Law surrounding fraudulent insurance claims is unclear

As part of a recent review of insurance contract law the LawCommission have suggested that the law surrounding fraudulent insurance claimsis unclear.

Although it is well established under common law that aperson who fraudulently exaggerates a claim forfeits the whole claim, the lawis not clear regarding the effect of a fraud on other claims made under thepolicy. There is a mismatch between this rule and the duty of utmost goodfaith, for which the remedy for breach is avoidance of the contract.

The Law Commission has proposed to set out the remedies forfraud in statute.

There are four main elements:

1.A policyholder who commits a fraud should forfeit thewhole claim to which the fraud relates.

2.The policyholder should also forfeit any claim whicharises after the date of the fraud.

3.The fraud should not affect any previous valid claim.

4.The insurer should have the right to claim the costsreasonably and actually incurred in investigating the claim.

Clauses in policies that extend the insurer’s remedies forfraud would be permitted in business insurance contracts (providing they arewritten in clear and unambiguous language and brought to the attention of theinsured) but would be of no effect if included in consumer policies.

If you would like to respond to the Law Commission on theabove, you can email commercialandcommon@lawcommission.gsi.gov.uk or write toChristina Sparks, Law Commission, Steel House, 11 Tothill Street, London SW1H9LJ.

This article first appeared in Law-Now, CMS CameronMcKenna's free online information service, and has been reproduced with theirpermission. For more information about Law-Now, click here.