fraud
focus
September
2008
–
edition 1
Contents
Editorial .......................................................................................................................................... 1
Illegality in road traffic accidents ................................................................................................. 2
Are you treating your customers fairly? ......................................................................................... 5
Intelligence and its place within fraud investigation ...................................................................... 7
Article 75: know your status .......................................................................................................... 8
Revision of CPR rules ................................................................................................................... 9
Fraud focus: recent successes and developments ..................................................................... 11
Editorial
Fraud represents more than a financial challenge, it also represents a reputational risk to
business. This view was expressed by the FSA in their report of February 2006 entitled Firms’ –
High level Management of Fraud Risk. Financially regulated firms are obliged to ‘take
reasonable care to establish and maintain effective systems and controls … for countering the
risk that the firm might be used to further financial crime’. The ABI estimated this year that fraud
is costing the UK economy in the region of £650 million per annum.
Unsurprisingly, the judiciary are starting to sit up and take notice of the problem of fraud and are
being persuaded to deal with fraudulent claims through the court system.
In this first edition of Fraud focus, solicitors from our specialist claims investigation teams
provide a round up of some of the issues that are currently before the courts, look at the
emerging trends and patterns and provide some general pointers to assist clients with the ‘war’
on fraud.
If there is anything you wish to discuss arising from the enclosed, or about BLM’s fraud
services, or for general feedback on the inaugural edition, please contact:
Sarah Hill
Partner, BLM Birmingham
DD
0121 633 6645
Email sarah.hill@blm-law.com
Raymond Southern
Partner, BLM Manchester
DD
0161 838 6708
Email raymond.southern@blm-law.com
Fraud focus
1
Illegality in road traffic accidents
Background
The claimant parked his car in Edgware, London where it was struck by a car being driven by
the defendant’s employee. Despite the fact that the claimant had been paid the pre-accident
value of his vehicle, he nevertheless sought to recover credit hire charges in the sum of
£34,067.68 as well as storage and recovery charges in the sum of £765.61.
The claim was defended on the basis that the doctrine of ex turpi causa applied (as the claimant
was acting illegally) as he and/or his vehicle were uninsured at the time of the accident contrary
to section 143 of the Road Traffic Act 1988. It was accepted by the claimant that he was
uninsured at the time of the accident and that he was subsequently convicted of failing to have
insurance for his car. As a result of his conviction he received a £60 fine and six penalty points.
However, the claimant denied being uninsured from 1 April 2005 to 29 March 2006 and also
denied knowingly driving his car without insurance during this period.
A Motor Insurance Database (MID) investigation revealed that the claimant did not hold valid
insurance for his car as far back as December 2004. The claimant produced no evidence to the
contrary despite specific requests to support his assertion that he held insurance for his car
during the 15 months prior to the accident.
It was the defendant’s case that not only did the claimant drive and park his car without
insurance at the location where the accident occurred, but that he had also been knowingly
using his vehicle over a 12 month period without insurance. It was established that on 1 April
2005, the claimant’s car was subjected to an MOT examination which recorded the vehicle’s
mileage as 73,920. However, when the vehicle was inspected by an engineer appointed on
behalf of the claimant shortly after the accident, the recorded the mileage was 83,077 which
indicated that the car had been driven some 9,000 miles. As the claimant had openly accepted
by way of his Part 18 responses that he was the only person who had access and permission to
drive the vehicle, it followed that he was the only person who could have driven the vehicle
during this time.
The claim was defended on the following basis:
a
The doctrine of ex turpi causa applied by reason of the fact that the claimant illegally and
knowingly used his vehicle without insurance contrary to section 143 of the Road Traffic
Act 1988.
b
The claimant drove the car 9,000 miles in a 12 month period immediately prior to the
accident.
c
The claimant was not entitled to recover credit hire charges because the loss of the ability
to illegally drive an uninsured vehicle was no loss at all.
d
The hire charges were not recoverable because granting the claimant capacity to drive an
insured motorcar was putting him in a better position than had the accident not occurred.
It was submitted that the claimant had simply lost the value of an uninsured car which he
could not drive.
e
The principle of the law of tort is to place the parties into a position which they would have
been ‘but for’ the accident. ‘But for’ the accident the claimant had an uninsured car which
he was unable to use and therefore as he had been paid the pre-accident value of his
motor vehicle he had been put back into the position he would have been in.
