Payback: Using The Tort Of Deceit As A Weapon Against Fraudsters

Going on the offensive and pursuing sanctions against fraudsters remains a key area of focus for the insurance industry and there continues to be a good deal of discussion in relation to the different options that are available; contempt of court, strike outs, exemplary damages are all sanctions that can be imposed if once proceedings are commenced the claim is found to be fraudulent. What happens though if the 'fraudulent' claim is mistakenly paid by an insurer under the belief at the time that it was genuine and before any proceedings are commenced? In such circumstances the aforementioned procedural remedies will usually not be appropriate but that is not to say that a remedy does not exist.

The remedy

The tort of deceit is a cause of action that can enable insurers to recover financial loss that has been incurred as a result of being deceived; this can include the costs of investigating the fraud.

In order to succeed in a tort of deceit action the following legal test must be met:

1. There must have been a representation made by the fraudster which can be clearly identified, which must be a representation of fact.

2. The representation must be false.

3. It must have been made dishonestly.

4. It must be proved that the representation must have been intended to be relied upon and was in fact relied upon.

   The distinction between 2 and 3 above might appear to be a subtle one but it is important to highlight that both elements are required. The statement must be both false and dishonestly made. The leading authority on this point is still Derry v Peek (1889) in which Lord Herschell said:

   "First, in order to sustain an action in deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it be true or false".

   Tort of deceit in action

   To illustrate the tort of deceit in action let us consider how it may have practical application to a fraudulent road traffic accident. Let's assume we are dealing with a staged accident that is completely fictitious having been entirely invented. One of the fraudsters involved poses as a claimant and instructs solicitors to pursue a claim for compensation against the 'fault' vehicle. He claims to have suffered personal injury and produces a medical report that appears to corroborate those injuries.

   If...