A clear stance on fraud

It’s particularly interesting, because it centres on the action of an owner who “consciously chose not to investigate” the chain of events onboard, said Richard Allingham of Hill Dickinson.

The background to the case is unfortunate, but not that startling: when an open, ice-clogged emergency pump cracked on thawing out, the engine of the DC-Merwestone suffered irreparable damage due to sea water flooding.

However, the owner of the vessel laid the blame for failing to manage the flood with the crew by stating that while the bilge alarm had gone off, they had attributed the alarm to the rolling of the vessel and not looked into the real cause. But, and this is the nub of the issue, the court decided that the lack of investigation into the real situation by the owner was because he didn’t want to know. So, “while the owner did not know that it was false, he consciously chose not to investigate because he did not want to know that it was false”, explained Mr Allingham.

Despite the owner’s later claim that it was a hypothesis and not intended to be construed as fact, this was not accepted; the court holding that it “was a reckless untruth made with the intention of improving the prospect of payment of the claim” said Mr Allingham, and labelling it “a fraudulent device”, it also ruled the entire claim forfeit.

The appeal didn’t go well for the owner, as one might expect. The argument that the rule of forfeit should not apply to something cooked up to “improve or embellish the facts surrounding the claim”, was rejected, along with the idea that this reading would also be in breach of the European Convention on Human Rights.

For those who worry, it was made clear by the presiding judge that “the careless or forgetful insured is not affected, nor is the insured who tells some irrelevant lie or whose lie is not told in order to induce payment”, but it has nailed up a gap in the law where “fraudulent means or devices” are concerned.

The judge neatly summed up the court’s reasoning: “The fraudulent insured must not be allowed to think if the fraud is successful, then I will gain; if it is unsuccessful, then I will lose nothing.”

By Stevie Knight