Insurance and Reinsurance Review of 2010


Mr Farid Yeganeh v Zurich Plc [2010] EWHC 1185 (QB)

Allegations of fraud against an insured - importance of motive

This case illustrates the difficulties which insurers can face in proving allegations of fraud (and, in particular, arson) by a policyholder. The legal issues were not in dispute in this case and it was accepted by both sides that as soon as there is any fraud in the claims process, the whole insurance claim is fraudulent (see Axa General v Gottlieb [2005]). Whilst the standard of proof for fraud is the balance of probabilities, the more serious the allegation, the stronger the evidence needed to establish it. On the other hand, it is unlikely that there will be any documentary evidence of an insurance fraud and so the court may have to draw appropriate inferences from circumstantial evidence.

The property insurer alleged that the defendant had deliberately burnt down his property. The defendant admitted making untruthful claims to his local council in order to evade Council Tax and the judge said that there were doubts about the honesty of the defendant and the truthfulness and accuracy of his evidence. However, despite this, the judge found that there was no direct evidence of arson and there was no evidence to contradict his denials of guilt and about where he was on the night of the fire. The judge said that, if there had have been sound evidence of motive, he might have concluded that there had been arson because the likelihood of the only other possibility (that a heater was accidentally switched back on when it was tilted) was "so remote". However, the judge found that the list of reasons advanced by the defendant as to why he would not wish to burn down his house was "powerful". In particular, it was hard to see how arson followed by reinstatement of the house would advance any planning ambitions which the defendant had. This lack of a motive was therefore fatal to the insurer's claim of arson: "Arson is a very serious crime in quite a different league, in terms of execution as well as gravity, from making dishonest claims for payment or to save money".

However, the judge did accept that the defendant had made a dishonest claim for the contents of the property. In this respect, the defendant's dishonesty regarding Council Tax went to more than just his credibility as a witness - "It points to a tendency consistent with the fraud alleged" by the insurer..."This was not the first time he had made a dishonest claim for limited financial advantage". As a result of this fraud, the entire claim by the insured failed.

Shaul Yechiel v Kerry London Ltd [2010] EWHC 215 (Comm)

Factual evidence of insurance fraud

Various items of jewellery belonging to the insured were stolen when the insured was in France. The policy in question provided cover for those items only when they were in a deposit box or, for a period of up to 14 days only, in the insured's personal custody. At the time of the theft, the jewellery had been in the insured's custody for more than 14 days. The insured accepted that there was therefore no cover for the theft, but claimed that his insurance brokers had failed to inform the insurers that the jewellery would be out of the deposit box for more than 14 days. The issue in this case was whether the insured had sent a letter to his brokers (by fax and by post) informing them that he was going to breach the 14 day limit. The case therefore turns on its particular facts but it is noteworthy for the factors which the judge took into account when deciding whom to believe.

Although each factor was not in itself conclusive, taken cumulatively these factors were compelling. They included the following: the insured had been inefficient at dealing with the insurers' requests in the past; it was not his practice to deal with his brokers by letter (instead he would phone them); if he had faxed the letter, the judge could not see why he would also have posted it; the insured did not call the brokers for confirmation of receipt even though he was seeking an extension of the 14 day time limit and knew that he would need to pay an additional premium/deal with insurers' further questions. The judge therefore concluded that the letter had not been sent.

Mark Noble v Martin Raymond Owens [2010] EWCA Civ 224

Whether retrial or fresh action should be ordered where claimant may have exaggerated damages due from insurers

The respondent was injured in a traffic accident. Liability was admitted and Field J assessed the level of damages at over £3m. A few months later, the defendant's insurers received confidential information that the respondent had in effect exaggerated his injuries and surveillance of him for several months appeared to the insurers to support that view and that the respondent had deliberately misled the court. The insurers applied for permission to appeal the award and for a retrial to take place. The respondent argued that judgment in his favour should not be set aside and instead the insurers should commence a fresh action to set aside the original judgment.

The Court of Appeal found that there was conflicting authority on this issue. In Ladd v Marshall [1954] Denning LJ held that a retrial should be held where, broadly, (1) the fresh evidence could not have been obtained with reasonable diligence for the original trial, (2) the evidence would have had an important influence on the case and (3) the evidence must be apparently credible. However, in the House of Lords case of Jonesco v Beard [1930], it was suggested that the proper course where deceit is alleged is to leave the aggrieved party to commence a new action (unless the Court of Appeal determines the issue itself or the evidence is incontrovertible).

Smith LJ said that the authorities are in conflict where the new evidence (as here) only suggests fraud and is contested by the other side. She concluded that, generally, "where fresh evidence is adduced to the Court of Appeal tending to show that the judge at first instance was deliberately misled, the court will only allow the appeal and order a retrial where the fraud is either admitted or the evidence of it is incontrovertible. In any other case, the issue of fraud must be determined before the judgment of the court below can be set aside". It was unnecessary to commence a fresh action, though, and the Court of Appeal allowed the appeal to the extent that the issue of fraud should be referred for trial by a High Court judge.


Masefield AG v Amlin Corporate Member Ltd [2010] EWHC 280 (Comm)

Whether act of piracy amounted to actual or constructive total loss

According to section 57(1) of the Marine Insurance Act 1906 ("the Act") provides that there is an actual total loss where "the subject-matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof" (there is no need to give notice of abandonment). Section 60(1) of the Act provides that "there is a constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its...

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