The courts have demonstrated the different ways insurance fraud can be dealt with. However, Gavin Rees and Paul Lowe report on how some of the findings are, on the face of it, unexpected.
Combating insurance fraud is clearly a major issue for members of the Association of British Insurers. According to its figures, insurers are detecting record levels of fraudulent insurance claims. This amounts to 2000 fraudulent claims every week, with a value of £14m. It has become trite to say that the recession will provide further motivation for fraudulent claimants. In these circumstances, insurers will be looking for a robust approach from the courts when dealing with fraud. Unfortunately, such an approach is not always apparent.
Two recent judgments in the English courts demonstrate the different ways insurance fraud is dealt with. The cases show that the courts are aware of the problems fraudulent claimants cause insurers. However, some of the findings from the insurers' point of view are, on the face of it, unexpected.
Carol Walton v Joanne Kirk (2009) will be welcomed by insurers. In this case the claimant was found to be in contempt of court as a result of false statements she made during proceedings. In brief, the facts are that the claimant brought a claim for personal injuries following a road traffic accident. She claimed damages in excess of £750 000 and relied upon expert evidence suggesting she had developed fibromyalgia.
The defendant's insurer believed that the claimant was exaggerating her claim and commissioned surveillance footage that demonstrated a disparity between her alleged and real condition. The claimant eventually settled the claim for £25 000 and paid the insurer's costs of £21 000. The insurers subsequently sought to commit the claimant for contempt of court and the claimant was found guilty.
The court accepted that the claimant was to some extent injured by the accident. However, it noted that she would have suffered most of that pain and disability anyway due to a long-standing condition that was not caused by the accident. Her fault, in the court's view, lay in her failure to identify the relatively normal life she was able to lead on what were called her 'good days'.
Given that contempt is a quasi-criminal action, the claimant was helped by the high standard of proof required for the action to succeed. Consequently, the court gave the claimant the benefit of the doubt in considering the allegations of contempt and many of the allegations were rejected. Despite these obstacles, the court upheld several of the allegations and the claimant was found guilty of contempt of court. In this case, a strong message was sent to deter future fraudulent claimants.
However, in Shah v Ul-Haq (2009) the claimants, including Mr Ul-Haq, were involved in a car accident and Mr Ul-Haq and his wife claimed they suffered whiplash injuries. Mr Ul-Haq's mother, Ms Khatoon, alleged that she too had been in the car and had also suffered a whiplash injury. Mr Ul-Haq and his wife gave evidence to support her claim.
The courts found that Ms Khatoon had not been a passenger and that Mr Ul-Haq and his wife had conspired to support her fraudulent claim. The Court of Appeal was also made aware of the seriousness of fraudulent claims for insurers.
The issue taken to the Court of Appeal was whether the courts had the power to strike out a genuine claim where the claimant has committed a fraud upon the court in respect of an associated claim. Counsel representing the defendant, Ms Shah, and her insurer emphasised that it was in the public interest for these types of frauds to be stamped out. He also pointed out that perpetrators of frauds should be made aware by the courts that if they were found out any associated genuine claim would be struck out along with the fraudulent claim. In support of these submissions, the court was told that the insurer in question had challenged no fewer than 157 'phantom passenger' cases in the past 12 months. This figure was in addition to that of claims involving staged accidents.
The man on the street might agree with counsel for the defendant. It would seem common sense that to conspire in a clear fraud should debar a claimant from pursuing their own claim. However, while the court held that costs could be ordered against the claimants, it would not allow their claims to be struck out for assisting in fraud.
Part of the court's problem with striking out the genuine claims was the precedent of pre-existing case law. It is well-established that a claimant will not be deprived of damages because they have fraudulently attempted to obtain more than their entitlement. By extension, the court considered that the position should be no different where the fraud consisted of lying to support another's claim. The court also debated whether it had the powers under the Civil Procedure Rules to strike out the genuine claims.
In summary, the Court of Appeal considered itself bound by previous case law to stop the genuine claims from being struck out. It was the court's view that only parliament could change the law for strike out to become a possible weapon for insurers in such situations.
Consequently, following the comments in Shah, it may now be time for insurers to consider lobbying parliament for legislation in this area. In an atmosphere where regulation is being tightened, insurers should not be afraid to speak up for their interests.
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