Dishonesty is not the best insurance policy

The Message: Honesty is the best policy when making insurance claims.

The Case: An insurance company sought to recover over £230,000 paid out for subsidence damage on the basis the insured had misled it into paying too much (Aviva Insurance Ltd-v-Brown (25/2/2011)).

The Defendant, Mr Brown, lives in a large house at 13 Friern Barnet Lane in North London. He insured his home with the Claimant, Aviva. He made insurance claims for subsidence in 1989 and 1996 and, after very considerable delay, Aviva eventually admitted liability and the repair works were undertaken in 2008 at a cost of £176,000. Aviva also paid £58,500 for the costs of alternative accommodation in the next door property.

Under the Insurance Policy, Aviva stated it would not pay any claim that was fraudulent. This is consistent with the law which provides  that an insured who makes a fraudulent claim can not recover even the losses that could honestly have been claimed unless the fraudulent element is so insignificant it does not affect the claim materially. The draconian nature of the law is to, discourage dishonest claims for losses being made as, otherwise, fraudulent claims for fictional or exaggerated losses could be made with impunity.

Following the making of the payments to Mr Brown, Aviva established that Mr Brown had not been completely open with its representatives in relation to the claim for alternative accommodation costs. He had first sought the costs of renting a property at 38 Lyonsdown Avenue New Barnet without revealing he owned it and had then received compensation for renting 15 Friern Barnet Lane even though he owned this property as well.

Aviva sought to recover all payments made on the basis that Mr Brown had acted fraudulently.  In order to establish fraud, Aviva had to prove that Mr Brown had knowingly made a false representation with the intention to deceive them.

Mr Brown strenuously denied he had either made any untrue representation or sought to deceive Aviva. In relation to 15 Friern Barnet Lane, whilst he accepted he could have made his interest in the property clearer to the Loss Adjusters, he pointed out that he had not concealed this and Aviva had been well aware of the position in this respect. Furthermore, he had followed his accountant's tax advice in the structuring of the letting so as to make it appear at arm's length.

The Judge accepted Mr Brown had not acted dishonestly in relation to 15 Friern Barnet Lane. He had reached an agreement with Aviva on the basis they would pay up to £1,500 per week for alternative accommodation and he had not sort to deceive them as the amount he had recovered had not been excessive even though he was effectively paying the rent to himself.

The problem for Mr Brown related to his dealings with 38 Lyonsdown Avenue, his mother's old house. He had put this forward as alternative accommodation in 2007 on the basis it was available for rent at £11,916 per month. He had said nothing about owning it and had represented that he was having to deal with a third party in connection with renting it out and that there was an urgency to agree terms as the property might not remain available.

Notwithstanding the fact that Mr Brown did not proceed to occupy No. 38, as his wife did not want to move there, the Judge held that the claim he had put forward for the cost of this accommodation was a substantial and material part of his overall claim for alternative accommodation at a rate higher than Aviva wanted to pay.

The Judge did appreciate that Mr Brown genuinely felt he had been badly treated by Aviva and that he may have considered it was justifiable to put forward No. 38 as alternative accommodation but he held this was no excuse for making out he did not own it. The fact that Mr Brown used it for his business and Aviva's representatives were aware this was his business address was not sufficient to have made clear he owned it.

As a consequence of Mr Brown having acted fraudulently in putting forward No.38 as alternative accommodation on the basis he would be letting it at arm's length, he not only forfeited his claim for the rent of alternative accommodation but also his claim for the subsidence repairs he had fought so long and hard over. This was because they were part and parcel of the same claim. The Judge appreciated the result was harsh but he made clear he was simply applying the well-established policy of the law.

First seen in Property Week, 25 March 2011