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 ‘Honesty’ – I.O.B. reports:

Of course, honesty is not only assumed but also accepted on the part of the great majority of applicants to the Bureau. Nevertheless, in a significant number of cases the insurer is able to allege dishonesty and to substantiate the allegation by producing persuasive evidence.

… police accounts on the circumstances of burglaries may strongly suggest an ' inside job' . Also, occasionally papers are supplied including the originals of receipts and invoices purportedly substantiating losses but which are obvious forgeries, a fact not apparent from the photocopies accompanying the claim. In case of these sorts, we experience acute difficulties. Whilst the substance of allegations and suspicions must be put to the policyholder, the evidential material has almost always been made available to us in strictest confidence. We are not equipped or qualified to conduct a criminal investigation or trial.

Although the burden of proof is only a balance of probabilities, our findings would not enjoy any absolute privilege against defamation proceedings. In the face of all this we prefer to fall back on our power, presumably inherent, to refuse to touch or to continue to handle application whenever with good reason we see fit. Thus ' frivolous and vexatious' complaints will similarly be dropped. Where serious suggestions of dishonesty or fraud complicate the matter, it may well be our view that we cannot properly reach a decision because the issue would be more appropriately dealt with by a court of law.

There may be differences of perception as to when the circumstances indicate fraud.

A claim will be treated as fraudulent whenever it can be shown that there was an intention to defraud the insurer. However, the burden of proof is on the insurer and it is a high one.

In the case of S & M Carpets v Cornhill Insurance [1982] 1 Lloyd' s Rep. 423, Lord Justice Watkins said that although the standard of proof in a civil case was on a balance of probabilities, in deciding a case in which such serious allegation had been made, a very high degree of probability within that general standard had to be applied.

In Broughton Park Textiles v Commercial Union [1987] 1 Lloyd' s Rep. 194, Mr Justice Simon Brown, in applying that standard and finding for the insurer, said that had he been presiding at a criminal trial he would not have reached the same conclusion.

Thus the standard is lower than the criminal standard but higher than the civil. We cannot property apply a different standard from the courts for the basic reason that the insured should not be worse off by applying to the Bureau than if he had chosen to sue the insurer. That said, it is not our role to assist people to defraud insurers, but this does not mean that we can be expected to support unsubstantiated accusations against policyholders

Fraud is a serious business. The insurer replying on it as grounds for refusing to meet a claim has a heavy burden of proof to establish that this is justified. Mere exaggeration of a claim does not amount to fraud. It has to be clear that the policyholder is trying to get substantially more than he or she is entitled to.

Tainting the entire claim:

When fraud of this kind is established, then the consequences are no less serious for the policyholder.

The whole claim is tainted, and the insurer will have no obligation to pay even for those items which could legitimately have been claimed for.

That this is the legal position was affirmed by the Court of Appeal in the case of Orakpo v Barclays Insurance Services: [1995] LRLR 443. As Sir Roger Parker put it:

' Just as on inception the insurer has to a large extent to rely on what the assured tells him, so also it is so when a claim is made. In both cases there is therefore an incentive to honesty. If the assured knows that, if he is fraudulent, at least to a substantial extent, he will recover nothing, even if his claim is in part good' .

A harsh reality which we sometimes have to explain to policyholders.

Gut feelings/hard evidence

Insurers have to accept that in deciding whether to take this relatively drastic step we cannot rely on the ' gut feeling' of their Claims Managers, however reliable they may consider the sensitivities of that particular organ to be.

We need something more tangible in the form of hard evidence if allegations of fraud are to be taken seriously. One colourful case concerned a substantial claim for a total of £13,000 for loss due to theft. The Claims Manager in question some indigestion. He regarded the claim as fraudulent, because the insurer had been told, and so had the police, that the policyholder had been overheard in a pub planning with a third party how the theft should be perpetrated. This was a scenario which, if true, justified total repudiation of the claim and the instigation of criminal proceedings. The difficulty was that the individuals providing the information had either declined to identify themselves or had made it clear they would refuse to go on the record. Meanwhile, the policyholder was stoutly maintaining that there were people in the neighbourhood who were conducting a vendetta against him, and deliberately trying to spike his claim. This was a scenario which, if true, could have explained the shadowy accusations being made against him. We had to point out to the insurer that the police had said that they did not have enough evidence to charge the insured, and the evidence which the insurer had was not likely to stand up in court. The claim had to be met, and the insurer' s suspicions did not justify it in taking an unreasonably harsh attitude so far as requiring the policyholder to substantiate each item of his claim was concerned. Even so, there were arguments on that score too, and we were unable to uphold the claim in full. A final assessment of £3,220 was considered appropriate, against the original claim of £13,000. This was reluctantly accepted by the policyholder.

Bureau Policy

In some of the cases referred to us, the insurer has come to the conclusion that the claim is in some respect fraudulent. This is obviously an allegation which the insurer finds it difficult to substantiate in many situations: there may be unexplained discrepancies or perhaps the scenario is inherently improbable. In most of these complaints, the insurer has not been open with the claimant about its suspicions. In some, it asks us to reject the complaint on an alternative ground, such as lack of reasonable care.

If we consider that there is sufficient proof of some fraud, we will put that allegation to the complainant for explanation. If there is a satisfactory explanation, we may ask the insurer to meet the claim. Where the explanation is not persuasive, we may have to advise the complainant that the Bureau is unable to resolve serious conflicts of evidence and recommend him to seek advice concerning his legal rights.

However, if there is insufficient evidence of any deceit, then we can only evaluate the complaint on the insurer' s chosen ground. In many cases, we are unable to confirm the rejection of the claim because its reasons are not sufficient. We cannot allow these reasons to be buttressed by unsupported doubts concerning the policyholder' s good faith.

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