Claims - Consequences of a Fraudulent Claim

(Direct Line Insurance v Khan [2001] Lloyd’s Rep IR (forthcoming))

The House of Lords in Manifest Shipping v Uni-Polaris, The Star Sea [2001] Lloyd’s Rep IR (forthcoming) tantalisingly left open the legal consequences of a fraudulent claim being made by the assured. What is clear from the case is that the claim itself need not be met. Lord Hobhouse was also of the view that the insurers would have the right to treat the policy as having been repudiated for breach by the assured, so that the fraudulent claim and all future claims would be lost. Their Lordships refused to take the further step of rejecting the possibilty – which has to some extent taken hold in the minds of some in the industry – that insurers have the right to avoid the policy ab initio , which means that all past claims have to be repaid. It is nevertheless almost certainly the case that, when this matter does finally fall to be considered, the possibility of avoidance ab initio will be rejected. That point aside a further question which arises is whether a claim which is only partly fraudulent is to be treated as attracting the consequences of a fraudulent claim, or whether the claim is divisible. This point was discussed by Jackson J in Direct Line Insurance v Khan , forthcoming in [2001] Lloyd’s Rep IR.