Auckland lawyer Andrew Hooker on how some insurers accuse some customers of dishonesty and avoid paying claims - and what you can do about it.

Most people know that it is dishonest to make a false claim against their insurance policy and have very little sympathy for people who try to rip off their insurance company.

But you might be surprised how often insurance companies call their customers liars, fraudsters or criminals, and the flimsy basis on which they sometimes do so.

And the consequences of such an allegation can be dire.

Apart from the obvious failure to pay the claim, and the stigma attached to being called a criminal, the people find that, even though they are fighting the decision, no one else will insure them and their bank forecloses on their mortgage.

Apart from the obvious arson and exaggerated claims, your insurance company can decline your entire claim if you make a false statement in support of your otherwise totally genuine claim.

Of course, as you would expect, insurance companies are well aware of this, and have been busted on occasions for attempting to "harvest" false statements so that they can decline a claim.

It is not uncommon when acting for people whose claims have been declined to read investigation reports or interview transcripts in which a cunning investigator has clearly trapped the unwitting customer into making contradictory statements, only to subsequently allege deliberate misstatements resulting in the entire claim being declined.

Into this quagmire of traps for the unaware, what are the rules of engagement?

The following principles may help:

(1) An insurance company can decline a claim or even a number of claims arising from the same event if they can prove that you made one deliberately false statement in support of any of the claims;

(2) Even if you make a false statement in support of a genuine claim (such as not telling the full truth about the circumstances leading up to the loss) the entire claim can be declined even if the insurance company would have to pay if you had told the truth;

(3) Deliberately claiming for items that were not lost, deliberately lying in support of the claim or deliberately damaging property (like arson) is effectively a criminal act and could result in prosecution and conviction.

How far, then, can the insurance companies rely on this special concept of "fraud"? It pays to be aware of the following:

(1) To decline a claim in reliance on a false statement or fraud requires evidence of deliberate fraud or lies. Mistake, inadvertence or confusion is not enough;

(2) When considering such allegations, a Judge will usually err in on the side of mistake or error, unless there is very strong evidence of deliberate fraud or arson;

(3) In fact, the standard of proof required for an allegation of fraud is almost as high as the criminal standard of beyond reasonable doubt. This means that the amount of proof required to be produced by an insurance company before making an allegation of fraud is extremely high. It is often described as "clear and convincing" evidence;

(4) If an insurance company wrongly accuses you of fraud, the insurance company can be liable for significant damages and maybe ordered to pay your actual legal costs in proving your innocence.

In a recent High Court judgment, AMI Insurance was unsuccessful in proving deliberate arson against a customer who AMI alleged had deliberately burnt his house down.

AMI alleged that the customer had burnt the house down because he had found out it was a leaky home.

When issuing the judgment, the Judge reiterated the high standard of proof required for an allegation of fraud and decided that AMI had not established the allegation to the required standard. The Judge said that taken as a whole the evidence still left him in a state of genuine uncertainty (as to who lit the fire) and that he was therefore insufficiently sure that the customer had started the fire.

This case is not isolated, and AMI (probably one of the better companies, actually) is by no means to be singled out here. But it is a timely reminder to the insurance industry that if they wish to accuse their customers of fraud or arson, they need more than circumstantial or inferential evidence; they need actual facts.

The AMI case was a very large case involving a full hearing in the High Court. But in practice, it seems that when reviewing numerous claims from clients, the insurance industry seems only too willing to accuse its customers of fraud or dishonesty on the skimpiest of circumstantial evidence.

Then, when they realise that they cannot prove their case (often shortly after it hits their lawyer's desk) or that the customer is going to challenge them on the allegation, they make a cash offer in order to make the matter go away.

However customers who are being called liars, fraudsters or arsonists do not back off easily, and are often determined to clear their own name. The amount of the claim becomes somewhat insignificant, compared to the desire to clear their name against the allegation of dishonesty.

If a customer is accused by its insurance company of telling a lie, the first question to ask is what is the exact evidence relied on by the insurance company.

Unless there is clear and convincing evidence, supported by actual facts and not inference, then it is unlikely the insurance company will succeed and the decision should be challenged.

And remember, don't take these allegations sitting down. The fact that your claim has been refused may be the least of your problems. Wait till they cancel your insurance and the bank or hire purchase company finds out that you are uninsured.


Andrew Hooker is a partner in the Auckland law firm Turner Hopkins and a director of Claims Information Specialists Ltd, running an insurance information website www.claimsinformationspecialists.co.nz