Clarity given on fraudulent misrepresentation

Direct Line Insurance v Fox (Queen's Bench Division - 10 March 2009)

The defendant entered into a contract of insurance with the claimant against the risk of property damage. The policy contained a clause to void the policy in the event of fraudulent misrepresentation. A compromise agreement was reached whereby the claimant agreed to pay a sum in advance and further payments for VAT on production of a valid VAT invoice.

The claimant paid the initial sum and then the defendant produced a VAT invoice from a sub-contractor for £4112.50. The claimant questioned the authenticity of the invoice because they had never received quotes for that sub-contractor to do any work. The defendant then decided not to pursue the VAT. It transpired that the defendant had not used the sub-contractor's services due to a breakdown in communication.

The claimant sought to recover all payment (in excess of £70,000) submitting that the VAT documentation relied upon was false and a breach of the principle of utmost good faith. The defendant submitted that the work had been completed (though not by the named sub-contractor) and though the invoice was false it did not matter who actually did the work as a cash settlement had been agreed.

The court held that the defendant had not relied upon the false VAT invoice to advance a fraudulent claim. He merely sought to use a misleading document to satisfy payment of £4,112.50 referred to in the written compromise agreement. There was a compromise settlement for works carried out and the claim was genuine.


The court distinguished this case from that of Axa General Insurance v Gottlieb (2005), where an insured who fails to adhere to the principles of utmost good faith and uses fraudulent documents to support a genuine claim cannot recover any sums under an insurance policy, in that the defendant had not ultimately advanced a fraudulent claim. - Rajesh Kanda, BLM Manchester

- These law reports are contributed by national law firm Berrymans Lace Mawer (

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