Hill Dickinson is a limited liability partnership

October 2007 Hill Dickinson is a limited liability partnership Rhys Clift Fraud: Does the punishment fit the crime?

Outline 1.Introduction 2.General attitude to civil fraud 3.Fraud in insurance claims: difficulties in pleading and proving 4.Section 17 MIA, 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

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