Fraud focus
2
f
The claimant had not been honest and was evasive when giving evidence and
throughout the course of proceedings and therefore the case should have been struck
out.
g
It was unlikely that the claimant would ever pay the hire charges or that the hire
company had any intention of pursuing the claimant for the hire charges in the event he
failed to recover from the defendant.
Doctrine of ex turpi causa
The maxim ex turpi causa non oritur actio was formulated by Lord Mansfield in Holman v
Johnson [1775] 1 Cowp 341 at 343:
No court will lend its aid to a man who founds his cause of action upon an immoral
or an illegal act. If, from the plaintiff’s (sic) own stating or otherwise, the cause of
action appears to arise ex turpi causa, or the transgression of a positive law of this
country, there the court says he has no right to be assisted.
The maxim ex turpi causa non oritur damnum applies were the court does not permit the
claimant to receive his full damages on the grounds that public policy will intervene; see the
leading judgment in the case of Hewison v Meridian Shipping [2002] EWCA Civ 1881 per Clarke
LJ at 28. It was submitted that this principle applied to the hire charges as well as the storage
and recovery charges as in order to recover the same, the claimant would effectively be relying
on his own intended future illegal act of driving his car without insurance.
It is well established that the categories of conduct which may qualify as satisfying the level of
turpitude necessary to bring into play the ex turpi doctrine are not limited to the purely criminal.
As Lloyd LJ observed in Kirkham v Chief Constable of the Greater Manchester Police [1990] 2
QB283, 291:
The ex turpi causa defence ultimately rests on a principle of public policy that the
courts will not assist a plaintiff (sic) who has been guilty of illegal (or immoral)
conduct of which the courts should take notice.
In this case, the conduct complained of was undoubtedly criminal (and not simply immoral) and
was therefore capable of giving rise to the ex turpi defence.
It was an offence contrary to section 143 of the Road Traffic Act 1988 to have a vehicle on a
public highway without insurance.
Throughout the course of submissions, the court’s attention was referred to the scale of the
problem which was created by the wholesale failure of a significant minority of motorists to
comply with the requirement for compulsory insurance. In particular, paragraph 7.1 of the
Explanatory Memorandum to the Road Traffic Act 1988 (Retention and Disposal of Seized
Motor Vehicle) Regulations 2005 No 1606. (See the Department of Transport paper Uninsured
Driving in the UK at www.dft.gov.uk)
According to an insurance industry estimate there are around 1.2 million persons – one in 20
motorists – driving regularly whilst uninsured. Uninsured drivers impose a financial burden on
honest motorists. The damage they inflict in road traffic accidents results in claims against the
industry-maintained Motor Insurers’ Bureau or against the policies of insured drivers. In addition,
uninsured driving imposes other costs on society. These drivers are more likely to be involved in
road traffic accidents, to be non-compliant with other road traffic requirements and obligations
and potentially to be involved in other criminal activity. The involvement of uninsured drivers in
fatal road traffic accidents has been the subject of considerable public and media pressure for
action.
Fraud focus
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Further reference was made to section 152 of the Serious Organised Crime and Police Act 2005
which give the police power to justify the seizure and disposal of uninsured vehicles as well as
various statistical data indicating that:

the premiums of those who pay for their insurance are, on average, £30 higher by way of
subsidy of uninsured drivers

the total cost of financing uninsured drivers is in excess of £500 million per annum

about 5% of motorists drive whilst uninsured

about 250,000 motorists are caught driving without insurance each year.
It was averred that as the problem of driving without insurance was a major issue both for the
criminal and civil justice system, a unified approach was required since that which was illegal
and punishable in the criminal law ought not to be rewarded in the civil law.
Application of the doctrine
The Court of Appeal held in Cross v Kirkby (QBENF 1999/0526/A2) that:
The principle of [ex turpi] applies when the claimant’s claim is so closely connected or
inextricably bound up with his own criminal or illegal conduct that the court could not permit him
to recover without appearing to condone that conduct.
In R v Shepherd [1981] AC 394, Diplock LJ formulated the rule in this way:
All that the rule means is that the courts will not enforce a right which would
otherwise be enforceable if the right arises out of an act committed by the person
asserting the right (or by someone who is regarded in law as his successor) which
is regarded by the court as sufficiently anti-social to justify the courts refusing to
enforce that right. (Emphasis added.)
