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UK: Update on insurance fraud - Legislators enter the fray at last in targeting fraudulently exaggerated claims
The proposed legislation is targeted against fraudulent whiplash, 'crash for cash' and 'trip and slip' claims. In particular, the government is looking to discourage consumers from submitting fraudulently exaggerated claims by requiring the courts to throw out the entire claim where it is fundamentally dishonest (rather than just the dishonest element of the claim).
This move comes in response to a number of years of campaigning by the insurance sector, which had felt somewhat let down by a succession of judgments in the courts regarding fraudulently exaggerated claims for damages by third parties payable under liability policies.
Ul Haq v Shah – genuine element of a claim is not forfeit by exaggeration
The 2010 Court of Appeal authority Ul Haq v Shah confirmed that the courts did not have the power to reject a claim on the basis of fraudulent exaggeration and that the genuine element of the claim for damages would remain payable in circumstances where the claim was exaggerated – and even substantially exaggerated. The genuine element of the claim is not forfeit, is not struck out and is indirectly payable by insurers.
Insurers were left understandably puzzled by a situation where a small exaggeration by the insured is enough to forfeit an entire claim under an insurance policy, but insurers would have to pay the genuine element of a vastly exaggerated civil claim for damages against the insured.
Summers v Fairclough Homes Ltd. – Court of first instance and Court of Appeal
The frustration of the industry was compounded by the Court of Appeal decision in Summers v Fairclough Homes Ltd.
In this case, Mr Summers had injured his ankle in a work related accident and claimed £800,000 in damages against his employer, Fairclough Homes Ltd., for permanent disability, the constant need of crutches to walk, his permanent state of pain and inability to work.
At the court of first instance, Fairclough's liability was established and directions were given for a trial to decide quantum of damages. The directions included standard disclosure. It was at the disclosure stage that Fairclough paid for surveillance of Mr Summers and was able to get video recording of Mr Summers apparently living a normal life including working in a job, walking without crutches and even playing football.
Fairclough amended its Defence to argue that Mr Summers’ claim should be struck out under CPR 3.4(2) for Summers’ “deliberate, gross and dishonest exaggeration” of his claim. The court held that although the claim was substantially fraudulent, it was bound by the precedent authority of Ul Haq v Shah and was therefore unable to strike out the entire claim and had to award damages to extent they were genuine. Mr Summers was duly awarded £90,000 of his £800,000 claim.
The Court of Appeal also refused to strike out Mr Summers' claim.
Summers v Fairlcough Homes Ltd. – Supreme Court
Following a further appeal by Fairclough, and with the insurance industry waiting with bated breath, the Supreme court handed down judgment in 2012.
The Supreme Court overruled Ul Haq v Shah and held that the courts do have the power to strike out the entire claim.
However, much to the disappointment of the industry, the Supreme Court also found that such a sanction would apply only in very rare circumstances where it would be "just and proportionate" to do so. The facts of the Summers case did not meet this threshold. The Supreme Court said that notwithstanding the dishonesty, if the court is able to assess both the liability of the defendant and the amount of that liability then it should normally do so. It also pointed to other available measures for addressing a fraudulent claim such as costs orders, commencing committal proceedings and referring to the CPS for the initiation of criminal proceedings.
"Just and proportionate"
Insurers viewed the Supreme Court decision as a Pyrrhic victory. Courts were given the power to strike out claims in their entirety but the Supreme Court was clear that this would only be appropriate in exceptional circumstances – even more exceptional than the circumstances of Mr Summers. The judgment also begged the question, to be addressed and evaluated by further case law, as to what constituted "just and proportionate". Mr Summers' claim for £800,000 was almost ten times higher than the £90,000 part of the claim which was deemed genuine. Yet this was insufficient to meet the "just and proportionate" test for striking out the claim in its entirety. In Homes for Haringey v Fari, a £750,000 claim in relation to tripping over a paving slab was held to be worth £1,500 and was struck out by the court. Ms Fari was later sentenced to three months in prison. Does this mean "just and proportionate" is to be gauged simply by reference to the sheer degree or magnitude of the exaggeration? If so, it would mean we have moved away from the blameworthiness of conduct as there was not much difference in the behavior of Mr Summers and Ms Fari.
The insurance sector as a whole felt let down by the Summers judgment and saw it as an opportunity missed. With most insurance fraud being committed by ordinary consumers, feeling they have nothing to lose in submitting exaggerated claims, insurers are well aware that the ongoing battle is one of perception – they need the consumer to know that there is something to lose when submitting a fraudulently exaggerated claim. Insurers have been trying to get this message across themselves but have also been lobbying for help from the government. If the courts are required to throw out fundamentally fraudulent claims in their entirety then insurers hope this gives would be claimants pause for thought before exaggerating their claim. Is it really worth exaggerating my claim if it means I may end up with nothing? This recent intervention by the Ministry of Justice is what insurers hoped for from Summers. The proposals have only been announced and there is an election next year to keep Parliament busy. The announcement may not mean the arrival of the legislative cavalry just yet but it is exactly the clarion call that insurers were hoping for and can now trumpet to the wider public at large – exaggeration – is it worth it?
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