The economic downturn has continued to see insurers increasingly targeted as a result of claims fraud.

Recent cases have demonstrated that when it comes to fraud, the courts will not shy away from a strict approach. These include Aviva v Brown [2012] Lloyd’s Rep IR 211, where the insured sought fraudulently to claim for alternative accommodation, and Sharon's Bakery v AXA [2012] Lloyd’s Rep IR 164, where the insured submitted fake invoices to substantiate its claim.

This strict approach has again been highlighted in Savash v CIS General Insurance Ltd [2014] EWHC 375 (TCC), where a claim presented by Mr Savash following a burglary was rejected by insurers and the court on the grounds of fraudulent exaggeration.

The claim

In May 2009, Mr Savash’s father called the police to a burglary. A claim for £142,507.98 was later submitted to Mr Savash’s insurers, CIS. The claim, largely prepared by Mr Savash’s father, comprised stolen and damaged contents, building costs and accommodation costs for Mr Savash senior, who claimed to have been in residence at the time of the burglary.

CIS declined cover on the basis that the burglary was staged by Mr Savash and his father, and that the policy excluded loss or damage while the property was unoccupied, which CIS believed it in fact to be.

The law

Mr Justice Akenhead noted that although the civil standard of proof is the balance of probabilities, the court must be "confident" in any finding of fraud. Derry v Peek (1889) LR 14 App Cas 337, Manifest Shipping Co Ltd v Uni-Polaris Shipping Company Ltd & Anor The Star Sea” [2001] Lloyd’s Rep IR 247 and Agapitos v Agnew & Ors “The Ageon” [2002] Lloyd’s Rep IR 573 were cited in the Court's summary of the relevant law, namely:

i.to establish fraud it is necessary to show a false representation has been made knowingly, without belief in its truth or recklessly, with the motive of the fraud irrelevant;

ii.an insurance claim is fraudulent when the insured claims knowing, or reckless to the fact that, he has suffered no (or a lesser) loss; 

iii.an insured employs a fraudulent device when he attempts to improve the facts to yield a material improvement to his claim; and

iv.an insured that makes a fraudulent claim forfeits the whole claim, even that part which is honestly founded.

The judgment

In Savash v CIS, Akenhead J found the evidence of both father and son "extremely unconvincing" and "contradictory". Features of the burglary were described as “extremely unusual", such as the theft of kitchen tiles and staircase spindles. The items apparently stolen, which included a king size bed, a metal safe and two sun beds, were seen as unlikely targets. Despite the size of the items, no neighbours saw anything suspicious. Evidence given regarding subsequent remedial work carried out, mostly by a firm owned by Mr Savash's nephew, was described as "extremely murky". The judge was also not persuaded that the premises were occupied by Mr Savash’s father at the date of the burglary. Accordingly, although he accepted that there had been a burglary (in part due to CIS not pressing an argument to the contrary), he considered the claim to be grossly exaggerated. The claim was therefore dismissed in its entirety in accordance with the principles set out above.

Although the claim was largely prepared by Mr Savash’s father, the court concluded that Mr Savash was fully aware of the fraud. It did consider, however, what the position would be if the contrary were true. Applying the Court of Appeal’s decision in Direct Line Insurance v Khan [2002] Lloyd’s Rep IR 364 that a principal is fixed with the consequences of his agent's actions, Akenhead J’s view was that if Mr Savash authorised his father to provide information on which to base an insurance claim, and that information was subsequently exaggerated, Mr Savash's father would have acted within his authority and the claim subsequently presented would be void, regardless of whether the son was aware of the fraud, because the father’s fraudulent act would be imputed to him.

Comment

The principle that an innocent insured must suffer the fraudulent sins of his agent is not new, but this judgment arguably takes it further. In Direct Line v Khan, the co–insured wife was penalised for the fraudulent actions of her co-insured husband. In contrast, Mr Savash’s father was not a co-insured, or a party to the insurance contract in any capacity. Mr Savash remains, however, responsible for the fraudulent actions of his father.

This case illustrates the strict approach the courts will take in response to fraud. Whilst insurers will always face a difficult burden in proving fraud, this case demonstrates once again that despite protestations of innocence, the court will look closely at all of the surrounding facts to determine whether there was a fraud.