In the recent case of Joseph Fielding Properties (Blackpool) Ltd v Aviva Insurance Ltd (2010) EWHC 2192 (QB) the High Court was asked to consider whether an insurer was entitled to avoid a policy from inception relying on previous fraudulent and exaggerated claims, and misrepresentations and non-disclosures made by the claimant ('JFP').
The policy contained a fraudulent claims clause entitling Aviva to avoid the policy from inception if the following occurred:
"(a) …a claim made...is fraudulent or intentionally exaggerated, whether ultimately material or not or (b) a false declaration or statement is made or fraudulent device put forward in support of a claim".
The case concerned Aviva’s liability to indemnify JFP in respect of a fire which had occurred at an industrial estate owned by JFP. Aviva successfully contested this liability not on the basis of any defect in the subject claim, but on the following three separate grounds:
- JFP had made an earlier intentionally exaggerated claim for drainage works against Aviva and then falsely and fraudulently submitted an invoice as paid, when in fact it had not been. It was argued that, in reality, a substantially lesser sum had been paid to the contractor who had carried out the works.
- JFP had failed to disclose to Aviva at inception that the principal shareholder and director of JFP ('D') had made a fraudulent claim against a prior insurer.
- JFP had failed to disclose at inception that a number of misrepresentations and non-disclosures had been made by D to other insurers in earlier years. In particular, D had failed to mention a criminal conviction which although now spent, had not been at the time of presenting to the other insurers.
Mr Justice Waksman QC ruled in favour of Aviva on all three grounds. In respect of the first ground, he found that JFP had acted dishonestly in making a fraudulent and intentionally exaggerated prior claim against Aviva. The fact that JFP could have made a legitimate claim for a lesser value in a non-fraudulent manner was held not to be material to the operation of the clause. Aviva was thus absolved from indemnifying JFP on the subject claim and was, furthermore, entitled to avoid the policy from inception, thus recouping the monies paid out on prior claims.
In respect of the second ground, Waksman J held that D had indeed made a false claim and that Aviva was also entitled to avoid the policy on the grounds that this false claim had not been disclosed to it.
Lastly, in respect of the third ground, he concluded that while some of the individual false statements may not have been material to the particular insurer at the time, the collection of facts not disclosed to Aviva would certainly have been material to a prudent underwriter, in particular in so much as they pointed to moral hazard. Furthermore, it was held that the non-disclosure of the criminal conviction to an earlier underwriter remained a material fact for the present insurers even though the conviction itself was now spent and did not of itself have to be disclosed to the present insurers under the Rehabilitation of Offenders Act 1974.