Fraud Clauses Under the Microscope: What Malhotra Leisure v Aviva Means for Insurers

A recent decision in the Commercial Court, Malhotra Leisure Ltd v Aviva Insurance Ltd [2025] EWHC 1090 (Comm), has brought renewed scrutiny to the application of fraud conditions in insurance policies.

It serves as a cautionary tale for insurers relying on such clauses to decline claims.

Ben Macfarlane, Partner and Head of Dispute Resolution at Jurit LLP, explores the implications of the case

Background to the case

Malhotra Leisure Limited sought indemnity from Aviva for flood damage that occurred at one of its hotels in 2020. Aviva rejected the claim on two grounds:

1. That the insured had deliberately caused the flood; and
2. That the insured acted dishonestly in presenting the claim — including alleged false statements — in breach of a fraud condition in the policy.

The policy wording allowed Aviva to refuse the claim if it was “fraudulent or fraudulently exaggerated,” or if it was “supported by a false statement or fraudulent means.”

The Court’s findings

The Commercial Court rejected Aviva’s position in full. It found:

• The flood was a fortuitous event, not deliberately caused.
• There was no dishonesty in the presentation of the claim.

This outcome meant the insurer was not entitled to refuse payment or avoid liability under the fraud clause.

More significantly, the Court offered guidance on how such fraud conditions should be interpreted in light of existing legal principles.

Interpreting Fraud Clauses: Key Takeaways for Insurers

One of the most important elements of this judgment is the Court’s view on how fraud clauses should be read.

Drawing on long-established common law principles, the judge confirmed that unless a fraud clause is drafted in very clear and unambiguous terms, it should be construed narrowly and in line with the common law position articulated in:

• The Aegeon [2002] EWHC 1558 (Comm), and
• Versloot Dredging v HDI Gerling [2016] UKSC 45.

According to this position, for a misrepresentation or lie in the claims process to justify the rejection of a claim under a fraud clause, it must:

1. Directly relate to the claim,
2. Be intended to improve the insured’s chances of success or the size of the settlement, and
3. Be capable of yielding a material impact on the claim if believed.

In the absence of these elements, the fraud clause is unlikely to apply — unless the policy wording makes a broader application expressly clear.

Practical Implications for Insurers

This judgment underscores the importance of:

• Carefully drafting fraud clauses with clear and precise language if broader application is intended.
• Undertaking detailed factual analysis before relying on a fraud clause to reject a claim, especially where dishonesty is alleged in the presentation phase.
• Being mindful that courts will likely default to the narrower, common law interpretation unless policy terms are explicitly to the contrary.

This case serves as a valuable reminder: fraud conditions are powerful tools but must be exercised with precision and care.

Attempting to rely on them without a watertight factual basis or clear policy wording can expose insurers to significant legal and reputational risk.

Review your fraud clauses

As claims become more complex and policy wordings more nuanced, Malhotra v Aviva is a timely decision that clarifies the limits of relying on alleged fraud in claim presentations.

Insurers should take this opportunity to review the wording of their fraud clauses and ensure that both underwriting and claims teams are aligned in their understanding of what constitutes actionable fraud.

For help and support with this issue, our dispute resolution team can help. Get in touch for more information.