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Insurers win partial victory in war on fraudulent claims, but they must pick their battles with care
Fraud is a hot topic, as last week’s decision in Fairclough Homes Ltd v Summers demonstrates. With a reported increase in fraudulent or exaggerated claims, the way insurers tackle the problem effectively remains a key question.
One answer is to defend a number of cases, such as in Fairclough. Shaun Summers suffered an injury at work. His employers were found liable and damages were to be assessed. He had claimed £838,616, which included a claim for loss of earnings. He alleged he was no longer able to work, but undercover video surveillance showed he was exaggerating the extent of his injuries.
At trial the judge found that although Summers had suffered an injury, he had fraudulently exaggerated its extent and was fit for work and he was awarded £88,717.
The finding of fraud led Fairclough Homes’ insurers to argue that the court had the power to strike out the whole claim as it was tainted by fraud and an abuse of process. The Supreme Court judgment agreed this principle in “very exceptional circumstances”, but Summers’ case was not deemed exceptional.
Fairclough confirms that courts would rarely, if ever, strike out the action of a claimant who, although maybe dishonest or fraudulent, suffered injury. As Smith LJ summarised in Ul-Haq v Shah (2008): “A claimant will not be deprived of damages […] because he has fraudulently attempted to obtain more than his entitlement.”
The Fairclough judgment delivered by Lord Clarke reiterated this, stating: “It is the policy of the law and the invariable rule that a person cannot be deprived of a judgment for damages […] on the ground of abuse of process.”
Given this, what else do insurers have in their armoury? Arguably, the most effective deterrent is the threat of quasi-criminal proceedings.
This strategy was used to good effect in Kirk v Walton. There, the claimant brought a PI claim valued at £800,000 based on alleged whiplash. Surveillance footage contradicted what she said she could and could not do. She settled for £25,000. As she had deliberately tried to mislead the court and defraud the insurers with documents she had signed, insurers issued private proceedings against her for contempt of court.
The attorney general’s office had made it clear they would not fight an attempt to minimise fraud of this kind. The claimant was subsequently held to be in contempt of court and fined £2,500. The total cost to her amounted to £200,000.
Summers could have faced a custodial sentence if an action for contempt had been pursued post-trial.
As Lord Clarke said in Fairclough: “There are many ways in which deterrence can be achieved. They include ensuring that the dishonesty does not increase the award of damages, making orders for costs, reducing interest, proceedings for contempt and criminal proceedings.”
Insurers must choose their fights carefully to ensure they do not intimidate genuine claimants. Fairclough is a partial victory for the industry. It reaffirms that the courts recognise and accept the problem. The threat of contempt proceedings with a possible two-year sentence will weigh more heavily on claimants’ minds than cost sanctions.