Date:  16 October 2009

FRAUD WARS – THE INSURERS STRIKE BACK 2

On 11 March last I posted an article on this website summarising two recent insurance liability fraud cases which had seemingly gone well for the industry.  To save repetition here a copy of the article is reprinted below. 

Both cases have subsequently moved a stage further and I thought that you would like to know what the latest position is.

The first case is now known as Anita Shah v Wasim Ul-Haq, Samara Khatoon and Zahida Parveen [2009] EWCA Civ 542.  Although the two successful claimants only achieved a Pyrrhic victory in the High Court before Walker J, the motor insurers decided to appeal to the Court of Appeal to try and establish the principle that in a fraudulent claim such as this, the court had power to strike out the case at any stage in the proceedings under CPR 3.4 as opposed to a trial judge adjudicating the case on the facts and then making appropriate orders in costs at the end of the trial - which would effectively penalise the fraudulent claimants. 

Regrettably some might say, the Court of Appeal decided that under existing law which could only be changed by Parliament, there was no power to strike out a fraudulent claim (except a fraudulent claim made where there was an insurance contract between the parties) despite what was described as the disgraceful and criminal behaviour of the claimants in the case described below. 

Striking out is not appropriate to a case which has to go all the way to trial for the judge to decide on the facts.  It is not open to the judge to strike out a genuine claim (as was the case here with the claims of the driver and his wife who had definitely been injured).  In those circumstances it was said “the judge must give effect to his findings.  He can mark his disapproval of the way in which the court’s time and the parties’ money has been wasted by an order for costs.  But he cannot, in my judgment, mark his disapproval by depriving the claimant of that which the claimant has proved to be his entitlement…”. 

A disappointing result, therefore, in the war against fraud and the decision has been criticised not least within the insurance industry.  A recent letter to the weekly Insurance Post from the claims fraud manager of a well known insurer points to “The inconsistency and bias we are facing in dealing with the judiciary when it comes to cases such as those that involve phantom passengers…where is the incentive not to throw in a phantom passenger when you are safe in the knowledge that your claim will succeed and there will be no penalty (other than costs) and secondly how reliable is the overall evidence of the claimants in respect of their own injuries, when they’ve lied on oath regarding the phantom passenger?...we need to send out a clear message to fraudsters that anyone committing fraud or facilitating another fraudulent claim will be subject to severe repercussions…” – good points.

That was not so good news. Slightly better news is to be found in the other case Joanne Kirk v Carol Walton now reported at [2009] EWHC 703 QB where Mrs Kirk was prosecuted for contempt of court for exaggerating her claim.

The court gave her the “benefit of the doubt” on many of the allegations of contempt on the basis that she had a pre-existing condition and that “she was entitled to emphasis those symptoms as long as there was an argument that they had been caused or at least exacerbated by the accident”. 

The court did, however, find that she had been in contempt of court in: (i) falsely filling out her claim for state benefits (an Incapacity for Work Questionnaire); (ii) her application for a blue disabled parking badge; (iii) her responses to a Pt 18 request (essentially Mrs Kirk’s opportunity to identify her “variable” condition and retract the statements she had made in (i) and (ii)).

While the court did not consider this to be a case where it was appropriate or proportionate to give a custodial sentence, particularly given Mrs Kirk’s emotional and physical state, a £2,500 fine was imposed to act as a deterrent. She was additionally ordered to pay 50% of the defendant’s costs of the proceedings.

While successful contempt of court proceedings have been brought previously in a wholly fabricated claim, this appears to be the first instance of contempt of court proceedings having been brought solely for exaggeration of a claim.  Insurers can therefore pursue a fraudulent claimant even where it is accepted there was an injury and the claim has been settled.  It remains to be seen, however, whether insurers will regularly pursue this course of action and whether this case will act as a deterrent to fraudulent claimants. 

The burden of proof is the criminal one of beyond reasonable doubt and insurers will need very convincing evidence to justify the expense and risk of pursuing contempt of court proceedings. The insurers only recovered 50% of their costs.

Insurers may be disappointed that the findings of contempt were not more widespread and that the penalty imposed was not greater. It should not be forgotten, however, that  Mrs Kirk accepted a settlement of her claim for a fraction of the amount claimed. Further once the costs are taken into account she will not have gained anything as a result of her claim.

Geoff Lewis