In the case, it was submitted that the conscious act of driving a car without insurance and then
parking it on the road was inexorably and casually linked to the occurrence of the accident.
In Clunis v Camden & Islington Health Authority [1998] QB 978 the court held:
The court ought not to allow itself to be made an instrument to enforce obligations
alleged to arise out of the plaintiff’s (sic) own criminal act and we would therefore
allow the appeal on this ground.
In this case, the claimant was committing not merely an ‘anti-social’ act but a criminal act with
statistically well documented anti-social consequences. It was argued that the claimant drove
and parked his car knowing that in the event of a collision, he was not going to pay, by way of
his insurance premiums, for the consequences.
It was submitted that there is something inherently wrong with the notion that someone who
deliberately sets out to default on the social contract of mutual insurance should then be able to
take advantage of insurance put in place at the expense of another. The defendant’s case was
such that as the claimant was not a man of substantial means, when he chose to deliberately
drive his car without insurance he either assumed that anyone who was injured would not be
able to recover damages or, alternatively, and no less morally culpably, that the costs of any
injuries should be paid by those who did pay their premiums. It was suggested that public
subsidy of the guilty by the innocent was wholly unattractive and a last resort.
Fraud focus
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It was further submitted that as Parliament, the courts and the Sentencing Guidelines Council
had all expressed recent concern over the social evils that are promoted by those who continue
to drive without insurance, it was both right and proportionate that those who deliberately chose
to drive, or knowingly allow others to drive, without insurance should, upon the normal operation
of the ex turpi causa doctrine, thereby forfeit the symmetry of support that the law of compulsory
insurance is intended to provide. This observation is likely to be a salutary and sharp reminder
to insurance defaulters that it is not only those that they harm who may be affected by their
actions, but themselves.
It was averred that in all the circumstances, the claimant should be denied compensation for the
credit hire charges sustained in the accident as this would be a fair and proportionate result. It
was submitted that the court should not countenance awarding damages to legitimise what, in
the absence of an accident, would be an illegal act as such a reward would be perverse. The
issue was not whether the claimant is barred from recovering all losses but merely part of his
losses, the credit hire part. It was contended that the claimant would need to rely on the illegal
act of driving whilst uninsured to establish that he suffered any loss otherwise he had only
suffered the loss of the damage to his car.
As it had been established that the claimant had been using his vehicle without insurance in the
year prior to the accident, the court found that the claimant would have intended to continue
driving without compulsory insurance throughout the 341 day hire period.
Accordingly, the claimant’s claim for hire was dismissed as the case fell squarely within the ratio
of the Hewison v Meridian Shipping [2002] EWCA Civ 1821:
… where a claimant has to rely upon his or her own unlawful act in order to
establish the whole or part of his or her claim the claim will fail either wholly or in
part.
Satpal Gidda
Solicitor, BLM Birmingham
Are you treating your customers fairly?
The Treating Customers Fairly initiative (TCF) is the focus of the FSA on placing responsibility
upon firms to deliver fair treatment or ‘outcomes’ to consumers.
In July 2006 the FSA set a deadline for all firm to have implemented the TCF in the majority of
their business by the end of March 2007.
Six outcomes were identified by the FSA as being key to the fair treatment of the consumer:
i
Consumers can be confident that they are dealing with firms where the fair treatment of
customers is central to the corporate culture.
ii
Products and services marketed and sold in the retail market are designed to meet the
needs of identified consumer groups and are targeted accordingly.
iii
Consumers are provided with clear information and are kept appropriately informed
before, during and after the point of sale.
iv
Where consumers receive advice, the advice is suitable and takes account of their
circumstances.
Fraud focus
5
v
Consumers are provided with products that perform as firms have led them to expect,
and the associated service is both of an acceptable standard and as they have been led
to expect.
vi
Consumers do not face unreasonable post-sale barriers imposed by firms to change
product, switch provider, submit a claim or make a complaint.
Progress in implementing the TCF has been mixed with major retail groups, according to figures
obtained by the FSA and reported in its progress report, being the most successful in meeting
the March 2007 deadline and small business being the least successful. However, this is hardly
surprising. The management teams of large firms must not rest on their laurels as the FSA
requires them to demonstrate how they are treating their customers and whether they are
delivering fair outcomes.
Many have commented on the use of Management Information being the means by which
businesses should capture their progress and most, if not all, insurers will be familiar with this
concept. However, it is the demonstration of how TCF is being implemented which may cause
problems for most insurers.
