Guarding against pitfalls of fraudulent claims

Bogus and inflated insurance claims are estimated to cost the UK insurance industry £1.6 billion a year. Axa Insurance alone released figures over the summer...

...that revealed a rise of more than 80% in fraudulent insurance claims over a one year period.

Against this background and the current economic turmoil, at a recent International Underwriters Association market briefing, insurers were warned by solicitors from UK national law firm, Weightmans, to be on their guard against a rise in fraudulent and exaggerated claims and also to be aware of some of the common legal pitfalls when presented with such claims.

Ling Ong, a partner in the London Market Team at Weightmans, reviewed the position under English law with respect to fraudulent and exaggerated claims, or claims that are not in themselves fraudulent but which have been assisted by a fraudulent device. She commented that given present conditions, “it is even more important to know what precisely insurers’ rights and remedies are under current insurance law principles” in respect of each of these types of claims. Furthermore, although some longstanding issues have been settled by authorities over the last few years (such as the existence of a continuing duty of good faith post inception), there are still certain questions which remain. For example, would a fraudulent claim taint a separate honest claim made under the same policy which was payable at the time of the fraud but in respect of which actual payment had not been made by insurers.

Colin Peck, another partner in Weightmans’ London Market Team, outlined some of the common legal pitfalls that insurers must be aware of when faced with such claims. In particular, he considered whether a term in a policy could exclude an insurers rights to avoid where there had been fraud; what the effect of a joint or co-assured’s fraud was on their fellow assured; what the effect of an agent’s fraud was on his principal and what the position was in terms of waiver and estoppel. He also urged insurers “to seriously consider whether they could meet the burden of proving fraud by their assured, and if not, to consider possible alternatives such as breach of any applicable warranty or condition precedent in the policy”.