Fraudulent Claims – Taking a Dive?

Food poisoning
The Association of British Insurers (ABI) has published figures showing that 125,000 dishonest insurance claims with a combined value of £1.3 billion were detected in 2016. This number was down 5% on 2015 and down 3% in value. 

At the same time, the value of organised fraud fell by around 30% on 2015 with 15,000 organised frauds valued at £174 million detected.

These frauds covered everything from staged car accidents to false food poisoning claims often against overseas hotels and tour operators.

It is certainly the case that the courts have been more willing to allow fraudulent claimants to be prosecuted for contempt of court where they had told lies on oath either when giving oral evidence or in documents supported by a statement of truth. The 2016 decision of Aviva Insurance Limited –v- Randive  is an example of this approach. Furthermore, in the landmark 2016 decision Hayward –v- Zurich Insurance Company, the Supreme Court allowed insurers to reopen a claim settlement, which they had entered into despite a suspicion of fraud, when new evidence of the fraud came to light.

Nonetheless, not everything has been good news for insurers and in another 2016 decision, the Supreme Court reversed the existing law on ‘fraudulent devices’ in a significant judgment in the case of Versloot Dredging –v- HDI Gerling (DC Merwestone). Prior to the Supreme Court decision in this case, if an insured used fraud, for example by falsifying evidence, in support of an otherwise valid claim, insurers were entitled to reject the claim in its entirety.

The Supreme Court decision in DC Merwestone reversed this position, holding that there was a significant difference between a fraudulently exaggerated claim and a legitimate claim supported by a fraudulent statement or evidence (a fraudulent device). It was held that forfeiture of the claim is appropriate in the former case because the assured was seeking to obtain something to which it was not entitled but not in the latter case because the fraud deployed would not have involved an attempt to obtain anything more than the insured’s actual entitlement. As Lord Mance put it in his dissenting judgment, “abolishing the fraudulent device means the claimant pursuing a bad, exaggerated questionable claim can tell lies with virtual impunity.”

It is very good news that insurers have succeeded in reducing the number of fraudulent claims but it is clear that obstacles still remain. Let us hope that, despite the decision in DC Merwestone, the courts continue their strong line on contempt of court and perjury.

For a more detailed discussion of the current English law on fraud, please see our chapter “Fraudulent Insurance Claims:  Where Are We Now?” in the 5th Edition of Insurance and Reinsurance Law Review.

Simon Cooper