News

Mon, 27 Sep 2010

Fraud and insurance - another string to the insurer's bow?

There is a rule in insurance law that if a claimant dishonestly exaggerates a claim under an insurance policy, he forfeits all the claim, including the genuine part. The reason is clear - it is there to deter fraudsters.The courts were quite clear that there had to be a punitive element because, otherwise, any claimant could exaggerate the claim knowing that there would be no punishment if they were found out. They would simply recover their genuine claim. They could not be allowed to make exaggerated claims with impunity. 

You would think that a rationale like that would be appropriate for any action, brought before a court, where there is dishonest exaggeration by a claimant.

Regrettably not. In Ul-Haq v Shah, a claimant, who had a genuine claim for whiplash injuries as a result of a road traffic accident, supported a further fraudulent claimant who was not, actually, in the claimant’s car at the time. The insurers of the guilty driver sought to have his claim dismissed on the grounds that he had fraudulently supported a non existent claim of a third party.

The court wouldn't have it.

The rule mentioned above should be confined to insurance policies on the grounds that insurance policies are contracts of utmost good faith. There was no authority to support the proposition that a genuine claimant should have his own claim struck out for supporting a fraudulent claim. 

The court made it clear that claimants could not make such claims of impunity. It could affect their credibility in the case, should their evidence come to be assessed and there might be costs sanctions. However, that was as far as any deterrent went.

Perhaps another string to the insurer's bow is to consider contempt of court proceedings against any claimant who makes a false statement in court proceedings which is supported by a statement of truth. Generally, statements of case, witness statements, affidavits and so on and so forth have to be supported by a statement of truth. The Civil Procedure Rules clearly cater for proceedings for contempt of court in such an eventuality.

Such proceedings have their limits.

The case of Carol Walton v Joanne Kirk shows how difficult it can be.

In that case, an insurance road traffic accident case, the insurers of the guilty party brought proceedings against the claimant in the personal injury action for contempt of court for false statements supported by a statement of truth.

In order to do so, the party alleging contempt of court has to prove that the statement was false; that the statement had or would likely to have interfered with the course of justice in a material respect; and that at the time it was made, the maker of the statement had no honest belief in the truth of the statement and knew of its likelihood to interfere with the course of justice. The burden of proof is the criminal standard ie beyond all reasonable doubt.

This is no easy threshold to get over.

In addition, the penalty for contempt of court proceedings is not damages in the usual sense but, rather, the imposition of a fine or imprisonment.

Nonetheless, proceedings of this sort, by insurers, must have a deterrent effect. It must send out a message that fraudulent claimants cannot carry on and expect there to be no sanction for their misdemeanours.