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The
proper scope and effect of the common law rule relating to fraudulent
insurance claims where an insured submits a fraudulent insurance claim,
was to forfeit the claimant's entitlement to the whole of the claim
to which the fraud related. This included any interim payments made
in respect of the claim, even where the payments related to genuine
loss in respect of which the insured would have been entitled to an
indemnity but for the effect of the fraud.
The Appellants were homeowners insured for many years under a buildings
policy with the Respondents, AXA General Insurance Limited. During the
course of the single policy year from 1993 to 1994, four claims arose
for damage to the property in respect of which payments were made for
repairs and alternative accommodation. Proceedings were subsequently
issued by AXA to recover payments made in respect of the claims on the
basis that Mrs Gottlieb had acted fraudulently in filing two of the
four claims. HHJ Bowers held, at first instance, that this was indeed
the case. He then decided that, under the common law rule relating to
fraudulent insurance claims, the claimants could recover all sums paid
out in respect of the two claims tainted by fraud. However, he held
that AXA could not recover sums which they had paid out on the claims
that did not involve any fraud.
Mr and Mrs Gottlieb appealed, claiming that the fraudulent claim did
not entitle AXA to recover interim payments made in respect of those
losses which were genuine but which did not form the part of a wider
claim tainted by fraud. AXA cross-appealed, claiming that they were
entitled under the rule relating to fraudulent claims to recover the
sums paid in respect of all claims made in the relevant policy year,
including those claims which were not tainted by fraud.
Mance LJ delivered the judgment. In relation to the interim payments
made in respect of genuine losses which formed part of the wider fraudulent
claim, he held that the effect of the common law rule based on fraudulent
claims was to forfeit all sums paid out of respect of a claim that was
subsequently tainted by fraud. Mance LJ considered recent case law,
setting out established principles. In considering Manifest Shipping
Co. Limited v. The Uni-Polaris Co. Ltd (the Star Sea) [2001] UKHL 1,
he stated where all or part of a claim is fraudulent or where fraudulent
devices are used to promote a genuine claim, the insured cannot thereafter
recover in respect of any part of the claim. He also considered Agapitos
v. Agnew [2002] EWCA Civ 247, which was established that the rule applied
to a claim which was initially honest, but later fraudulently exaggerated
or supported by fraudulent devices. He also considered Direct Line Insurance
v. Khan [2002] LIR 364 (CA), commenting that this was authority for
the rule enabling recovery from a fraudulent assured of all sums paid
out in ignorance of the fraud subsequent to its commission. However,
he noted that Khan was limited to claims which were prospective to the
commission for fraud. Nonetheless, he went on to state that the rule
relating to fraudulent claims also operated retrospectively, with the
effect that all payments made in respect of a claim tainted by fraud
should be recoverable whether paid prior to the commission of the fraud
or subsequent to it. The object of the rule was to ensure that an insured
could not have the expectation that, even if his fraud failed, he would
be entitled to sums in respect of the genuine losses under the claim.
In relation to the cross-appeal, Mance LJ held that the rule relating
to fraudulent claims did not extend to allow an insurer to recover sums
paid to an insured in respect of claims separate to the claims tainted
by fraud, but paid out prior to the commission of the act of fraud.
However, he left open the issue of whether the rule applied to forfeit
claims separate to those tainted by fraud, but which remain unpaid at
the time that the fraud occurred.
The decision in this case provided some clarification on the scope of
the common law rule relating to fraudulent insurance claims. In particular,
it was established that an insured who submits a fraudulent insurance
claim is not entitled to any payments in respect of that claim, even
where, but for the commission of the fraud, he would have been entitled
to payments in respect of genuine loss.
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