policyholder forges documents in the course of making a valid

claim insurers wrongly attempt to "avoid" entire policy

Mr H was a self-employed plumber. In January, his home was burgled and he made a claim under his
home insurance policy, which the firm duly paid. In May, his van was broken into and a number of
personal possessions were stolen, including the tools he used for his work. He made another claim to
the firm under the personal possessions section of his home contents policy.
During the course of its enquiries, the firms loss adjusters insisted that Mr H substantiate all his
losses with original purchase receipts. Mr H was unable to find all the receipts, so he asked a friend to
fake one for him.
When the firm discovered the forged receipt, it "avoided" the policy in other words, cancelled it from
the start. The firm not only refused to pay for the items stolen from the van, it also tried to recover
the money it had previously paid out to Mr H for his earlier burglary claim. After complaining
unsuccessfully to the firm, Mr H came to us.
complaint upheld
The firm accepted that the theft from the van was genuine. Mr H had been foolish to obtain a forged
receipt but he was not dishonestly trying to obtain something to which he was not entitled. The loss
adjusters had, in fact, been rather overzealous in insisting on strict proof of purchase for all the items
stolen.
We applied the rationale of "The Mercandian Continent" case (reported in [2001] Volume 2 of the
Lloyds Law reports at page 563) which concerned the principle of "utmost good faith". Ultimately, the
case held that insurers should only be able to "avoid" a policy for fraud where the insurers ultimate
liability was affected, or when the fraud was so serious it enabled the insurer to repudiate the policy
for fundamental breach of contract.
Following this rationale, we concluded that the fair and reasonable solution was for the insurer to
reinstate the policy and pay the claim. In any event, it was unlikely that the firms ultimate liability
would be affected by the fraud, as Mr Hs work tools were specifically excluded from the home policy.
Home policies often exclude cover for contents or possessions that are for business rather
than personal use.
We also pointed out to the firm that even if Mr H had been guilty of fraud, it would only have been
entitled to "forfeit" the policy from the date of the current claim, leaving the earlier burglary claim
intact. It was not entitled to recover previous payments for valid claims.




policyholder supplies misleading and fraudulent documents in the course of making a
valid claim insurers able to "forfeit" policy from the date of the claim
Miss J made a claim under her general household policy for "escape of water" damage. As the damage
was reasonably limited, the firm simply asked her to send in repair estimates. She provided three. The
firm discovered that all three estimates purporting to come from different contractors were
fraudulently produced by one contractor who had carried out extensive works for Miss J in the past.
The firm considered Miss J to be guilty of fraud. It cancelled her policy and refused to deal with the
claim. Miss J then bought her complaint to us.
complaint rejected
Miss J had already admitted supplying false information to the firm, and in an attempt to resolve the
matter, had produced further genuine estimates from independent contractors. However, these
merely served to show the extent to which the prices quoted in the fraudulent estimates had been
exaggerated.
Once again, we applied the principles of "The Mercandian Continent" case (see case 42/3). If the fraud
had not been discovered, the firm would have ended up paying more in compensation than was
properly required of it, and more than Miss J was legally entitled to. To this end, the fraud affected the
firms ultimate liability and was a fundamental breach of contract.
Having applied that rationale, we decided that the firm had been entitled to "forfeit" the policy from
the date of the claim.
42/5
policyholder purposefully gives wrong details of stolen items insurers able to "forfeit"
policy from the date of the claim
Mr G made a claim for goods stolen from his home during a burglary. Among the many items he
claimed for were some Star Wars DVDs. This alerted the firms loss adjusters to the possibility of
fraud, since at the time of the burglary the films in question had not been released on DVD. The firm
rejected the claim and "forfeited" Mr Gs policy from the date of his claim. Mr G complained to us,
arguing that he must have mistakenly claimed for pirated copies of the DVDs, and that this mistake
did not warrant "forfeiture" of the policy.
complaint rejected
We were satisfied that this was a clear attempt to defraud the firm. There was evidence that showed
"beyond reasonable doubt" more than the usual civil requirement of "balance of probabilities" that
Mr G was claiming for something that he could never have owned. This higher standard of proof
indicated that Mr G would still be guilty of fraud, even if the pirated DVDs did exist, since he had
attempted to claim for legitimate copies.
The value of the DVDs was relatively small compared with the overall size of the claim, but we did not
feel this was a case of "innocent and minimal exaggeration". Mr G had dishonestly claimed for
something he was not entitled to. This went to the very root of the insurance contract, and was a
breach of the policyholders duty to act in "utmost good faith" when submitting a claim.
We also felt that this fraud, and Mr Gs subsequent attempt to cover it up, cast doubt on the validity of
the entire claim. The firms decision to "forfeit" was therefore fair and reasonable.