Focusing on the third outcome of the TCF initiative, BLM’s experience has shown that most
insurers fall down when they should be keeping the customer informed, particularly in the
investigation of suspected fraudulent claims. This is particularly so when indemnity rights have
been reserved and occasionally in cases where indemnity has been withdrawn.
BLM’s experience suggests that there is a gap in communication where a claim is in the
process of being validated, in particular, where it is suspected that the policyholder has
conspired with the claimant and/or any other person in an attempt to defraud his/her insurer.
An insurer should inform the policyholder that indemnity rights are being reserved upon
commencement of investigations as to the veracity of a claim or at the earliest possible
opportunity. When, and only when, there is substantial evidence obtained to support the
withdrawal of indemnity should this be communicated to the policyholder.
The concern is that invariably the first point at which the policyholder becomes aware of the
withdrawal of indemnity or the reservation of rights in this regard is when they are in receipt of
claim papers and contact the insurer or worse when they are in receipt of an application to join
their insurer into the proceedings as a second defendant.
This leaves the insurer open to a complaint to the FOS made by the policyholder. In the
circumstances, unless the insurer is able to evidence that it has complied with outcome three of
the TCF it is likely that the FOS will criticise the insurer in this regard.
There is a clear conflict between keeping the policyholder informed pursuant to the third TCF
initiative and the offence committed in tipping him/her off that the indemnity position is reserved
and that further enquiries are being undertaken pursuant to POCA 2002.
As all complaints to the FOS are dealt with on a case by case basis, it is up to the insurer to
provide the evidence to the ombudsman supporting their position and for the ombudsman to
decide whether the complaint is within the remit of the FOS and a decision is capable of being
made.
When solicitors are instructed to act for the insurer and proceedings have been issued it is
much easier to succeed in the hearing of an application to join an insurer into the proceedings
as a second defendant if there is a letter stating evidence of the fact that the policyholder has
been informed of the position in relation to indemnity.
Fraud focus
6
BLM’s advice is that insurers should in all cases inform the policyholder of the position in
relation to indemnity at the earliest possible opportunity. Consideration should always be given
on a case by case basis to the effect this may have on any investigation as the risks will be
greater in some cases and much less so in others. This will have a bearing on content of any
letter sent to the policyholder. A copy of the letter informing the policyholder of the indemnity
position should always be attached to the insurer’s file of papers when sending instructions to
solicitors to assist in the successful application to join as second defendant.
It is hoped then that insurers who detect, investigate and defend potentially fraudulent claims
are as far as possible able to comply with the TCF initiative.
Claire Laver
Associate, BLM Birmingham
Intelligence and its place within fraud investigation
Intelligence and its applications are concepts which are often misunderstood, but in reality they
can add real value to the identification and subsequent investigation of a problem. Intelligence is
an area of business that, from its development in public sector, is finally beginning to get the
respect that it deserves in the private sector.
There is an undoubted need for the existence of rigid intelligence processes within
organisations with an investigative function in order to provide focus and direction to its
business. Central to this is the analysis of information to turn raw data into actionable
intelligence. The National Intelligence Model (NIM) is the tried and tested model that provides a
framework for the management and development of intelligence within an organisation. The
intelligence analyst is seen as one of the key people assets to this business model.
There is a certain expectation of analysts to gaze into their crystal balls and immediately provide
answers to the world’s problems. Very few analysts, if any, are magicians and even fewer are
able to pull rabbits from hats. Moreover, analysts are intelligence professionals who, with the
right training, are able to put forward credible theories or ‘inferences’, in order to help solve the
identified problem. This is the basis of any intelligence analysis – the ability to build and develop
reasoned inferences and make recommendations based upon them. These inferences involve
hypothesising, estimating and predicting in order to answer the key questions of: who, what,
where, when, why and how. Through the process of inference development, the intelligence
team are able to advise the client on how to best tackle the problem.
The Achilles heel of an intelligence department is the all too frequent incident of a manager
seeking analytical assistance to justify their ‘back of a fag packet hunches’. It is the role of the
intelligence analyst to proactively undertake regular screening of the available intelligence and
information in order to develop a clearer picture of those individuals or organisations active at
any given time. We must be wary of not pre-determining the ‘target’ and gathering intelligence
simply to justify the initial gut feeling. There is, therefore, a real need for an intelligence
department to be proactive in their risk identification.
