Versloot Dredging BV v HDI Gerling Industrie Versicherung AG (The DC Merwestone)

Ratio Decidendi

Facts

The cargo vessel DC Merwestone was disabled when seawater flooded her engine room during a voyage from Klaipeda, caused by a combination of crew negligence in failing to drain an emergency fire pump, frost damage to that pump, unsealed cable apertures between compartments, and defective engine-room bilge pumps. The owners' manager, frustrated by the insurers' delay in paying the claim, falsely told the insurers that the crew had detected a bilge alarm several hours before it actually sounded, hoping to divert attention away from the vessel's poor condition. The trial judge found that the owners had a valid claim worth over €3.2 million regardless of the lie, but held the claim was nonetheless forfeited because of it.

Judgment Summary

The Supreme Court held, by a majority of four to one, Lord Mance dissenting, that the fraudulent claims rule — under which an insurer need not pay any part of a claim tainted by fraud — does not extend to a 'collateral lie', one that has no bearing on the insured's actual entitlement. Lord Hughes considered that extending the forfeiture rule to such lies would produce a result disproportionate to the wrong involved. The court allowed the appeal and restored the owners' entitlement to the sum that would have been due but for the alleged forfeiture.

Key Quotes

Subsequent Treatment