After Mr Sharma’s investment property was destroyed by fire, attention was focused on a mobile phone found at the scene. His insurer denied the claim on the ground that the fire was intentionally lit with Mr Sharma’s consent. In support of its position, the insurer relied almost entirely on mobile phone data which showed that a phone found at the scene had been used to make frequent contact with another phone which was referred to at trial as ‘phone X’. Both the fire scene phone and phone X were prepaid and registered in false names. Photos retrieved from the fire scene phone contained images of a man with his girlfriend. That man turned out to be the insured’s friend.

Detailed analysis of the calls made by each of the phones, and by two other mobile phones operated by Mr Sharma and his friend, showed that they were using two mobile phones each. It seems they each had a spare phone for nefarious purposes (such as carrying on illicit affairs and planning insurance fraud). At trial, Mr Sharma attempted to maintain the fiction that the two phones did not belong to him and his friend respectively. However, the evidence comfortably established that they did and the trial judge concluded that the fire was intentionally lit by the insured’s friend with the insured’s consent. Mr Sharma appealed.

The New South Wales Court of Appeal applied well established principles for civil cases involving allegations of fraud where the evidence is purely circumstantial. It was noted that in a criminal trial the facts must be such as to exclude any reasonable hypothesis consistent with innocence. By contrast, in a civil trial where fraud is alleged, it is enough if the insurer proves circumstances upon which it is reasonable to find, on the balance of probabilities, in favour of the insurer, even though the conclusion may fall short of certainty.

After considering all the circumstantial evidence arising from the mobile phone data and Mr Sharma’s less-than-satisfactory performance as a witness, the Court of Appeal held that the only reasonable conclusion was that the friend continued to use the fire scene phone until he accidentally left it at the rear of the property after starting the fire and calling Mr Sharma on phone X. The compelling inference in the circumstances was that Mr Sharma consented to the lighting of the fire.

Sharma v Insurance Australia Ltd

This case serves as a reminder that the standard of proof in civil fraud cases is still the balance of probabilities, although the evidence relied on by an insurer must be clear and cogent. It also demonstrates that an insurer can succeed in proving fraud, even where the evidence is purely circumstantial, as long as the alleged fraudulent conduct provides the most likely explanation for the established facts.