In order to achieve this, there must be a co-ordinated process of intelligence collection and
development; from the outcome is the identification of a subject nominal or organisation. It is the
role of the analyst to identify those key risks and to advise the client of the threat that they pose
to their business. In this vein, a balance of strategic and tactical analysis is crucial for any
intelligence department – being able to understand the day to day problems and how they fit
into the bigger picture is key. While strategic intelligence analysis is hampered in many
instances due to data availability, its role must not be underplayed. However, the role of tactical
analysis is the bread and butter and is crucial in offering the client the advice they require.
Fraud focus
7
In summary, an intelligence department must be focused in its objectives and have the
organisational support to not only operate successfully but to provide a problem-solving solution
to the client. Analysis has a key role to play in the decision-making process and identification of
risk and it should be given the recognition it deserves.
Ben Fitzhugh
Intelligence analyst, BLM Birmingham
Article 75: know your status
Background
Mr Y is involved in a road traffic accident with Mr X. Mrs Y and Mr and Mrs Z, all passengers in
Mr Y’s vehicle, are all injured and together with Mr Y, submit a claim to Mr X, who in turn looks
to his own insurers to settle these claims. Liability for the accident is disputed.
At the time of the accident Mr X was insured with ABC Insurance. When he incepted his policy
he failed to disclosure several driving convictions. ABC Insurance void Mr X’s policy.
Status of the insurers
Whilst the above is not an uncommon situation, the status of a defendant’s insurers makes a
difference to the types of notice that a claimant must give to an insurer on the issue of
proceedings and the procedure to be followed by the claimants. For this reason it is important
that insurers take steps to ascertain their own status as soon as a claim is intimated to them.
Contractual insurer and RTA insurer
If a defendant has motor insurance that is in force at the time of the accident, covers the vehicle
concerned, indemnifies the offending driver and permits the use of the vehicle at the time of the
accident, an insurer should be contractual insurer or insurer per se.
If the insurance cover is in order but a policyholder breaches a policy condition eg failing to
report the accident or if the offending driver was not permitted to drive on the certificate of
insurance, for example, an insurer must still satisfy a judgment under section 148 of the Road
Traffic Act 1988, although in this situation will be an RTA insurer. An RTA insurer has a
statutory right of recovery against his policyholder/offending driver.
Article 75 status
Article 75 of the Memorandum of Association of the MIB reflects an agreement between the
Bureau and its members and sets out circumstances under which an insurer is required to pay a
claimant, regardless of the invalidity of the policy. If an insurer is ‘Article 75’ insurer, they ‘stand
in the shoes’ of the MIB and may apply the Uninsured Drivers Agreement on behalf of the MIB.
The effect of Article 75 status
There are some distinct advantages for an insurer who correctly identifies their status as that of
Article 75 insurer, namely that:

Subrogated and other contractual claims may be avoided.

The claimant’s solicitors are bound by the provisions of the Uninsured Drivers Agreement,
unless the insurer agrees to waive these.
Fraud focus
8

Notice requirements on claimants are far more stringent.

The ‘joint tortfeasor’ principle may apply.
Practical application
The above situation is based on an actual case which resulted in a saving to insurers in the
region of £30,000 by the correct identification and application of the insurer’s status.
Following the discovery of Mr X’s non disclosure, a letter of voidance was sent to him by ABC
Insurance. However, this in itself only reduced the insurer’s status to Article 75 insurer.
Mr Y commenced proceedings for his claim, and ABC Insurance applied to be joined into that
action as a second defendant. At the same time, within three months of the date of issue of Mr
Y’s proceedings, ABC Insurance commenced proceedings against Mr X to obtain a declaration
that they were Article 75 insurer only.
The claim was ultimately compromised between all three parties, with liability being agreed on a
50:50 split. This not only significantly reduced the potential outlay to insurers but on this
occasion, the agreement of Mr X was obtained that he would pay Mr Y’s damages personally
(only payable by ABC Insurance if judgment remained unsatisfied within seven days after Mr Y
became entitled to enforce it) and Mr Y’s costs being met by ABC Insurance.
Whilst ABC Insurance did still have to make a reduced payment on this claim, the main saving
was achieved in defeating the passenger claims of Mrs Y and Mr and Mrs Z. As liability was
apportioned, ABC Insurance was able to apply the joint tortfeasor principle and shift the burden
of dealing with those three claims to Mr Y’s own insurers – a total estimated saving of around
£30,000 for those claims alone.
