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    UK: Approach to Fraudulent Devices Criticised

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    In Versloot Dredging v HDI [2013] EWHC 1666, Popplewell J has criticised the Privy Council decision in Stemson v AMP [2006] UKPC 30 and the Court of Appeal decision in Agapitos v Agnew [2003] QB 556 concerning the circumstances in which the Court should reject a policyholder’s claim that is supported by a fraudulent device.

    Versloot concerned a claim by a shipowner under a Hull & Machinery policy for indemnification in respect of the CTL of a ship’s engine due to flooding of the engine room. Popplewell J held that there was cover for the loss, but considered that he was bound to follow the Privy Council and Court of Appeal authorities concerning fraudulent devices when he held that the shipowner must forfeit the claim because he had recklessly sent a letter to the underwriters’ solicitors which falsely stated that an alarm had sounded before the flooding occurred. The false statement was intended to promote the insurance claim in the hope of a prompt settlement, and was sufficiently material to the owner’s prospects of getting the claim paid that Popplwell J felt obliged to find that it deprived the owner of cover, even though it was at the “low end” of culpability.

    In his judgment Popplewell J said that the “low and relatively inflexible threshold” which the test of materiality in Agapitos imposes, is one which he found unsatisfactory. No allowance was made for the genuineness of the claim that the fraudulent device had been used to support, the circumstances in which the device was used, or whether the underwriter had placed any reliance on the policyholder’s wrongful acts or representations.

    If the decision in Versloot is appealed, the question of fraudulent devices will have to be considered afresh by the Court of Appeal. It has already been the subject of review by the Joint Law Commissions and generated similar concerns about the proportionality of the remedy, including concerns expressed by Commercial Court judges.

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