Fairclough judgment represents a limited step forward in fighting insurance fraud, says Hogan Lovells

LONDON, 27 JUNE 2012 - The Supreme Court handed down judgment today in the Fairclough v Summers case – a seven year battle over an exaggerated insurance claim.  The court allowed Mr. Summers to keep the £88,716.76 that had been awarded to him but ruled that in the future the courts will have jurisdiction to strike out a claim entirely (and any damages) in certain fraud cases.  

Nick Atkins, insurance litigation partner at Hogan Lovells, commented:  

"This decision will in general be a disappointment to insurers as Mr. Summers was given permission to keep the sum that was awarded to him and the court didn't go as far as the industry was urging in the fight against insurance fraud. 

"Importantly, the decision has given courts jurisdiction to strike out in cases in the future but only in "very exceptional circumstances". The extent to which this ruling will help to act as a deterrent to those who abuse the process will depend upon how this proviso of "very exceptional circumstances" is interpreted in future cases.  What represents exceptional circumstances is likely to be hotly debated and unfortunately could lead to yet further litigation."

"Exaggerated and fraudulent claims are a plague on the industry and any additional legal armoury to help the fight against fraud should be welcomed; the Supreme Court has ruled that the appropriate remedy in such a case is to penalise the fraudulent claimant in costs or to find them in contempt of court." 

"The insurance industry should, however, take some comfort from the fact that the Supreme Court accepted that, if such fraudulent claims have reached epidemic proportions, it may be that prosecutions are needed as a deterrent to others.  However, this may be an uphill struggle, given that the CPS considered whether to prosecute the claimant but concluded that it was not in the public interest to do so."  

Background to the case 

The case involved a claim by an employee who had been injured at work. The employer had been found liable in negligence, with damages to be assessed at a later date.  However, when it came to quantum, the employee grossly exaggerated his claim for damages - as proved by surveillance evidence undertaken by the employer's insurers - despite signing statements of truth in all his pleadings and schedules of loss.  

The employer (backed by the insurers, Zurich) sought to strike out the whole claim, including the damages granted for the genuine element of the claim, on the basis that the employee's fraud made this an abuse of process.  

At the trial for damages, the judge held that the employee had suffered serious injury but he had deliberately and fraudulently overstated his claim. He awarded him more than £88,000 in damages, and declined to strike out the whole claim, holding that he was bound by two Court of Appeal decisions to the effect that the court had no jurisdiction to deprive a person of a judgment for damages to which he was otherwise entitled on the ground that he had been guilty of an abuse of process.  

However, today the Supreme Court held that the court does have jurisdiction to strike out such a claim as an abuse of process but that this jurisdiction should be used only exceptionally and proportionately. This was not the case here so the application to strike out the whole claim failed.

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