Trial success
January brought BLM trial success in Bradford County Court when the firm successfully
assisted insurers in defeating a claim brought by a claimant where the defendant not only
denied any collision, but denied that neither he nor his vehicle were involved in the alleged
incident.
At trial the judge agreed that the defendant’s engineering evidence ‘spoke for itself’ and as there
was found to be no evidence of either damage or repair to the defendant’s vehicle, a significant
point considering the extent of damage alleged to the claimant’s vehicle, the case was
dismissed and costs awarded in favour of the defendant.
This is a good result, as there were six passenger claims lurking in the background, which have
now also been defeated – another significant saving for insurers.
Naomi Grant
Associate, BLM Manchester
Revision of CPR rules
In a BLM recent case, insurers decided to revisit a decision at first instance following refusal by
a district judge to set aside judgment under CPR 13.3. Judgment had been entered when the
policyholder, as happens in many suspect cases, did not acknowledge proceedings or notify
insurers.
Fraud focus
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The common features of this case were that:





the investigations of the claim were at a very early stage and insurers could not lay any
positive evidence before the court which might infer fraud
there were serious concerns about possible staging, with inconsistent damage but no
definitive engineer’s report
insurers were unable to secure the co operation of the insured which had led insurers to
refuse to indemnify their policyholder pre-issue and withdraw an earlier admission
the policyholder was not the registered owner of the vehicle
the repairing garage had noted the fact that the vehicle may not have been roadworthy at
the time of the accident, and inception of the policy due to an earlier collision.
Without an opportunity to finalise investigations before proceedings, insurers had to consider
carefully their evidence. Preserving this evidence pending the outcome of enquiries was
important so as not to ‘tip off’ the claimant before formally pleading fraud.
The Appeal Court was asked to consider what the appropriate test should be on an application
to set aside default judgment against its insured, where insurers have a financial interest in the
case but little evidence. Insurers wished to be joined as second defendants and enter a defence
putting the claimant to proof without the means necessary to present evidence of a ‘reasonable
prospects’ defence or fraud. No issue was taken about joining of insurers as second
defendants.
The circuit judge cited the following reasons which are likely to offer useful guidance to all
insurers in this position:
1
Had insurers been joined or applied to join proceedings before default judgement had
been entered, then CPR Part 12.8 would have applied and the court would have not
permitted default judgment to have been entered against the first defendant.
It is therefore essential if insurers have concerns that steps are taken immediately
upon notification of intention to issue to advise the claimant’s solicitors of their
insurer’s intention to be joined and to warn them not to seek default judgment.
There would be favourable costs arguments if the claimant subsequently took this
step.
Where insurers are not able to do this, judgment having been entered before any notification
was made to the court or the claimant’s solicitors that insurers had concerns and a financial
interest (and wished to be joined), the correct test was set out in CPR Part 13.3.
2
If the application was made under 13.3.1(a) the insurer would need to show a real
prospect of success. The judge indicated the need to have a ‘basic framework’ of the
allegations against the parties (particularly if fraud was suspected) as to why insurers
should be permitted to fully participate. The judge suggested the court would have been
greatly assisted if there had been some hint of insurers concerns when making the
application.
Whilst there are reasons to preserve the evidence until it is finalised and it may not
always be possible to do so, insurers should consider what may be capable of
disclosure. Factual evidence against the insured which would corroborate
insurers’ decision not to indemnify would appear to be the best line of argument
and, as the first defendant is not usually in attendance, to rebut these assertions
this may be persuasive.
In this case there was no such evidence available and the court was asked to consider under
13.3.1(b) ‘some other good reason’ to set aside judgment.
Fraud focus
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The court is generally willing to listen to arguments that judgment should be set aside on public
policy grounds where fraud is inferred. In the case, insurers had acted promptly when notified of
judgment and applied to set aside and be joined. In addition, the insurers had alerted the court
to their own indemnity concerns against the policy holder which the court considered was
sufficient to set aside.
In practical terms where insurers have concerns they need to be alert to the possible
issue of proceedings particularly if there is no co operation from the insured. It is
advisable when the seven day letter arrives indicating imminent issue of proceedings
(and serving notice under s152 RTA 1988) that insurers take the following steps to inform
the claimant’s solicitors in writing that:
1
Insurers are reserving/refusing indemnity, giving reasons; and
2
Insurers intend to be joined to proceedings from the outset or once issued; and
3
Judgment should not be entered in default of response by the policyholder.