household contents - exaggerated claim - whether insurer
entitled to reject claim in full - whether policyholder pressed to
disclaim part of loss.
When Mr J was burgled, he notified the police and put in a claim to the firm. His claim - totalling
3,000 - included a DVD player, 14 DVD discs, other audio-visual equipment and jewellery.
When the firm questioned Mr J, it emerged that although he initially said that he had bought one of
the stolen items (a hi-fi) for 150, he had actually bought it from his brother for 60.
The firm's investigator noticed that some of the DVDs he had listed in his claim had not yet been
released in the UK. Mr J was unable to explain how he had bought them. He then admitted he had
never owned a DVD player or discs, and he said he wished to withdraw that part of his claim.
The firm rejected Mr J's claim, citing the policy exclusion that enables it to do this if any part of a
claim is false or exaggerated.
Mr J's solicitor then said that Mr J had been told by the firm's investigator that if he said that he had
never owned a DVD player, the rest of the claim would be paid more quickly. The solicitor also said
that Mr J had reported the theft of the DVD player to the police and this proved it was a valid claim.
complaint rejected
We were unable to reconcile Mr J's statement with his solicitor's assertions. It was hard to believe
that, merely to progress payment for the rest of his claim, Mr J was willing to admit he had claimed
for something he did not own. The only logical explanation was that Mr J had deliberately exaggerated
his loss. So the firm was entitled to refuse to make any payment.


permanent health - "disabled" - evidence that policyholder
engaged in activities inconsistent with his statements - whether
insurer justified in ceasing claim payments.
Mr G received monthly benefits from the firm after it accepted his disability claim in March 1992. His
case was reviewed periodically and his disability was described as a "non-specific" problem, which
caused him to feel unwell and lethargic, with aching muscles and weakness. His GP confirmed that his
condition remained static and that he was suffering from "psychogenic pain unspecified".
The firm arranged for another doctor, Dr L, to examine Mr G at home. Mr G told Dr L that he spent
most of the day either sitting in a chair and staring into space or sitting outside in the garden. Mr G
also said that he needed help to load shopping into the car and had not been able to drive for two to
three months. However, Dr L could find nothing wrong with him.
The firm's investigators filmed Mr G in the weeks before and after Dr L's visit. These videos showed Mr
G getting out of his car, opening the boot without difficulty, pushing a supermarket trolley and loading
shopping into his car. They also showed him jet-washing and drying his car and driving long distances.
The firm concluded that Mr G did not satisfy the policy definition of 'disabled' and it stopped the
benefit payments. In response, Mr G presented the firm with a letter from his GP saying that his
condition had deteriorated. The GP did not appear to have been aware of the video evidence of Mr G's
activity, or of why the firm had stopped the payments.
complaint rejected
We were satisfied that the firm had acted fairly. We did not think Mr G was medically unable to
perform his normal occupation. He had been unable to explain either the level of activity shown in the
videos or the disparity between this activity and his statements to Dr L about what he could - and
could not - do.


household contents - fraud - police not informed of full loss -
whether sufficient reason for rejecting claim.
Mr and Mrs B returned home from an evening out to find they had been burgled. They notified the
police right away and rang the firm the next morning. The claim form they sent the firm listed 63
stolen items, with a total value of over 20,000.
The firm's investigator was suspicious about the claim and his enquiries continued for the next eleven
months.
During the enquiries, the couple's insurance came up for renewal. The firm took more than two
months to consider the matter and then refused to renew. The couple were unable to obtain any
replacement insurance.
Almost a year after the loss, the firm rejected the claim. It said that when Mr and Mrs B reported the
loss to the police, they had not mentioned all the items they later claimed for. It also said that Mr and
Mrs B had not provided all the help and information it needed.
complaint upheld
Mrs B said that she had still been in shock when she reported the burglary to the police and she had
only mentioned the most obvious items that were missing. This explanation was entirely credible.
Theft victims may well not be aware of the full extent of their loss within a few minutes of discovering
it. In any case, Mrs B had mentioned most of the missing items when she telephoned the firm the
morning after the burglary. And the couple had receipts for nearly everything.
We required the firm to settle the claim and to pay 500 compensation for its maladministration. We
did not think it had handled the claim well, and it had not given Mr and Mrs B sufficient notice that it
would not renew their insurance.