Fraudulent insurance claims are a constant source of frustration for the insurance community. One recent Supreme Court decision, Hayward, highlights the circumstances in which a compromise can be set aside on the basis of fraudulent misrepresentation in cases involving exaggeration. Sarah Hill and Joanne Francis of law firm BLM explain.
The Hayward case
Mr Hayward had injured his back at work, claiming serious impairment, but video evidence showed him undertaking heavy work at home. Liability was admitted, the parties reached a final settlement of his claim, but about two years later, Hayward's neighbours indicated that he had entirely recovered from his injury at least a year before the settlement was reached.
The Supreme Court determined that the insurers could rescind the compromise on the basis of fraudulent misrepresentation, saying: “It is difficult to envisage any circumstances in which mere suspicion that a claim was fraudulent would preclude unravelling a settlement when fraud is subsequently established.”
What can we learn from this case?
At an early stage when suspicions arise, it will be necessary to assess what it is that the defendant is faced with. Is this a fraud case? Is this claim fabricated? Or are aspects of the claim exaggerated?
Having concluded that this is an exaggerated claim, the defendant’s own objectives should be considered. In the corporate world, reputation is a vital consideration as are relationships that may exist with customers generally. These need to be factored into the possible outcomes of the defence strategy.
An armoury of tactics exists for an experienced fraud lawyer. The usual aims include forcing a withdrawal; striking out as an abuse of process or on the basis of fundamental dishonesty; and the recovery of costs, as an exception to qualified one-way costs shifting. But how much further should you go?
Strategies for successfully tackling adverse behaviours include deterrence and punitive sanctions such as recovery in the tort of deceit, referral to the Insurance Fraud Enforcement Department, criminal or private prosecutions, and contempt of court actions with possible prison sentences. Following Hayward, action against the fraudulent claimant may even be pursued long after settlement.
What tools can be used in such circumstances? It can be difficult to establish the full extent of the exaggeration but in any fraud case, early strong pleadings are crucial.
In proving the fraud, intelligence evidence should be considered: fraudulent claimants sometimes boast of their capabilities on social media such as Facebook, for example. For personal injury claims surveillance is also likely to be needed.
Post Hayward, we are advising customers to consider whether anything has changed post settlement on any of their claims. Ultimately though, this does not change the strategies of defending fraudulently exaggerated claims.
Fraud is an emotive subject: no-one likes to be accused of fraud and nobody likes to feel that they have been defrauded. There are certainly broader issues for the risk manager to consider, depending on whether this might be a claim by a customer or employee, the business’ brand profile and of course the certainty of the evidence in relation to the fraud.
A strategy should be agreed at the outset between all of the defendant “team” – brokers, insurers and employees within the business – because outcomes can’t be guaranteed and news, both positive and negative, will need to be managed.
Sarah Hill is a partner and head of fraud at BLM
Joanne Francis is a partner and head of claims management services at BLM