Persuasion is highly a nuanced matter, especially when it comes to insurance fraud litigation.
An insurer with sustainable doubts about the veracity of its insured’s version of events will normally do at least two things:
- Deny the insured event took place; and
- Allege fraud.
The burden of proof for number 1 lies with the insured and for number 2 with the insurer and there is a difference in the standard of proof for each which is slight yet significant.
The insured’s job of proving the insurable event need only be achieved to the ordinary civil standard, the balance of probabilities, ie. more probable than not.
But if a party alleges fraud, for obvious reasons, a court should not make such a finding lightly. Therefore, it has been said that given the seriousness of the allegation, a court will need to achieve a higher degree of certainty before reaching such a conclusion. This position resides in the common law by virtue of well-known decisions such as Briginshaw v Briginshaw and has also been legislated (sub-section 140(2) of the Evidence Act).
This was the cocktail of burdens and standards of proof facing the NSW Court of Appeal in Sgro v Australian Associated Motor Insurer’s Limited  NSWCA 262.
The plaintiff/appellant was the owner of a Ferrari he alleged was stolen after he went out one evening to watch a movie and parked it on a suburban street. The principal issues were whether the vehicle had in fact been stolen and secondly, whether the plaintiff had made the claim fraudulently in breach of section 56 of the Insurance Contracts Act (Cth).
The generally accepted definition of fraud under section 56 was set out in Tiep Thi To v AAMI (2001) 3 VR 279:
…a false statement, knowingly made in connection with a claim for the purpose of inducing the insurer to meet the claim.
The trial judge found that there were some inconsistencies in the plaintiff’s version of the events that took place on the evening in question which meant she could not be satisfied the vehicle had been stolen. Therefore, the plaintiff’s claim for indemnification under the insurance contract was rejected for failure to prove the existence of the insurable event (ie. theft of the vehicle).
It may seem that given the plaintiff’s evidence was not accepted on the question of theft, it follows that a court should also accept that the plaintiff had made a false statement in making the claim. This was the position urged by the insurer.
The trial judge’s position on the issue was that: “for whatever reason the plaintiff was not honest or candid in the answers that he gave about his whereabouts [on the afternoon of the alleged theft]” [emphasis added].
The Court of Appeal found this could not amount to a finding of fraud, highlighted by her use of the words “for whatever reason”. The trial judge’s use of these words, it said, indicated that she hadn’t reached a sufficient level of certainty to permit such a serious finding as fraud. In particular, the words indicated that the trial judge was not satisfied that any perceived lack of candour on the part of the insured was motivated by a desire to induce the insurer to meet a claim to which he was not entitled. In fact, she simply couldn’t say why, hence the use of the words “for whatever reason”.
In taking this position the Court also affirmed earlier decisions such as Hammoud Brothers v Insurance Australia  NSWCA 366 when it said (per Meagher JA at 76):
Nor was her Honour’s conclusion necessarily equivalent to a finding of fraud because, in a case where the only reasonable alternative was that the appellant had participated in the vehicle’s disappearance, it was open to her Honour to find that she was not satisfied the vehicle had been stolen where the probability that it had been stolen was equal to the probability that it had not [citations omitted].
The Court’s decision shows that whilst questions of proof in cases like these can seem like angels dancing on the head of a pin, they are often decisive.