Insurance Claims And The Issue Of Fraud

28 May 2009

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In times of economic downturn, especially when credit becomes scarce, the propensity for fraud increases.

The current recession and credit scarcity are already impacting upon the pocket of the average family. There is likely be an increase in fraudulent claims against Insurers who may be considered easy targets by people, who in dire times might, with varying degrees of dishonesty, act out of character.

Insurers carry the onus of proving fraud. The normal civil burden of proof applies, that is the balance of probabilities. However, it has been held that the more serious the allegation of fraud, the higher degree of probability that has to be established.

Fraud is considered a very serious allegation requiring clear evidence.

Types of Fraudulent Insurance Claims

The case of Agatitos –v- Agnew (2002) Lloyd’s Rep.I.R.573 classified five areas of fraudulent claims.
These areas are:

Where the Insured suffered no loss.
This fraud speaks for itself - the Insured loss was less than he claimed.Judges tend to accept a certain amount of exaggeration. However they will impute fraudulent intent more readily when the degree of inflation is higher.
The Insured believed at the time of his claim that he had suffered a loss, but having later discovered that he had suffered no loss at all or a loss smaller than that claimed for, failed to correct the loss. If a claim is partly genuine and partly fraudulent it is not severable.
The Insured suffered a genuine loss but suppressed a defence known to him which might be available to the Insurer.This arises where for the Insured knows that Insurers would have a good defence, but conceals that there has been a breach, for instance, a breach of a warranty enabling the insurance contract to be terminated from the date of the breach.
The Insured has a genuine claim but has used fraudulent means or devices to advance it.It is not every fraudulent device which would defeat a claim. The party needs to show that:
(a) It was intended to improve the Insured’s prospects of winning the case or getting a settlement;(b) Looking objectively at it, it would, if believed tend to yield a not insignificant improvement of the Insured’s prospects of winning or getting a settlement or better settlement.

However the judge made clear that insurers cannot rely on fraudulent devices or lies which are employed by the Insured after proceedings have been issued.

Fraud and Interim Payments Made by Insurance Companies

This issue has been considered in the case of AXA General Insurance Limited –v- Gottlieb (2005) Lloyd’s REP.I.R369

There were four claims by the Insured. Two claims where there had been storm damage and damage by escape of water which were not subject to a fraudulent claim. The other two claims were also related to water damage, but the Defendant acted fraudulently in pursuing a claim for alternative accommodation and forging an electrician’s invoice.

Insurers had made interim payments in respect of both claims before any fraud had been committed.

The Court of Appeal held that insurers were entitled to recover the interim payments that had been made in respect of both the claims prior to any fraud having been committed. The Lord Justice stated in particular: ‘The proper scope of the common law rule relating to a fraudulent insurance claim is to forfeit the whole of the claim to which the fraud relates, with the effect that the consideration for any interim payments made on that claim fails and they are recoverable’.

For further information contact Gary Marshall on 0207 816 3642.

Insurance Claims And The Issue Of Fraud

Types of Fraudulent Insurance Claims

Fraud and Interim Payments Made by Insurance Companies

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