Versloot Dredging BV & Anor v HDI Gerling Industrie Versicherung AG & Ors

The common-law rule that a fraudulent insurance claim forfeits the whole claim extends to a fraudulent device supporting an otherwise valid claim. The device must be directly related to the claim, intended to improve the insured’s prospects, and objectively capable of producing a significant improvement, or at least a not insignificant improvement, before final determination. A reckless untruth can qualify. Where those conditions are met, forfeiture is a proportionate bright-line deterrent and does not require a case-specific proportionality review under Article 1 of the First Protocol. The rule applied where the insured presented a speculative account as information obtained from the crew, intending to improve the claim’s prospects.

The Owners claimed under a marine hull and machinery policy after their vessel suffered engine-room flooding. The trial judge found that the loss was covered and that the claim was otherwise valid, but held that the Owners had forfeited it by making a fraudulent device: a letter presented a speculative account of a bilge alarm as information reported by the crew.

The Owners appealed against the factual findings, the finding of fraud, the alleged procedural irregularity, and the application of the fraudulent-devices doctrine. They also argued that forfeiture was incompatible with Article 1 of the First Protocol to the European Convention on Human Rights. The appeal was from the judgment of the Commercial Court, reported at [2013] EWHC 1666 (Comm). The central issue was whether the fraudulent-claims rule extended to fraudulent devices and, if so, whether forfeiture was proportionate.

1. Appeal dismissed. The trial judge was entitled to find that the 21 April letter conveyed that the crew had reported a noon bilge alarm and had explained why it was not investigated. The representation was presented as fact following investigation, not as hypothesis. It was recklessly made, because the Owners had no proper evidential basis for it. The alternative account of the casualty itself was honestly believed, but the false representation about its evidential basis was sufficient to constitute a fraudulent device.
2. The Court followed the principles stated in Agapitos v Agnew (The Aegeon) [2003] QB 556. A fraudulent device is a sub-species of fraudulent claim. It may forfeit an otherwise valid claim where it is directly related to the claim, intended to improve the insured’s prospects of settlement or success, and would objectively tend to produce a significant, or at least not insignificant, improvement before final determination. The Court did not decide whether the third requirement demands the more demanding formulation, because the facts satisfied either formulation.
3. The representation was directly related to the claim and materially improved its prospects. A factual account apparently supported by those with direct knowledge was more persuasive than a theory unsupported by the crew. The materiality requirement was therefore satisfied.
4. The forfeiture rule was compatible with Article 1 of the First Protocol. Deterring fraud in insurance claims was a legitimate public-policy aim. The rule was proportionate because it was confined to dishonest conduct, direct relation to the claim, an intention to improve prospects, and objectively material deception. A general case-by-case test of whether forfeiture was just and proportionate would weaken the deterrent and create uncertainty.
5. The alleged procedural irregularity afforded no ground for reversal. Even if the pleading had been insufficiently precise, the Owners showed neither a serious irregularity nor resulting injustice, applying Keith Davy (Contractors) Ltd v Ibatex Ltd [2001] EWCA Civ 740.

• Court of Appeal (Civil Division): Appeal dismissed. The Court upheld the Commercial Court’s judgment and the forfeiture of the insurance claim.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Mr Justice Popplewell held that the loss was covered but that the Owners’ claim was forfeited by a fraudulent device: [2013] EWHC 1666 (Comm).