Hill Dickinson is a limited liability partnership

October 2007

Hill Dickinson is a limited liability partnership

Rhys Clift

Fraud: Does the Fraud: Does the punishment fit the punishment fit the crime?crime?

Outline

1. Introduction

2. General attitude to civil fraud

3. Fraud in insurance claims: difficulties in pleading and proving

4. Section 17 MIA, 1906

5. The Fraudulent Claims Rule

6. Threats to the FCR

7. Conclusion

Introduction: extent and types of fraud

• The extent of fraud - £14bn pa.• Insurance fraud (UK) £1.bn pa.• Probably three main types of

fraudulent claim:-– Deliberate loss. – Exaggeration (cf: negotiation).– “Fraudulent devices”.

• But not “non-disclosure”

General attitude to civil fraud

• Will not deprive claimant of benefit of genuine claim (provided fair trial not impossible).

• Examples:-– Personal injury (£1m/£55,000).– “Braer” pollution: the salmon case.

• Might have an impact in costs.

Fraud in Insurance Claims

• Pleading fraud: difficult, requires full particulars:-– Who made the representation?– How and when? – How is it false?– Knowledge of falsity

(recklessness as to the truth or falsehood).

Fraud in Insurance Claims

• The impact of the split profession.• The requirement of prima facie

evidence.• Result: “fraud” not uttered (the

elephant in the room).

Fraud in Insurance Claims

• Proving fraud: the burden of proof:-– Criminal standard: “beyond

reasonable doubt”.– Civil standard: “on balance of

probability”.– “Civil fraud”: “no other

reasonable explanation”?• Example: “THE MILASAN” (2000).

The application of Section 17?

• An easy alternative to pleading fraud?

• Cf: duty of disclosure on placement (duty is onerous).

• Origin: “LITSION PRIDE” (1985).• Now clear no full parallel duty of

disclosure in relation to claims (“STARSEA” (2001)).

The application of Section 17?

• Clear that Section 17 only applies to the formation of the contract.

• So, post placement it may still apply to:-– Amendments/variations.– Renewals.– “Held covered” provisions.– (But not applicable at all to

claims).

Fraudulent Claims Rule

• General rule of law: anomalous and draconian. Result forfeiture of claim (“STARSEA” 2001).

• Three points:– Sufficient basis to plead fraud. – Includes deliberate losses,

exaggerated claims and claims supported by fraudulent devices.

– Not available for mere non-disclosure however deliberate and however intended to mislead.

Fraudulent Claims Rule

• Timing: when does the duty end?• Only before proceedings!• Forfeiture: what is forfeit?• “All benefit under the policy”• But what exactly does this mean

(Axa v Gottlieb)?

Threats to Fraudulent Claims Rule• Anomalous and draconian. What

justification? Punishment, deterence?

• Harmonisation of fraud rules?– Tougher on general fraud or

fraud after proceedings; or– Softer by eradication of

Fraudulent Claims Rule.• Do Underwriters genuinely rely on

assured in claims presentation?

Conclusion

For further information please contact:

Rhys CliftHill Dickinson

Direct Dial

+44(0)20 7280 9199

Email

rhys.clift@hilldickinson.com

Fax

+44 (0)20 7283 1144Website

www.hilldickinson.com