Claimants may not be willing to join insurers before issue, and in such circumstances, a
copy of proceedings should be requested by insurers to be provided when proceedings
are served on the insured so that steps can be taken to be joined.
If the claimant attempts to enter judgment insurers should draw this letter to the attention
of the court and invite the court to set aside with costs.
This case shows that even in suspicious claims where there is no ‘real’ evidence of fraud at the
stage of issue, the court should be willing to set aside judgment and allow insurers to play a full
part in the claim and protect their financial interests.
Paul Wainwright
Solicitor, BLM Birmingham
Fraud focus: recent successes and developments
The tainting of claims through fraud is a common issue faced by insurers. Is a claimant entitled
to recover where a proportion of his claim or that of a co-claimant is found to have been
fabricated?
The courts have often adopted a differing approach to first party claims by individuals against
their own insurers, as against third party claims.
Established cases such as Axa v Gottleib and Direct Line v Khan both held that a fraudulent
portion of a claim would taint any genuine elements and result in the whole claim failing.
Insurers facing claims from third parties have faced more difficulty when finding evidence of
fraud in part of a claimant’s claim. The 2007 decision in Churchill Car Insurance v Kelly was
disappointing in its finding that despite the court believing that part of the claimant's claim had
been deliberately fabricated, he was still entitled to recover in respect of the remainder.
The recent decision in Khan and Others v Hussain (1), Ashraf (2) and the MIB (3) has offered
some hope. In this case, at first instance, the deputy district judge held that despite finding that
the third claimant had not been present and whose claim was therefore fabricated, the
remaining claims would stand.
On appeal to the High Court, it was held that the dishonesty of the claimants was an attempt to
obstruct the just disposal of the case and in doing so, the claimants had failed to assist the court
Fraud focus
11
in following the overriding objective in accordance with CPR 1.1 and 3.4. The court therefore
struck out the claims of those who had supported the fraudulent one.
In this case, His Honour Judge Hawsworth applied elements of the judgment in Ghalib & Ghafar
v Hadfield. The approach has also been followed in a recent case of Bashir v Ahmed, a county
court decision in which the same points were followed, namely that the court was to decide:
1
To what extent the claimants have failed to help the court with furthering the overriding
objective (CPR).
2
Whether, in the light of any failure, the court should exercise its discretion to strike out the
statements of case under CPR 3.4.
In Bashir, the court struck out all claims, including those of the ‘genuine’ occupants.
Notwithstanding the above, the approach of the court in cases such as this is far from clear and
rests with the discretion of the judge.
In Gulstan and Mahmood v Brake Brothers, the district judge held that the second claimant had
not been present in the third party vehicle and struck his claim out. However, he found that
despite supporting the second claimant's claim, the first claimant had still sustained injury as a
result of the defendant's negligence and damages were awarded.
The district judge held that the penalty imposed on the first claimant, as a result of his conduct
was that his costs in full were disallowed and the defendant’s costs awarded against him and
his co-defendant on an indemnity basis.
It would appear that the court's approach to tainting is evolving. However, it can be seen from
the above that much depends on the discretion of the trial judge. Whilst striking out claims in
their entirety is an ultimate sanction for a judge, they will be much more inclined to exercise their
discretion on costs if it is discovered that any part of a claim is fraudulent.
In Painting v Oxford University, the penalty imposed on the claimant fabricating part of the claim
was one in costs, an approach also favoured by the High Court in Churchill Car Insurance v
Kelly.
This is an evolving area of law and one that should be approached in an informed manner.
Where insurers wish to raise such arguments, they should be fully pleaded to make the judge
aware of the crucial issues to be decided upon from the outset. Whilst much will be case
specific, those challenging claims need to react and adapt to this evolving area.
Jarred Bold
Solicitor, BLM Manchester
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This document does not present a complete or comprehensive statement of the law, nor does it constitute
legal advice. It is intended only to highlight issues that may be of interest to clients of Berrymans Lace
Mawer. Specialist legal advice should always be sought in any particular case.
Fraud focus is published by the marketing department of Berrymans Lace Mawer on behalf of the
partnership. © Berrymans Lace Mawer 2008.
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