Fraudulent claims and co-insurance

(Direct Line Insurance v Khan, October 2001)

Recent cases on fraudulent claims have made it clear that if a claim is dishonestly exaggerated to any substantial extent, the entire claim is lost. There is growing support for the view that the policy itself cannot be avoided (see the judgment of Longmore LJ in K/S Merc-Skandia v Lloyd’s Underwriters [2001] Lloyd’s Rep IR 802 ) although it is at least arguable that the policy can be treated as repudiated by the assured and subject to termination by the insurer. What, then, is the position if a policy covers more than one assured, and a fraudulent claim is submitted by one but not the other? This point was considered by the Court of Appeal in Direct Line Insurance v Khan , to be reported in [2002] Lloyd’s Rep IR.