Insurers are often reluctant to pursue a fraudster for recovery of costs on the basis that they ‘don’t want to throw good money after bad’, with the same concerns regarding imposition of sanctions. Michelle Reilly considers how insurers can improve their prospects of recovery and send a clear message to fraudsters that they do in fact have something to lose.

When it comes to defending fraudulent claims, nothing rivals the satisfaction of a costs order in your favour - whether it results from an interim application, a claimant’s default or a win at trial. However, it can be disheartening when that costs order goes unsatisfied. Often, a fraudster will seemingly disappear or won’t have the funds to pay. When this happens, what can be done about it?

Recovering from a claimant

If the fraudster is the claimant, then traditional methods of recovery - such as instructing a High Court enforcement officer, obtaining a charging order on a property, an attachment of earnings order or a third party debt order - are all effective methods of recovery, but can take a long time to achieve the desired result. Issuing a statutory demand followed by a bankruptcy petition can be a quicker method of recovery and has the added advantage of potentially taking a fraudulent claimant, who may have previously been a company director, out of that position until the debt is paid.

What if the claimant isn’t the fraudster?

Often claims are run for the benefit of an accident management company (AMC) or credit hire company (CHO), sometimes even without the claimant’s knowledge. It is important to ask the question ‘who is the true instigator of the proceedings?’ and perhaps more importantly ‘who is going to benefit?’

The reply to these questions will often tell you who you need to pursue and bring into proceedings for the purpose of costs recovery. This can be done during the course of the litigation or at the end of the case, depending on the facts. CPR 44.16(3) provides an exception to the usual rules of qualified one way cost shifting and allows the court to make a costs order against a person other than the claimant if the claim was made for the financial benefit of that person. The advantage of this method of recovery is of course that an AMC or CHO is more likely than an individual claimant to have funds to repay costs.

Pursuing the ATE provider is a waste of time… isn’t it?

The failure of after the event (ATE) insurance providers to honour claims by resorting to self-drafted clauses in their policies is a huge source of frustration for insurers, but it would be a mistake to think that recovery was not possible in any of these cases. Commonly, claimant solicitors acting under a delegated authority arrangement for the ATE provider fail to keep the insurer updated on the progress of the litigation. If the matter proceeds to trial and the insurers have done nothing to reassess the risk - despite clear misgivings and evidence supplied by defendants – then, increasingly, courts are prepared to bring both the ATE provider and the claimant’s solicitors into proceedings for the purpose of costs recovery. In many cases, either the ATE provider or the claimant’s solicitors step in to make a commercial offer for costs before the case reaches a hearing.

Isn’t the imposition of a sanction only appropriate for complex fraud or higher value cases?

Often this is true, but not always. Increasingly, insurers find themselves repeatedly targeted by the same ring of fraudsters, submitting many low value claims which, when added together, represent a very significant loss. It is important to challenge this practice head on, to not only act as a deterrent, but to protect the insurer’s brand and reputation.

Contempt of court proceedings, actions in the tort of deceit seeking exemplary damages and private prosecutions are all options that can be considered. A guilty verdict in relation to either contempt of court or private prosecution can result in a custodial sentence and maximum publicity which will serve to deter any other ‘would be’ fraudsters. While private prosecutions are not going to be suitable in every case, in addition to the obvious sanction of imprisonment, they have a number of advantages over civil proceedings: they are often dealt with in a relatively short time frame when compared to civil litigation and act as an effective system of confiscation/ compensation with the possibility of costs recovery from the public purse.