Legal Update: Fraud: Following Irish fraud law could help UK insurers fight fabricated claims

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Sarah Hill looks at the legal issues affecting insurers’ battle against fraud, including the Irish approach to ‘tainted’ claims and the incoming regulation of private investigators

Tainted claims
Can learning from our near neighbours help us redraw the battle lines in the fight against fraud? While the UK civil judiciary is taking every opportunity to stamp out fabricated insurance claims, the problems posed by fraudulent exaggeration cases are a continuing challenge.

Under legislation in the Republic of Ireland, if a claimant is found at trial to have given or adduced evidence that they know is false or misleading, the court is required to dismiss the entire claim.

Examples of how and when this legislation has been applied are few and far between. According to Justice Donal O’Donnell of the Irish Supreme Court, the existence of the legislation is a powerful deterrent and useful tool in discouraging such claims. However, even where legislation sets out the proper judicial approach, it is open to interpretation and is only used in the most obvious cases.

Is the UK, where no such legislation is in place, in a worse position? The case of Summers v Fairclough Homes allows courts to strike out a ‘tainted’ case for abuse of process but, as it is only used in exceptional circumstances, it appears to echo the Irish experience.

Summers continues to be used by defendants in much the same way as the Irish legislation – as a means to significantly reduce the exposure to fraudulent heads of loss, and to defeat appropriate claims in their entirety.

Any new legislation would have to be used proactively by the courts become a deterrent – the mere threat of such a power being used without the teeth of a robust application is unlikely to be enough.

However, there is evidence of a growing determination by the judiciary to tackle insurance fraud. At the Old Bailey recently, in R v Morgan, a veterinary surgeon was sentenced to two years in prison after pleading guilty to a total of 53 fraudulent claims worth £226 360. The claims were made to various insurers for costs associated with surgery on pets that did not exist. Animal and pet fraud is on the increase and has become a prevalent issue.

In the case of R v Niki David Robert McKenzie, the Court of Appeal upheld a 15-month sentence handed down to the purchaser of a bogus personal injury claim as part of a wider crash-for-cash conspiracy. Despite comprising only a single offence
of fraud, the prevalence of the type of fraud justified the judge starting above the sentencing guidelines. He believed a deterrent sentence was necessary to show this type of offence would not be tolerated and to reflect the fact crash-for-cash fraud is not a victimless crime.

PI regulation
Meanwhile, the Home Office is to introduce a new system of regulation for private investigators, in order “to protect the public from unscrupulous activity”.

Regulation of such investigators will be welcomed, particularly by the legal profession, but insurers should be aware that their claims investigation functions could face scrutiny when the new measures come into force in early 2014.

Insurers will have to undertake risk assessments to consider the necessary processes of managing their investigations team in line with the new regulations. This could be a costly process but, if action is taken sooner rather than later – not least due to the fact the maximum penalty for working as an unlicensed private investigator or supplying unlicensed investigators will be a fine of £5000 and six months in prison – insurers will be well placed when the regulations arrive.

Sarah Hill, partner, Berrymans Lace Mawer

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