Are the courts too cautious when dealing with insurance fraud?
While expressing sympathy with the insurance industry over fraudulent claims and describing them as a “scourge of our time”, a recent Court of Appeal decision is another example of the judiciary’s tentative approach to tackling the problem. Insurers may now need to adopt more innovative methods if fraud is suspected.
The recent case of Ul Haq v Shah arose after Mrs Shah negligently drove into Mr Ul Haq’s (H’s) car. Having admitted liability, three personal injury claims followed in respect of H, his wife (Mrs Parveen) and his mother (Mrs Khatoon). But Mrs Shah denied that Mrs Khatoon had been in the vehicle and argued, in court, that all three claims should be disallowed because of Mrs Khatoon’s fraudulent claim.
At trial recorder Richard Parkes QC concluded that Mrs Khatoon had not been present at the accident and dismissed her claim. While accepting that H and Mrs Parveen had supported Mrs Khatoon’s false claim, he decided however, that both had suffered genuine injuries in the collision. Yet attempts by Mrs Shah to strike out all the claims on account of the attempted fraud failed, as the recorder was uncertain that he had the discretion to do so under the Civil Procedure Rules (CPR). He did, however, penalise the claimants on costs, so that they effectively received no damages for their genuine injuries.
An appeal by Mrs Shah to the High Court, that the recorder had been wrong to refuse to strike out the genuine claims, also failed.
The judge concluded that, while the courts had a discretion under the CPR to strike out genuine claims if tainted by fraud, the fraud in this instance was not sufficiently serious to justify it.
Court of Appeal
Mrs Shah then took the case to the Court of Appeal. In dismissing the appeal the judges concluded that the rules (CPR 3.4 (2)) did not give the courts a discretion to “deprive a claimant of his substantive rights”. The courts could strike out a case before the start of a trial but doing so during trial was only appropriate if the dishonesty meant there could not be a fair trial.
Discretion under the CPR was not designed to deprive a party of his legal right to damages by way of punishment, deterrent or a court’s desire to highlight its disapproval of a party’s fraudulent conduct.
Different tactics needed
Ultimately the judgment enforces the maxim that “credibility is king”. As a result, insurers may have to concentrate less on arguing that fraudulent behaviour taints genuine claims and more on the fact that the existence of fraud brings into question whether an injury or loss can be believed at all. Insurers may also have to consider alternative methods of deterring fraud, such as private prosecutions and tort of deceit actions.
The Court of Appeal invited parliamentary intervention to alter the policy on tainting. While greater certainty over the courts’ authority to apply sanctions would be welcome, a slight question mark must remain over the effectiveness of any changes, given the cautious approach adopted by the judiciary in applying existing sanctions against dishonest claims and fraudulent claimants.
Lorraine Carolan is a partner and national head of, and Antonia Ford is an associate in, the claims validation team at national commercial law firm, Beachcroft LLP