horwich farrelly

Fundamental Dishonesty: A Welcome Weapon in the Fight Against Fraud

October, 13, 2015

The following article, by Associate David Scott, was published in The Assessor in October 2015. The magazine is the official publication of the Institute of Automotive Engineer Assessors.

The Cost of Insurance Fraud

According to the Association of British Insurers a record 130,000 fraudulent claims were detected by insurance companies in 2014. By far the most common type of fraud detected involved motor claims which accounted for 67,000 cases valued at £835m.

Driver Glancing at Rear View Mirror

While insurers continue to develop increasingly sophisticated systems to identify fraudulent activity what recourse do they have to recover their legal costs when it’s proven a claimant had acted dishonestly?

Prior to April 2013 if compelling evidence of fraud was obtained the claimant had the option of withdrawing the claim before it reached the courts. However in doing so they could find themselves liable to pay the defendant’s legal costs.

The landscape changed with the introduction of the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) 2013. The aim of the Act was to promote access to justice at a proportionate cost and, as a result, the law was changed so that a claimant would no longer be liable for the defendant’s costs in the event of a case being withdrawn.

This process – known as a discontinuance – could take place just days before a trial was due to start. Not only was this a drain on valuable court resources, it would often leave the insurer with a hefty legal bill and the very real risk that premiums for honest policyholders would have to rise as a result to cover these expenses.

Of course, an insurer could instigate proceedings for contempt of court against a dishonest claimant. However the process is costly, can take many months to gather evidence and even in the event a conviction was secured the insurer would still be saddled with the costs of defending the original claim.

So how can the courts strike the balance between promoting access to justice and deterring fraudulent behaviour?

Fundamental Dishonesty

Thankfully, LASPO also introduced the concept of “fundamental dishonesty”. This allowed defendants to apply to the courts for their legal costs to be recovered from the claimant where it could be proved the claimant had knowingly submitted a dishonest claim.

While some legal commentators questioned how this would work when put in practice we’ve had considerable success securing such findings. A number of cases have involved convincing the judiciary that claimants who would normally be considered as beyond reproach, such as teachers, have been fundamentally dishonest.

At the last count we had secured 57 such findings for some of the country’s largest insurers – by far the highest published figure in the legal sector. What’s more the claimants were ordered to repay legal costs incurred by the defendants of more than £350,000.

An Own Goal for Football Fraudster

One of the most recent cases involved a semi-professional footballer who submitted a £2,000 personal injury claim to Aviva following an incident in October 2013.

The claimant, Gary Burnett, said he suffered whiplash as a result of a minor collision whilst parked at a drive-thru restaurant in Birkenhead, Merseyside. The driver in front, having misjudged the distance between the two vehicles, bumped into Burnett’s stationary van causing very minor damage.

No injuries were reported therefore it came as a shock to the driver (who had immediately admitted fault) and his insurers when Burnett submitted a whiplash claim a few days later. He claimed the bump had left him unable to play football for a month despite the fact the other vehicle was travelling at just a few miles an hour.

Footballer Preparing to Kick the Ball

Evidence was obtained from online match reports and Burnett’s publicly-available Twitter account which revealed he had in fact played football the day after the accident. Our investigation also showed that he continued to play throughout the prognosis period, scoring for his team and even collecting a Man of the Match award.

After presenting his solicitors with the dossier of evidence Burnett discontinued his claim. However, as the case had not gone to trial he was automatically protected from being liable for the insurer’s legal costs.

On our advice an application was made to the courts for the claim to be ruled as fundamentally dishonest and a hearing was scheduled for July 2015. Despite the claimant’s failure to attend, after reviewing the weight of evidence before him, the judge accepted Burnett had misled his solicitors, his medical expert, the defendant and the court.

The judge ruled Burnett’s claim was fundamentally dishonest and ordered him to pay Aviva’s costs of more than £11,000.

Carpenter Crafts a Dishonest Claim

Earlier this year we secured a similar result for LV= after a Portsmouth-based carpenter, Michael Figg, submitted a personal injury claim for £1,000. In late 2012 Figg’s van was struck after the other driver was temporarily blinded by the sun. The driver immediately admitted fault and notified her insurer, LV=, later that day.

Carpenter Planing WoodIn a phone call with LV= Figg confirmed he had not been injured during the incident, a stance he repeated a few weeks later following the completion of repairs to his van. Therefore it came as a surprise to the insurer and their policyholder when Figg submitted a personal injury claim some 18 months after the incident.

The case reached trial in February 2015 where evidence was presented which proved the minor nature of the incident in addition to the two call recordings. After listening to the evidence the judge dismissed the claim and had no hesitation in ruling the claim as fundamentally dishonest. Figg was ordered to pay more than £5,000 in legal costs to the insurer.

It transpired the claim was made after Figg received a cold call from an accident management company who told him there was money “waiting for him”.

Claims Farming

These results show how the introduction of fundamental dishonesty is a welcome addition to a defendant’s toolbox. In addition, the widespread media coverage of cases like these demonstrates the insurance industry’s commitment to tackling fraudulent claims.

However, the second case highlights a growing trend in so-called “claims farming” where an unscrupulous accident management firm shows scant regard for the fact that they may be encouraging individuals to make fraudulent claims.

Harassed Man on Phone

Recently the Information Commissioner’s Office announced they had received 180,000 reports of nuisance calls and texts with claims firms the biggest source of complaints second only to calls relating to boilers. It’s likely such complaints probably represent the tip of the iceberg, with many more instances of spam going unreported.

The tragedy is that currently it is those who unwittingly make fraudulent claims – not the claims firm that encouraged them to do so – who are most likely to end up with a criminal record if their fraud is uncovered.

If you would like to discuss these issues further please e-mail david.scott@h-f.co.uk or call 0161 413 1745.

 

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