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ombudsman news

issue 21

October 2002

insurance fraud

Fraudulent and dishonest claims are a major problem for the insurance industry and fraud is alleged in a number of the cases we see. These can be difficult to assess. To establish that fraud has taken place, some concrete evidence of lies, inconsistent statements or acts of deception must be present. The fact that members of a firm's staff are personally satisfied of the claimant's bad faith is not sufficient proof of dishonesty.

The essential components of fraud are intent to deceive and desire to induce the firm to pay more than it otherwise would. Establishing these points can require an analysis of the claimant's motives. Inevitably this is a largely subjective exercise. However, by the time a case reaches us, it is normally too late to uncover any new evidence. And by then, claimants are usually well aware of any problems in their version of events, and will have had ample opportunity to concoct an explanation - or to cloud the issue with extraneous pieces of information. It is far better if a firm has investigated the matter carefully at an earlier stage.

Where a firm suspects fraud, it should make its views known to the customer, who can then respond to the allegations. We are unlikely to support a firm's position if, instead, it uses a separate and spurious reason to justify rejecting a claim.

When we look into cases involving an allegation of fraud, we examine all the facts and use the following guidelines to help us reach an overall assessment.

  • an exaggeration is not always fraud. And the firm should not repudiate the entire claim simply because the customer has mistaken the cost of replacing the item claimed for — or has an inaccurate recollection of its purchase price. To repudiate the claim, the firm must be able to show that the customer was trying to obtain more than he or she was entitled to.
    For example, many people consider their car is worth more than the value placed on it by the firm's engineer. But since they will not normally receive more than the "market value" when their claim is settled, their exaggerated view of the car's worth will not render their claim void.
  • the fact that a customer may have lied in another context is not sufficient proof of fraud in the current claim. Some firms have relied on a loss adjuster's evidence about a different claim under another policy to demonstrate that a customer has lied in connection with a current claim.
    Such evidence may raise doubts about the accuracy of the customer's version of events in the current claim, but is not in itself conclusive.
  • a customer who presents a forged document to support a claim is not necessarily guilty of fraud. There must be some evidence to show that the customer knew the document's true source. Even if a customer knowingly produces a false document, the firm may not be justified in rejecting the claim.
    By insisting that customers produce receipts for all the items they claim for, firms sometimes put customers in a position where they may be tempted to create substitutes for lost receipts. So if customers do produce false receipts, it is essential to determine why they did this. Was it solely to substantiate transactions that really took place, or did the customers intend to obtain more than they were entitled to-
  • where the firm has sufficient evidence to justify rejecting a claim and/or cancelling the policy, it is only entitled to recover any payments made in connection with earlier claims if it can show that the customer completed the insurance proposal fraudulently. Firms are not justified in retrospectively cancelling a policy on the grounds that the customer used counterfeit documents to support a claim.

In some recent cases involving claims for written-off vehicles, firms appear to have asked customers to substantiate the original purchase price of their vehicle. As a result, some customers who had lost the original sales material (or perhaps purchased the car through somewhat informal routes) have sent in false documents.

Other customers have produced false documents to try and substantiate a higher price than they actually paid. This is clearly improper, but it does not justify the firm voiding the policy. The customer's claim is for the present market price, not the original purchase price. As long as there is no doubt about ownership and no suggestion of fraud, the firm should meet such claims on the basis of the normal market value.

Where we can reach a view about whether the firm has obtained enough evidence to show that a claim is fraudulent, we will decide whether or not to uphold the firm's rejection of the claim. Where the issue is uncertain and relies on the evidence of third parties, we may decide it is more appropriate for the courts to determine the outcome.

case studies - insurance fraud

household contents - exaggerated claim - whether insurer entitled to reject claim in full - whether policyholder pressed to disclaim part of loss.

When Mr J was burgled, he notified the police and put in a claim to the firm. His claim - totalling £3,000 - included a DVD player, 14 DVD discs, other audio-visual equipment and jewellery.

When the firm questioned Mr J, it emerged that although he initially said that he had bought one of the stolen items (a hi-fi) for £150, he had actually bought it from his brother for £60.

The firm's investigator noticed that some of the DVDs he had listed in his claim had not yet been released in the UK. Mr J was unable to explain how he had bought them. He then admitted he had never owned a DVD player or discs, and he said he wished to withdraw that part of his claim.

The firm rejected Mr J's claim, citing the policy exclusion that enables it to do this if any part of a claim is false or exaggerated.

