Blog

Sat, 8 May 2010

Fraud, insurance, and now costs

Fraud costs the insurance industry £millions. For some reason, it is thought to be fair game to make false claims against insurers, sometimes by parties who wouldn’t ordinarily behave like that – if the house has been broken into, there’s nothing wrong with claiming for an extra 20 CDs or so? Is there? Possibly this is because it is seen as a crime without a victim, which ignores the wider impact of increased premiums to cover the higher losses.

In the face of fraudulent claims insurers have a number of remedies – breach of the duty of utmost good faith contained in the Marine Insurance Act, which, despite it’s title, applies to all insurance policies, and which allows the insurer to avoid paying the fraudulent claim and terminate the policy; breach of an implied term not to make false claims, which allows the insurer to avoid paying the false claim and terminate the policy; or reliance on the wider principle of public policy that no one should be allowed to profit from their own wrongdoing ,and thereby avoid paying the false claim.

It is an indictment on our criminal justice system, which seems to be failing, that the civil courts have admitted, on occasion, to a punitive approach in order to discourage such fraudulent claims – hit the fraudsters where it hurts, in their pockets.

And it would appear that insurers have another string to their bow.

All of the above remedies concentrate on the insurers avoiding paying the claim itself.

The courts would now appear to have extended the punitive element to costs.

The Court of Appeal in Sulaman v Axa upheld the decision of the trial judge who reduced a successful defendant’s costs by 2/3 on the grounds that she lied whilst giving evidence.

S. was suspected of fraud against Axa along with others.

Axa had refused to pay certain claims under the policy because of the fraud and were then subject to court action, presumably by the policy holder. Axa joined in S and the other suspected fraudsters as Part 20 defendants.

Axa succeeded against the 4 other fraudsters but not S.

S wanted her costs, which she got, because she won, but with the reduction, because she lied whilst giving evidence.

The message appears to be that fraud can not only taint the claim, but even if the insurer can’t sustain the fraud allegation against policy holder, an alleged fraudster can suffer costs penalties if the “fraud” continues over into the trial process in the form of lies told in court.

This can only be seen as a positive step in discouraging fraud in the insurance industry.

0 comments

Please insert the result of the arithmetical operation from the following image:

Please insert the result of the arithmetical operation from this image. =