Although Lyons Davidson is known for specialising in property insurance outlay recoveries, many do not realise this includes recovery for fraudulent claims on insurance. Fraudulent claims have a severe impact on the insurance industry, causing premiums to rise for all policy holders. Seeking recovery of the losses not only minimises this impact, it also demonstrates that fraud will not be tolerated within the industry.
Recovery enables insurers to offer their honest customers the best prices. While every insurer knows that fraudulent claims are par for the course, many inevitably slip through the net. Our aim in this article is to share some types of possible fraudulent claims on insurance and how we approach recovery if an insurer is defrauded.
Example 1: dishonest claims
There are many types of fraudulent claims; this article focuses on the two most common types, using practical examples. The first type of claim we often see is one where the policy holder has genuinely suffered a loss but has then represented the claim dishonestly. Consider the following example.
Betty holds a policy with GenuineClaims Ltd to insure her building and contents. On 1 December 2016, after an evening out, Betty returns home to discover that her house has been broken into and some of her belongings are missing. Betty immediately calls GenuineClaims Ltd to register a claim and requests that emergency make-safe works are completed. GenuineClaims Ltd sends an emergency repair service and opens the claim for Betty. The repairs cost £1,500.
Betty receives payments for electrical items that were stolen totalling £5,000. She notices some of her jewellery is also missing and submits a claim for this as well. As part of that claim, Betty states that a Rolex watch was stolen that is valued at £7,000. Betty provides photographs of the Rolex watch to prove she owned it.
STOP! Betty is claiming for a high-value item; how can we assess whether the loss is legitimate or if she is making a fraudulent claim?
- Appoint loss adjusters and experts that specialise in jewellery losses: they will be able to spot a fake Rolex from a photograph and possibly save thousands;
- Check the Exif data of the images that were supplied: Exif data contains all the details of when an image was captured. It can provide the time and date the image was captured, the type of device that captured it and can even tell if a flash was used. We see claims all the time where Exif proves that the images were captured after an item was allegedly lost. If the image was captured after the loss, it is fraud, no ifs, ands or buts!
- Interview the policy holder: some insurers make home visits and collect a signed witness statement. If questioning the policy holder by phone, make sure the call is recorded.
Betty’s image Exif data shows the image was captured on 7 December 2016, six days after it was allegedly stolen. GenuineClaims Ltd ask Betty during a phone call to confirm that the Rolex watch in the image is the one she is claiming for; Betty confirms it is. This is fraud.
Next steps for dealing with fraudulent claims of this type
Betty has misrepresented her claim to GenuineClaims Ltd. This is a breach of her obligation to represent all claims honestly. Underwriters agree. The insurer’s next steps should be as follows:
- Void the policy. This can be from the time the policy was incepted or from the date of the claim. Most often it is from the date of the claim; in this case, the policy would be voided from 1 December 2016;
- Write to the policy holder explaining why the policy has been voided and request that she pays back any amounts already paid out. All payments made under the policy since the claim was submitted are repayable. Betty has received payments totalling £6,500. Fraud taints the whole claim: it does not matter that the sums she has been paid are for legitimate losses.
- If any part of the sum remains unpaid, appoint solicitors to pursue recovery on your behalf (see below).
Example 2: Misrepresentation of material facts
The second most common type of fraudulent claims we see is a misrepresentation of material facts. This happens when the policy is being incepted, usually motivated by a desire to secure a cheaper premium. Examples of this include:
- Failing to disclose previous claims made with other insurers;
- Failing to disclose criminal convictions;
- Claiming the property is different from the way it actually is. For example, stating the property has an alarm system when it does not or saying it property has fewer bedrooms than it actually does.
- A policy holder claiming to be a solicitor, doctor or any other ‘upstanding individual’ when they are not.
Misrepresentation of a material fact creates a serious problem for insurers, as policy premiums are calculated based on the risk the individual represents. If this calculation is wrong, the risk could be far higher and cost the insurer more than they anticipated. Consider the following example.
Simon the ‘solicitor’
Simon incepted a policy for buildings insurance with GenuineClaims Ltd on 5 January 2015. During the call to take out the policy, Simon claims he is a solicitor and states he has no previous claims. GenuineClaims Ltd are happy to offer indemnity to Simon and the policy is agreed.
Over the next year, Simon appears to have a run of bad luck. He makes three claims on his policy for small amounts of damage to his property, all from escapes of water. On the third occasion, GenuineClaims Ltd decide to send a loss adjuster to assess the damage. When the loss adjuster visits the property, he discovers it is in a very poor state of repair. Simon is evasive when questioned and the loss adjusters are concerned that the previous claims paid were not used to effect the necessary repairs. Simon appears to be more of a risk than first anticipated.
Next steps for dealing with fraudulent claims of this type
- Investigate Simon. A quick search on the SRA website will tell you whether Simon is in fact a solicitor. If this does not assist, trace agents can be very helpful and can provide detailed intelligence reports.
- Look for previous claims. All insurers should have access to what are known as ‘CUE searches’. These searches can reveal whether Simon has made any previous claims, as well as the nature of the claim and who the insurer was.
Simon’s misrepresentation of material facts will have affected the premium he has paid. As such, all claims under that policy are considered fraudulent and GenuineClaims Ltd can seek to recover all losses incurred under the policy. As in Betty’s case above, insurers should void the policy and request their losses back from Simon. If this is unsuccessful, then GenuineClaims Ltd should consider using solicitors to recover their losses.
Once a claim is passed to us, we will take whatever steps are necessary to secure a recovery, beginning with a formal letter of claim setting out the allegations, up to and including issuing court proceedings.
We take a no nonsense approach to litigation; if we think we can win and secure payment, we will issue proceedings and enforce any resulting judgments. This approach provides quick results for our clients, so they can minimise the losses incurred.
Fraud is a serious matter that can negatively affect not only the parties involved but also other innocent parties. For insurers, fraud drives up the premiums they are able to offer and eats away at profit margins already squeezed by a competitive market. Honest customers are forced to bear higher premiums due to those who claim dishonestly. Ultimately, those who make fraudulent claims will find it almost impossible to get insurance cover again, once they have had a policy voided.
If you have any questions regarding fraud recovery please feel free to contact the Property Insurance Litigation team in Bristol on 0117 904 5799; we will be happy to help.