The Supreme Court has ruled that an insurer should have to pay a shipping claim even if the claimant has lied during the course of the case.

The insurance industry described the ruling as a ‘blow for honest customers’ and said it undermines efforts to crack down on fraudulent claims.

In Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG the insurer had succeeded in the county court and Court of Appeal, each time by saying the owners of a vessel damaged in a storm had created a ‘fraudulent device’ through a lie.

The claimants had presented a claim for around £2.7m following a flood in the ship’s engine room, but lied about the sounding of an alarm in order to strengthen their case, accelerate payment and take the focus off any defects in the vessel.

But the Supreme Court heard the lie was in fact irrelevant to the claim as the vessel's losses were found to have been caused by a ‘peril of the seas’.

By a majority of four to one, the court held that the ‘fraudulent device’ rule did not apply to so-called ‘collateral lies’ which were immaterial to the insured’s right to recover. Lord Mance was the only dissenting judge.

‘The dishonest lie is typically immaterial and irrelevant to the honest claim: the insured gains nothing by telling it, and the insurer loses nothing if it meets a liability that it has always had,’ said the court’s summary of the judgment.

‘If a collateral lie is to preclude the claim, it must be material. The real test of materiality is that a collateral lie told in the course of making a claim must at least go to the recoverability of the claim on the true facts as found by the court.’

In a statement, James Dalton, director of general insurance policy at the Association of British Insurers, said the decision ‘flies in the face’ of work by the industry and government to crack down on fraudsters.

He added: ‘This decision risks pushing up the cost of insurance and prolonging the pay-out process for the vast majority of people who are honest customers.

‘As the dissenting judge, Lord Mance said allowing lies will “distort the claims process by the time and cost involved in unveiling the fraud and attempting to ascertain its true implications”.

Dalton added: ‘Lies are lies. Insurers will investigate all suspicious claims and we make no apology for doing so as it keeps premiums down for honest customers.’