Andrew Hunn looks at current law and the advantages in pursuing suspected fraudulent claims through the court
The Fraud Bill expected shortly to be passed by Parliament will repeal eight offences relating to deception and replace them with two new statutory offences of fraud and of obtaining services dishonestly. The intention is to simplify the criminal law on fraud.
The new offence of fraud will be committed where a person dishonestly:
The ideal scenario for an insurer faced with a fraudulent claim is to present its evidence to the police to investigate and for the CPS to prosecute.
Among the advantages are that witnesses may be more willing to assist with a criminal investigation and that the costs are paid from general taxation and not by the insurer.
Leaving matters to the police and CPS can have its downside. In my experience, two cases easily highlight this point. The first involved arson to a fleet of commercial vehicles in which the CPS failed to notify an insurance company witness of the new trial date following a previous adjournment.
The second case involved arson to retail premises. A conviction was obtained but was overturned by the Court of Appeal, which ruled that the original trial was unfair because the judge had wrongly allowed the jury to hear and to take account of "similar fact" evidence of the policyholder's previous misfortunes involving the conflagration of insured property.
No sooner had the Court of Appeal overturned the policyholder's conviction than the claim under the policy was revived, like a phoenix from the ashes.
Both insurance claims were eventually withdrawn but not before insurers incurred costs which would have been unnecessary with a more satisfactory outcome to the criminal process.
The burden of proof also differs in criminal and civil cases. While in criminal cases guilt must be established "beyond reasonable doubt", the burden in cases is on "the balance of probabilities".
However, following Lord Justice Denning's dictum in the Court of Appeal case of Hornal v Neuberger Products Ltd , the courts do require a higher degree of probability in charges of fraud than in negligence.
Once allegations of fraud are made and relied on in an insured's Statement of Case in proceedings, the parties are playing for high stakes - the policyholder in terms of reputation and future insurability, the insurer having to satisfy a relatively high standard of proof.
An insured who is found to have grossly exaggerated a genuine claim or fraudulently included items within the claim can expect to get short shrift from the courts which will uphold the insurer's rejection of the entire claim.
Today's technologies go some way to assisting insurers in gathering and presenting hard evidence.
But it should be noted that technology is there to be exploited by both the fraudster and the investigator. At an early stage, particularly in personal lines claims, recording telephone interviews in a structured way can act as a deterrent to the uncommitted 'amateur' fraudster and provide indicators that merit more detailed forensic investigation.
It is the more advanced forms of fraudulent activity and organised crime that requires a greater collaborative approach by industry, the Serious Fraud Office (SFO) and police.
Although the stakes for insurers are high, they are not as high as they might be. It is established law that if the insurer's defence of the claim for policy monies or indemnity fails, the policyholder will recover only the policy monies or indemnity under the terms of the policy together with interest. The policyholder is not entitled to damages for breach of the insurance contract as in some foreign jurisdictions.
Tackling fraud in all its guises is a priority in the UK and globally. We can hope that the government's Fraud Bill and the SFO's initiatives in the field of large and complex fraud, coupled with determination and advancing collaboration within the insurance industry, will promote robust action to attack this activity for the benefit of insurers and their policyholders. IT
' Andrew Hunn is a partner at law firm Davies Lavery