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Tue, 7 Dec 2010

Insurance Fraud: The Rollercoaster Ride Continues

Insurers have received mixed treatment of late by the courts.

The recent case of Yeganeh v Zurich plc confirmed what is now well established law that if an insured makes a claim under the policy, some of which is genuine, some of which is fraudulent, then the insured forfeits the entire claim. The courts have taken a relatively consistent line that this is to deter fraudsters. The fraudster cannot think that they can make fraudulent claims with impunity.

At Myton Law, we have previously commented that if that is the court’s rationale, you would have thought that it would apply, equally, where a third party makes a fraudulently exaggerated claim in litigation?

As to fraudulent exaggeration of the claim under an insurance policy, in Yaganeh v Zurich plc, the court upheld the approach of forfeiture of the entire claim, even though part of it was genuine. But the claimant had exaggerated his claim under his buildings and contents insurance policy and lost it all.

In passing, the insurer’s other defence – that the claimant had deliberately started the fire which led to the claim, was dismissed.

However, returning to third party claims then, again, whilst the courts have expressed sympathy for insurers who defend their assureds in the face of these fraudulent claims, nonetheless they have taken the stance that, unlike the position between the insured and the insurer under the policy, there is no legal precedent that a claimant should be treated in such a manner.

The remedy is going to have to be through legislation.

Summers v Fairclough Homes Ltd was the latest example of the Court of Appeal’s thinking in this matter.

In that case, the claimant exaggerated his claim for damages for personal injury. As the exaggeration was significant, the defendant, through their insurers, urged that, notwithstanding that they had admitted negligence, the claimant should get nothing.

Although the Court of Appeal, with some reluctance, dismissed the defendant’s appeal, they did so with some sympathy and in language rich in colour. It is only a very short judgment of the Court of Appeal and it is worth reading in full if only to enjoy it’s linguistic style.

But, it would appear that relief for the insurers can only come in the form of changes in the law.In the meantime, insurers should use every existing procedural remedy available to them to discourage these fraudulent claims. Previously, we had suggested contempt of court proceedings.

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