In Aviva Insurance Limited v Roger George Brown [2011] EWHC 362 QB, Mr Justice Eder was asked to consider a claim by Aviva for the recovery of sums it had paid to an insured under a home insurance policy (the Policy) on the basis that the paid claims were fraudulent.

The facts

The Defendant, Mr Brown, made claims under the Policy for subsidence of his property in 1989 and 1996. Loss adjusters were appointed by Aviva to investigate the claims. During the investigation, the adjusters were told by Mr Brown that he could not live in the property (No.13) during repair works as he had chronic asthma and he provided a G.P. certificate to that effect.

A dispute arose between the adjusters and Mr Brown as to the requisite standard of alternative accommodation covered under the Policy. A complaint by Mr Brown to the Financial Ombudsman Service (FOS) was upheld and the FOS agreed that Aviva should provide Mr Brown with alternative accommodation for the full repair period and to the same standard as the insured property. The FOS complaint included the following statement from Mr Brown: "I lived at number 15 Friern Barnet Lane and bought number 13 Friern Barnet Lane in 1978. These two houses are semi-detached." No.13 was owned by Mr Brown while No.15 was owned by a company, Northway, of which Mr Brown and his wife were directors and shareholders. In 2005, the legal title to No.15 was transferred to Mr Brown and Northway was granted a seven year lease.

Estate agents were instructed by the adjusters to search for alternative accommodation however no property could be found that was deemed by Mr Brown equivalent in standard or suitable to the adjusters in terms of price. At this stage, Mr Brown investigated the possibility of using his mother's old house as alternative accommodation (No.38). At the time, No.38 was owned by Mr Brown and he kept an office there. Mr Brown obtained a valuation from an estate agent as to the letting potential of No.38 and sent these details to the estate agents instructed by the adjusters. The adjusters rejected the property because of the price and, in any event, Mrs Brown refused to move into the property.

It was finally settled in October 2007 that Mr Brown would move with his wife to No.15. Aviva had, by this stage, agreed to contribute £1,500 per week for Mr Brown to rent reasonable temporary accommodation. Solicitors for Northway (who were Mr Brown's family solicitors) wrote to the adjusters confirming that Northway was prepared to grant an assured shorthold tenancy to Mr and Mrs Brown. The adjusters later became aware that Mr Brown was renting the property 'from himself' and informed Aviva, who in turn suspended the rental payments.

Aviva sought repayment of both the costs paid for alternative accommodation and repair costs on the grounds that: i) the claim for alternative accommodation was fraudulent; and/or ii) the claim was fraudulent and/or Mr Brown used fraudulent means or devices and, as a matter of common law, Aviva was thereby discharged from liability.

The law

It was common ground that the burden of proof was on Aviva to establish fraud on the part of Mr Brown. What was in dispute was whether Aviva needed to show dishonesty on the part of Mr Brown. It was agreed that the correct test for dishonesty was the "combined" test of Lord Hutton in Twinsectra Ltd v Yardley [2002] 2 AC 164 being that: "before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised by those standards his conduct was dishonest."

The judge cited the well established principle in Manifest Shipping Co Ltd v Uni Polaris Insurance Co Ltd [2003] 1 AC 469 that the consequences of a fraud are that "the insured who has made a fraudulent claim may not recover the claim which could have been honestly made."

Counsel for Mr Brown (relying on Direct Line Insurance Plc v Fox [2010] Lloyd's Rep IR 324) submitted, inter alia, that even if (which was denied) the alternative accommodation claim was fraudulent, Aviva could not in law claim reimbursement of the repair costs.

The findings

Eder J found the following:

  1. many of the allegations were unfounded (often because of a lack of dishonesty on the part of Mr Brown or the witnesses called by Mr Brown) however, crucially, Mr Brown "acted fraudulently in putting forward No.38 and that this was not 'insubstantial', 'insignificant', or 'immaterial'."
  2. the representations made in the letter to the estate agents were false and that, to a "high degree of probability", Mr Brown knew that what he was saying was dishonest by the standards of reasonable and honest people. The representations were therefore fraudulent.
  3. Aviva was entitled to recover the sums paid to Mr Brown for alternative accommodation and the cost of repairs (Direct Line v Fox did not assist Mr Brown).