WHAT IS FRAUD IN THE CONTEXT OF INSURANCE

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WHAT IS FRAUD IN THE CONTEXT OF INSURANCE?

• A claim will be fraudulent or based on fraud-
• If it is false and the persons making the claim
  intend to deceive the insurer, by getting out of
  it money or some benefit to which they have no
  right.
• If the person making the claim is reckless as to
  its truth, or if the person making it is careless
  whether it be true or false - See Sampson v
  Goldstar Insurance Ltd 1980 2 NZLR 742.

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WHAT IS FRAUD?

• A fraudulent claim requires-
• A representation, in the sense that, when reading
  its full context, what was said would give a
  false impression to the reasonable insurer
• The misrepresentation must have been given in
  support of, and appear to have been relevant to,
  the claim on a policy
• The misrepresentation must have been deliberate
  in the sense the insured knew that it was
  incorrect or was deliberately reckless as to its
  truth or falsity
• The misrepresentations impact and falsity must
  have been of real significance when considering
  the causes, nature, extent or investigation of
  the loss.

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The Fraud Must Be

• Substantial
• Wilful
• Material to the decision to pay

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Arson

• Section 267 of the Crimes Act 1961 defines arson
  as-
• Every one commits arson and is liable to
  imprisonment for a term not exceeding 14 years
  who
• (a) intentionally or recklessly damages by fire
  or by means of any explosive any property if he
  or she knows or ought to know that danger to
  life is likely to ensure or
• (b) intentionally or recklessly, and without
  claim of right, damages by fire or by means of
  any explosive any immovable property, or any
  vehicle, ship, or aircraft, in which that person
  has no interest or
• (c) intentionally damages by fire or by means of
  any explosive any immovable property, or any
  vehicle, ship or aircraft, with intent to obtain
  any benefit, or to cause loss to any other
  person.

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Arson

• Practical things investigators need to consider
• Ascertain all physical evidence for the cause of
  the fire
• Enquiries to exclude the possibility of the fire
  having an accidental or natural cause
• Critical analysis of combustible material with a
  source of ignition
• Important to prepare thoroughly to establish
  deliberate action or recklessness
• Site plans, photographs, samples, written records
  of witness statements
• Sort out what is factual and what is opinion
• Try to remember that evidence based on sound
  scientific principles is best
• Interview with policyholders should be as
  comprehensive as possible
• Written authorities obtained from policyholder.

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False Statements

• Must prove the insured-
• Knew the statement was incorrect or
• Was deliberately reckless as to the statements
  truth or falsity.

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Guardian Royal Exchange Ltd v Ormsby (1982) 2 ANZ
Insurance Cases 60-472

• Claim supported by photographs of the damaged
  property showing damage, which was inflicted
  after the insured event was reported.
• The Court found that a statement of this kind
  may make the claim false, but it is not material
  fraud because the insurer would have paid the
  same amount anyway.

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Fraudulent Device

• Defined as-
• any lie, directly related to the claim to which
  it relates, which is intended to improve the
  insureds prospects of obtaining a settlement or
  winning the case, and which would, if believed,
  tend, objectively, prior to any final
  determination at trial of the parties rights, to
  yield a not insignificant improvement in the
  insureds prospects, whether they be prospects of
  obtaining a settlement, or better settlement, or
  of winning at trial. See Agapitos v Agnew
  2002 EWCA CIV 247 2002 Lloyds Rep 1R 42.

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Exaggeration

• Engle
• the over-estimate, although not deliberately put
  forward with the directly fraudulent intent of
  inducing the insurers to pay the full amount
  claimed, is designedly made for the purpose of
  fixing a basis upon which to negotiate with
  insurers.

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Standard of Proof

• When proving fraud in the civil context it is
  thought that the
• standard of proof is-
• Higher than the normal balance of
  probabilities.
• New Zealand authorities indicate a high standard
  Gate differs little from proof beyond
  reasonable doubt.
• The insurer has the burden of proof in alleging
  fraud.

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Legal Consequences of Fraud

• A policy is able to be avoided from inception for
  misstatements made but only if they are-
• Substantially incorrect (a prudent insurer would
  have considered the difference between what is
  stated and what is actually correct to be
  material)
• Material the statement would have influenced
  the prudent insurers judgment in fixing the
  premium or in determining whether to take or
  continue the risk on substantially the same
  terms.
• Re Life Insurance, can be avoided if-
• Fraudulent, or
• Made within 3 years of the date on which the
  policy was sought to be avoided, or the date of
  death of the life insured, whichever is earlier.

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The Consequences

• The Consequences of making a fraudulent claim
  are-
• The insurer may avoid the contract of insurance
  and the insured will forfeit all benefit under
  the contract.
• Cancellation - may be available at common law
  and/or contractually.
• Avoidance/cancellation are available even where a
  claim may have been initially honest or if
  insured finds out statement that was initially
  true turns out to be false and does not notify
  insurer of this.

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Avoidance/Cancellation

• In addition to avoidance/cancellation an insurer
  can-
• Refuse to pay the claim
• Seek to recover under the policy for moneys paid
  out pursuant to the fraud, including-
• Repayment of previous benefits
• Interest on the amounts paid from the date they
  were paid.

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Privilege

• There are three important aspects to privilege-
• Confidentiality the nature of the communication
  must be that it was made in confidence by one
  person to the other
• Dominant Purpose the dominant purpose of the
  communication must be for the purpose of giving
  or receiving legal advice
• Communication the privilege only attaches to
  communications.

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Privilege

• Leading case in New Zealand is Mudgway v The New
  Zealand Insurance Co Ltd (1988) 5 ANZ Ins Cases
  60-827
• Litigation privilege extended in Australia by two
  cases-
• Century Drilling Ltd Anor v Gerling Australia
  Insurance Company Pty Ltd (2004) 13 ANZ Insurance
  Cases 61-608 and
• Pratt Holdings Pty Ltd Anor v Commissioner of
  Taxation 2004 FCAFC 122.

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Privilege

• In practical terms in order to protect
  investigators reports with privilege an insurer
  should-
• Appoint a solicitor at the earliest opportunity
• Ensure that the reports are addressed to the
  solicitor and copied to the insurer and marked
  private and confidential
• Ensure the reports state that the investigator is
  acting on behalf of the insurer for the purposes
  of liaising with and providing information to the
  solicitor
• The reports should refer to a request by the
  solicitor to obtain and provide information so
  the solicitor can advise the insurer.

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Privacy Act 1993

• Applies to agencies which is defined as any
  person or body of persons whether corporated or
  unincorporated
• 12 principles
• Personal information must not be collected unless
  done for a lawful purpose.
• Personal information must be collected from the
  individual to whom the information relates.
• The agency must take reasonable steps to ensure
  the individual is aware of the fact of collection
  of information, the purpose, intended recipients,
  the right of correction.

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Privacy Act 1993 continued

• Personal information cannot be collected by means
  that are unfair or intrude to an unreasonable
  extent on the privacy of the individual.
• Personal information must be reasonably secured.
• The individual is entitled to seek confirmation
  from the agency that the information is held and
  to have access to it.
• The individual is entitled to seek correction of
  information.
• Before use, personal information must be checked
  to ensure it is accurate and not misleading.

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Privacy Act 1993 continued

• Personal information may not be retained for
  longer than is required for the purposes for
  which it may lawfully be used.
• Personal information obtained for one purpose
  must not be used for any other purpose, subject
  to exceptions.
• An agency who holds information may disclose the
  information to a person or body or agency only in
  certain circumstances.
• An agency may not assign a unique identifier to
  an individual unless it is necessary to do so to
  carry out the agencys function efficiently.

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