Category Archives: Insurance

Proof in Insurance Fraud Litigation: making the angels dance

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:

  1. Deny the insured event took place; and
  2. 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 [2015] 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 [2004] 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.

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High Court decision in Highway Hauliers tightens wriggle room on refusals

Another chapter in the ongoing battle between insurers and their insureds regarding the reach of section 54 of the Insurance Contracts Act (Cth) 1984 was recently decided by the High Court; in the insured’s favour this time.

Section 54 seeks to strike a balance between permitting insurers to include terms in an insurance policy that prevent their level of risk from increasing after the policy has commenced, versus unfairly relying on technicalities in drafting to deny the insured a valid payout.

If the effect of the insurance policy is to allow the insurer to deny coverage only by reason of some act of the insured occuring after the policy has been entered, the insurer’s right to deny indemnity is limited to a situation in which there is a causal relationship between the particular act in question and the actual loss. If there is no causal relationship, but the insurer’s interests are nevertheless prejudiced, section 54 also permits the insurer to reduce its libility to the extent such prejudice can be defined in monetary terms.

Maxwell v Highway Hauliers Pty Limited [2014] HCA 33 was an invitation to the High Court to delineate where the line between fairly limiting risk and avoiding indemnity should lie.

Highway Hauliers was in the business of freight transport and owned a fleet of trucks. The vehicles were insured under a policy which included an endorsement that all drivers undertake and receive a particular rating in a nominated driver safety attitudinal test (ie. the policy stated that no indemnity would be provided unless this condition was satisfied).

The drivers of trucks involved in the accidents said to trigger the policy had not undertaken the requisite test and the insurer invoked the term to deny liability.

At first instance and in the WA Court of Appeal the insurer conceded that the drivers’ failure to undertake the testing was not in any way causally related to the accident. In fact, the validity of the test was never established. Therefore, relying on section 54, the insured successfully claimed that the insurer’s denial of liability was invalid becuase the omission bore no causal relationsip to the loss suffered.

Nevertheless, the insurer was granted special leave in the High Court to use the case as a vehicle to test the meaning and effect of section 54. In principal, the argument put by the insurer was reduced by the High Court to this (at 17]):

[A] ‘claim’ to which s 54(1) refers is limited to a claim that is an insured risk.

Effectively, the insurer argued that the policy endorsement was simply a means of defining the scope of coverage. Therefore, on this argumemt, the failiure to have the truck drivers tested meant that the ‘claim’ never made it within the scope of the policy in the first place. As such, section 54 had no work to do, there being no valid ‘claim’.

In the end, the Court was unattracted to this argument and therefore able to dispose of the argument quite simply and with perhaps a somewhat disappointingly (but understandably) brief analysis.

In picking up an aspect of its earlier decision in Antico v Heath Fielding Pty Limited (1997) 188 CLR 652 the Court cited with approval the following words (appearing at CLR 659 of Antico):

[n]o distinction can be made, for the purposes of the section, “between provisions of a contract which define the scope of cover, and those provisions which are conditions affecting the entitlement to a claim”.

Not great news for insurers obviously.  For example, had the decision gone the other way (ie. a finding that a ‘claim’ must be found to fall within the scope of the policy before section 54 has any work to do), it would have provided a means of limiting risk through policy drafting which more narrowly defined the scope of cover.

The effect of Highway Hauliers is to make plain the position that it doesn’t matter whether the limitation on coverage the insurer seeks to enshrine in the policy is treated as an exclusion, endorsement or forms part of identifying the insured risk, section 54 will limit the insurer’s ability to deny liability on account of the actions of an insured unless those actions are causally linked to the loss itself. It seems a fair result, but one which now further confirms the strict limits facing insurers when seeking to deny liability.

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