Insurance fraud – recovery of exemplary damages - UK case

A recent UK case has provided an opening for awards of exemplary damages for serious insurance fraud.

What are exemplary damages?

Typically, in civil proceedings the court awards damages to compensate a plaintiff for a loss suffered as a result of a defendant's wrongdoing. The court also has the ability to award exemplary damages which, rather than having a compensatory purpose, are intended to punish and to deter others from engaging in similar conduct.

Exemplary damages are awarded relatively rarely and require "outrageous" conduct, i.e. some sort of either deliberate wrongdoing, or egregious recklessness, on the part of the defendant.

Exemplary damages for insurance fraud in the UK

In a recent case, Axa Insurance v Financial Claims Solutions Ltd & Ors [2018] EWCA Civ 1330, the United Kingdom Court of Appeal has confirmed that insurers can recover exemplary damages for deliberate insurance fraud.

This case involved a brazen attempt at perverting the course of justice to recover for fraudulent claims on motor vehicle insurance policies. The scheme was devised by an entity calling itself "Coelum Legal", which was not, in fact, a law firm authorised to conduct litigation in the United Kingdom.

The scheme

In simple terms the scheme operated as follows:

A claim was lodged on an insured's Axa motor vehicle policy, alleging losses suffered by the other party to a car accident with the insured. Losses claimed included damage to cars, the cost of a rental vehicle from a credit hire company, and personal injury losses due to whiplash. The documentation supporting the claims, including expert medical evidence was all (it later emerged) fraudulent. Coelum Legal then filed proceedings and obtained judgment by default against the insured. The total amount claimed was £85,000. The proceedings against the insured were not served on Axa and Axa only became aware of the proceedings after judgment by default had been entered. Meanwhile, Coelum Legal issued enforcement proceedings against Axa, telling the Judge that Axa had been served by registered post. In fact, Coelum Legal had sent an envelope of junk mail to Axa, which had been disposed of by post room staff. Again, judgment in default was entered in both cases. Following this, Coelum Legal took steps to enforce the judgment and bailiffs attended Axa's offices to attempt to seize computers in aid of enforcement. Not surprisingly, Axa and its legal advisors became suspicious of the claims and carried out...