There is no doubt that insurance fraud has received a substantial level of attention this past year; with the link between the economic downturn and an increase in fraud cited at every opportunity. The figures do not lie – the Association of British Insurer’s latest statistics reveal that from 2004 to 2009 fraudulent claims doubled from 51,000 to 107,000.
Regardless of the fraudsters’ motivations – from opportunistic individuals who view insurance fraud as a victimless crime to organised and repeated criminal teams operating around the country – the result for insurers battling against the increasing tide of fraudulent claims remains the same.
An increase in fraud inevitably leads to an increase in litigation but unfortunately the courts are not always robust in dealing with deceitful claimants – as the following cases demonstrate.
Direct Line Insurance plc v Fox
Mr. Fox, the insured, made a claim when his kitchen was destroyed by fire. Direct Line accepted the claim and a payment of over £70, 000 was made to him. When Mr. Fox submitted an invoice to support a final VAT payment under the settlement agreement its legitimacy was questioned by Direct Line which prompted Mr. Fox to withdraw the invoice.
There was an express condition within the policy stating that it would become void in the event that the insured made a fraudulent claim, which the insurer asserted had occurred when Mr. Fox dishonestly submitted the misleading invoice. As a result of this Direct Line wanted to recover the £70, 000 already paid to Mr. Fox. The judge decided that since Mr. Fox had given the document to satisfy the condition precedent of the settlement agreement, and not to establish an element of the claim under the policy, the policy was not made void by his fraud.
Ul-Haq and others v Shah
It was found that a conspiracy to defraud a motor insurer, Admiral Insurance, was insufficient to warrant a strike out of the claim. The claimants, Mr. and Mrs. Ul-Huq suffered whiplash injuries from a car accident. Mr. Ul-Huq’s mother alleged that she had also been involved in the car accident and had suffered injury as a result. However it was discovered that the mother had not been a passenger and that the claimants, Mr. Ul-Huq and his wife, had conspired to support her fraudulent claim.
At the Court of Appeal it was considered whether the courts had the power to strike out a genuine claim where the claimant had committed fraud upon the court in respect of a connected claim. The court held that although costs could be ordered against the claimants it could not allow their claims to be struck out. The court had no powers under the Civil Procedure Rules to strike out a claim on these grounds and only Parliament could change the law in this regard. Therefore insurers could not use conspiracy to commit fraud to have genuine claims struck out.
Unfortunately, neither of these recent cases are favourable for insurers. There appears to be a definite reluctance to dismiss genuine claims, even when a large element of the claim is fraudulent. When it comes down to costs, and the time and effort spent in court action, it is disheartening for insurers when a fraudulent claimant is still able to recover; even when there is a clause in the insurance contract stating otherwise.
CfJ maintains that fraudulent claims are not always best dealt with by the courts. The risks of still having to pay out to an insured, where a genuine claim is present, remains extremely high and court action is therefore just an expensive and drawn out means of having their deceit publicly exposed – without any deterrence given to others contemplating similar activities.
In light of both these cases it should be concluded that any alternative means to resolving similar disputes should be seriously considered, especially if fraudulent claims continue to rise.