Mr J's solicitor then said that Mr J had been told by the firm's investigator that if he said that he had never owned a DVD player, the rest of the claim would be paid more quickly. The solicitor also said that Mr J had reported the theft of the DVD player to the police and this proved it was a valid claim.

complaint rejected
We were unable to reconcile Mr J's statement with his solicitor's assertions. It was hard to believe that, merely to progress payment for the rest of his claim, Mr J was willing to admit he had claimed for something he did not own. The only logical explanation was that Mr J had deliberately exaggerated his loss. So the firm was entitled to refuse to make any payment.

permanent health - "disabled" - evidence that policyholder engaged in activities inconsistent with his statements - whether insurer justified in ceasing claim payments.

Mr G received monthly benefits from the firm after it accepted his disability claim in March 1992. His case was reviewed periodically and his disability was described as a "non-specific" problem, which caused him to feel unwell and lethargic, with aching muscles and weakness. His GP confirmed that his condition remained static and that he was suffering from "psychogenic pain unspecified".

The firm arranged for another doctor, Dr L, to examine Mr G at home. Mr G told Dr L that he spent most of the day either sitting in a chair and staring into space or sitting outside in the garden. Mr G also said that he needed help to load shopping into the car and had not been able to drive for two to three months. However, Dr L could find nothing wrong with him.

The firm's investigators filmed Mr G in the weeks before and after Dr L's visit. These videos showed Mr G getting out of his car, opening the boot without difficulty, pushing a supermarket trolley and loading shopping into his car. They also showed him jet-washing and drying his car and driving long distances.

The firm concluded that Mr G did not satisfy the policy definition of 'disabled' and it stopped the benefit payments. In response, Mr G presented the firm with a letter from his GP saying that his condition had deteriorated. The GP did not appear to have been aware of the video evidence of Mr G's activity, or of why the firm had stopped the payments.

complaint rejected
We were satisfied that the firm had acted fairly. We did not think Mr G was medically unable to perform his normal occupation. He had been unable to explain either the level of activity shown in the videos or the disparity between this activity and his statements to Dr L about what he could - and could not - do.

household contents - fraud - police not informed of full loss - whether sufficient reason for rejecting claim.

Mr and Mrs B returned home from an evening out to find they had been burgled. They notified the police right away and rang the firm the next morning. The claim form they sent the firm listed 63 stolen items, with a total value of over £20,000.

The firm's investigator was suspicious about the claim and his enquiries continued for the next eleven months.

During the enquiries, the couple's insurance came up for renewal. The firm took more than two months to consider the matter and then refused to renew. The couple were unable to obtain any replacement insurance.

Almost a year after the loss, the firm rejected the claim. It said that when Mr and Mrs B reported the loss to the police, they had not mentioned all the items they later claimed for. It also said that Mr and Mrs B had not provided all the help and information it needed.

complaint upheld
Mrs B said that she had still been in shock when she reported the burglary to the police and she had only mentioned the most obvious items that were missing. This explanation was entirely credible. Theft victims may well not be aware of the full extent of their loss within a few minutes of discovering it. In any case, Mrs B had mentioned most of the missing items when she telephoned the firm the morning after the burglary. And the couple had receipts for nearly everything.

We required the firm to settle the claim and to pay £500 compensation for its maladministration. We did not think it had handled the claim well, and it had not given Mr and Mrs B sufficient notice that it would not renew their insurance.

motor - proof of purchase - cash purchase - lack of substantiation - conflicting information - whether claim valid.

Miss D insured her campervan in June 2000. A few weeks later, on 12 July, she went on holiday to Grenada. When she returned on 28 August, she reported the campervan missing, presumed stolen. It was never found.

When the firm questioned her about the claim, Miss D said she had bought the campervan on 10 May 2000 and had paid £9,700 in cash. She said it had been advertised for sale in a newspaper and that she and a friend, Mr W, arranged to meet the seller in a pub. She said she had bought the campervan on the spot and had driven it home. She later explained that most of the cash for the campervan had come from the sale of her previous car for £6,250 some six months earlier. She said she had kept that cash in her flat until she bought the campervan. She could not explain how she obtained the balance of £3,450.

The firm was unable to contact Mr W, any of his neighbours, or the previous owner of the campervan. It discovered that the dealer to whom Miss D claimed to have sold her car did not exist. A jeweller had been operating for the last six years from the address she gave as the car dealer's. The firm also found that the campervan had been written off in 1990.

complaint rejected
It is not normally the business of a firm to investigate how a policyholder has financed the purchase of a vehicle. But it is legitimate for the firm to make enquiries when there is doubt about the vehicle's ownership. No one else beside Miss D had claimed to own the vehicle, but there were many conflicting details in the case and Miss D was unable to explain them. The firm was therefore justified in refusing to pay the claim.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.