognisant of the risk: see, Stock vInglis (1884) 12 QBD 564, 571 per Lord Brett
C2017 The Author. The Modern Law Review C2017 The Modern Law Review Limited.
(2017) 80(3) MLR 510–539 525