Fraud Law to get Revamp
This article first appeared in the Insurance Post on 14 October.
One of the central pillars of the law relating to fraudulent insurance claims is being given a much overdue makeover. The Insurance Bill is largely good news for insurers but there will be some areas where protection is reduced.
It has always been a bit of an oddity that in an age of driverless cars and cyber crime one of the most fundamental aspects of this area of law had been stuck in the dark ages. The ‘fraudulent claims rule’ that applies to fraudulent insurance claims made by policyholders against their own insurer, and which permits an insurer to decline an entire claim if it contains a fraudulent element, is based on 18th and 19th century principles that were embodied within the Marine Insurance Act 1906. Although this legislation related to marine insurance its provisions brought together common law principles and were applied to other forms of insurance. The Insurance Bill is currently navigating its way through Parliament with the general aim of updating insurance law and giving effect to some of the recommendations previously made by the Law Commission.
There are various aspects to the Bill but Clause 11 deals with remedies for fraudulent policyholder claims and provides some helpful clarity, without drastically changing the existing position. Consistent with other statutes there is no definition of ‘fraud’ or ‘fraudulent claim’ although this is deliberate and enables some flexibility. The fraudulent claims rule is given a dust off and although the thrust remains the same the language is much clearer and also goes a step further by clarifying the extent of the remedies available to insurers, when those remedies will apply and the difference between a fraudulent claim and a fraudulent act.
In general, the clarity provided by the Bill should assist insurers fight first party fraud and it can do no harm at all to put on a statutory footing the principle that insurers have no liability to pay fraudulent claims, or genuine claims tainted by a fraudulent element. The Bill may however in some instances result in less protection for insurers, particularly in respect of group insurance schemes which are dealt with in Clause 12 of the Bill. There may yet of course be further amendments to the Bill but no doubt insurers will want to closely monitor its progress.
For further information please contact Jamie Taylor, Director, on 0151 907 3053
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