If insurers are to take stronger action against fraud they need firm backing from the courts

We don’t read a lot of tragic Greek plays in our house, but having read the judgment in Fairclough Homes Ltd vs Summers, I was put in mind of a quote by Sophocles, the classical Greek playwright:

“Rather fail with honour than succeed by fraud”.

This seemed to neatly sum up the judgment where an insurer, striving to do the right thing, was frustrated by both the judiciary and an overtly fraudulent claimant.

Throughout the ongoing debate into compensation culture and the Jackson reforms, MPs and other observers have asserted that insurers could and should do more to fight fraud, take a robust position on whiplash claims, and be prepared to take more matters to court.

In the conclusion of its March 2011 report, the Transport Select Committee said: “There appears to be significant scope for the insurance industry to do much more to combat motor insurance fraud. We call on the main players in the industry— particularly the insurance firms, brokers and comparison websites—to work together more proactively to achieve this.”

Unpredictable outcomes

Summers is just the latest in a litany of cases that explain insurers’ reluctance to spend even more resources on expensive litigation when outcomes are so unpredictable. The Summers case is an extreme example (or so we thought) of fraudulent behaviour designed to amplify a claim way beyond its true value by dishonesty.

The Supreme Court accepted that it had the power under the civil procedure rules to strike out a statement of claim at any stage of the proceedings, even when it had already determined that the claimant was, in principle, entitled to some damages. It concluded that this power should only be exercised where it was just and proportionate to do so, which was likely to be only in very exceptional circumstances. It did not consider the Summers case to meet those demanding criteria.

Exceptional circumstances? Let us just remind ourselves of some of the facts of the case. The claimant sustained a genuine injury at work when he fell from a stacker truck. He then pursued several years of litigation where he presented a claim at 1 times the eventual settlement, deceived medical experts, the Department for Work and Pensions and the courts. He gave dishonest evidence in Statement of Truths, and grossly and dishonestly exaggerated his claim. It was only through the dogged persistence of the insurer concerned that the truth finally came to light.

Time to intervene

Perhaps the true irony of the Supreme Court’s judgment is that Summers is indeed, unexceptional. Talk to claims handlers across all classes of business, and they will all be able to recount stories of claims not too dissimilar from this sorry matter. But surely that is the point? If the government truly wants to ‘walk the walk’ on fraud, then it must realise that it is time to intervene and break this ‘victimless crime/have a go culture’ once and for all.

FOIL lobbied the Law Commission to examine the issue of fraudulent claims in its 11th programme of reform, but the commission declined to do so, under direction of the Ministry of Justice. FOIL believes that the same principles should apply in third party claims as in policyholder claims – that any fraud ‘taints’, and therefore extinguishes the whole claim. Summers is a prime example of why this should have been dealt with at that time, and we call on the government yet again to work with all stakeholders in the compensation arena to take a more robust approach to insurance fraud.

At a time when the Civil Justice Council and the Ministry of Justice are wrestling with the complex issues surrounding qualified one-way costs shifting, we must continue our pressure to ensure that everything that can be done, is done, to eradicate fraudulent behaviour from the compensation system. Deterrents must be robust and effective, and have the teeth to truly deflect those who would cheat the system and load more cost on the premium-paying public, the taxpayer and community charge payers.

So to return to where I started, what would have old Sophocles made of all of this? He probably would have seen it as just another tragedy! Enjoy your holidays.

Don Clarke is president of the Forum of Insurance Lawyers (FOIL)