Woe betide any insured who is dishonest...

The recent decision in Aviva v Brown is notable for two reasons – it appears to ignore recent decisions on the test for dishonesty and it serves as a useful reminder of the onerous consequences a fraudulent act can have upon a contract of insurance.

The law on dishonesty

Brown is set against a backdrop of recent case law on the assessment of dishonesty, the majority of which has had the effect of diluting the “combined test” detailed in Twinsectra v Yardley. This test stated that to be dishonest:

  1. it must be established that the defendant’s conduct was dishonest by the ordinary standards of reasonable and honest people; and
  2. the defendant must realise that by those standards, he was dishonest (the so-called subjective element)

In Barlow Clowes International v Eurotrust International (most recently followed by the Court of Appeal in Starglade Properties v Nash) the Privy Council attempted to remove the subjective element, such that dishonesty could be established if the party’s “knowledge of the transaction (was) such as to render his participation contrary to normally acceptable standards,” without the need to have “reflections about what those normally acceptable standards were.”

The facts of the case

Mr Brown claimed under his insurance for work to repair subsidence to his property, as well as for rent to live in an alternative property while repairs were ongoing. He was asked to locate a suitable replacement property and suggested two properties, both of which he owned.

Mr Brown was found to have acted fraudulently by representing in correspondence with his insurers that one of the properties was owned by a third party, rather than by him. Indeed, he did not ultimately seek any rental contributions for this particularly property, but his actions were nevertheless deemed fraudulent. As a consequence, not only was he forced to pay back the rental contributions received from insurers, but he was also made to pay back to insurers the cost of correcting the subsidence to his property – a genuine claim.

Rather than follow the recent Court of Appeal decision in Starglade mentioned above, the court, with the agreement of the parties, assessed dishonesty on the basis of the Twinsectra combined test, taking into account the “high degree of probability that Mr Brown himself realised that what he was saying was dishonest by the standards of reasonable and honest people.” While this did not affect the outcome of the case, the reliance on the Twinsectra approach and ignoring of Starglade serves to compound confusion as to how dishonesty is to be assessed.  

Key issues

  • Debate about the method of assessing dishonesty and how to interpret Twinsectra continues to confuse practitioners.
  • Aviva v Brown unequivocally voices support for the concept that a fraudulent insured should not be able to recover under a policy of insurance. The fact that the fraudulent representations were made in relation to a property for which ultimately no rental contributions were sought demonstrates the onerous burden on insureds to be scrupulously honest.