The Association of British Insurers criticized a U.K.Supreme Court ruling that could allow customers to get payouts even if theyhave lied on their insurance claims.

Ruling in an appeal case against HDI-Gerling-IndustrieVersicherung AG, which is now known as HDI Global SE, the top court said July 20 that the"fraudulent device rule does not apply to collateral lies" that"are immaterial to the insured's right to recover."

The case involved the DC Merwestone vessel whose engine wasirreparably damaged due to a flood in its engine room. The ship's owners put ina roughly €3.2 million insurance claim but the insurer rejected the claim afterlearning that the owners had lied in the claim.

The original judge in the case had ruled that the owners'lie was a "fraudulent device," which meant the insurers did not haveto pay out under the policy. The court of appeal agreed with the decision,however the Supreme Court ruled 4 to 1 against HDI.

James Dalton, director of general insurance policy at theABI, said the ruling "could be a blow for honest customers." Headded: "This decision risks pushing up the cost of insurance andprolonging the pay-out process for the vast majority of people who are honestcustomers."