Liability insurance: fraud by the claimant

A fraudulent claim by the assured under a policy of insurance allows the insurers to reject the entirety of the claim. The crucial question discussed by the Supreme Court in Fairclough Homes Ltd v Summers [2012] UKSC 26 is whether the same rule applies where a claim in tort or for breach of contract is fraudulent, in particular where it overstates the claimant’s loss.

To what extent can the defendant or its liability insurers refuse to pay the entirety of the claim? It is apparent from the judgment of the Supreme Court, delivered by Lord Clarke, that fraud which is discovered early in the proceedings can lead to the entire proceedings being struck out because the claimant has forfeited his right to have his action heard. It is also the case that fraud which taints the entire claim (as where a person claims injury which he never suffered) will give rise to zero recovery.