“How accurate does my insurance claim need to be?”

On 22 October 2015 a fire started in the workshop of Millan’s electrical and whiteware store. The following day Millan notified the insurer that he would be making a claim for fire and smoke damaged stock. The insurer told Millan that the claim was not yet accepted but appointed its assessor. The assessor advised Millan to relocate the remaining stock and contact a nominated cleaning agency.

On 3 November, the assessor’s decontamination specialist attended the site and recommended that, except for a few televisions in close proximity to the fire, the remaining stock in the storeroom could be cleaned and ‘saved.’ The assessor’s decontamination specialist recommended that all stock in the storeroom should be treated by the cleaning agency. Millan advised he would prefer cash settlement based on the amount that the cleaning agency would charge.  

On 23 November, the assessor met with Millan to arrange the removal of the damaged stock for cleaning. Millan wanted to wait until the claim had been approved before the stock was uplifted. Later that week, the Fire Service confirmed the fire was accidental and the insurer accepted the policy would respond to the fire.

Two weeks later on 4 December, Millan agreed to the uplift of the storeroom contents for professional cleaning.

The next day, Millan instructed an auctioneer to hold an auction at the store to sell some of the stock.

On 11 December Millan submitted a detailed claim for $74,388. Millan’s claim was based on the retail value of stock which Millan claimed was damaged in fire, less the auction proceeds of $22,177. The cost price of the stock was $21,931.71.

Five days later, the cleaning agency arrived to uplift the storeroom contents and found that there was substantially more stock than there was during the inspection on 3 November. The additional stock included a further 160 televisions, which Millan claimed had been damaged after the racks they had been on had collapsed during the fire service’s attempts to control the fire.

The specialists told the insurer about the increase in stock collected from Millan’s store.

Millan then submitted a further claim to the insurer for an additional $22,176 in staff wages which Millan said related solely to cleaning the store and other stock from the showroom, which was not so damaged as to require professional cleaning.

On 20 January 2016, the assessor sent the insurer a letter stating their concerns that Millan’s claim may be overinflated. The assessor’s view was that there was minimal damage worth $10,000 compared to Millan’s claim now in excess of $100,000.

The following day the insurer withdrew their claim acceptance based on the specialist’s and assessor’s advice, and appointed an investigator.

The investigator noted Millan had not sought approval from the insurer to hold the auction, and had not told the auctioneer or customers that the goods sold were smoke damaged. The investigator was also unable to reconcile the stock discrepancies from the incomplete stock take lists provided.

The investigator asked Millan for further information and, a number of months later, Millan provided statutory declarations. Millan also confirmed that he had disposed of a further 34 televisions which he had claimed as being damaged beyond repair by the fire. Millan had not kept these for the insurer or assessor to see as he thought the insurer would not be interested in them.

On 25 October, the insurer declined Millan’s claim due to fraud and Millan complained to FSCL.

Milan’s view:

Millan believed that all the claims he made as a result of the fire were legitimate. He maintained that the televisions he had disposed of had been damaged beyone repair and the assessor could have viewed these if he had wanted. Millan said he had to sell the smoke damaged TVs at auction to recoup some of his losses, and he was not aware that the insurer had to be notified.

Millan felt the TVs which had fallen off the racking, as a result of the New Zealand Fire Service’s actions to prevent the spread of the fire, were legitimately claimable because they had been damaged in the course of the fire. Millan also felt he should be able to claim for the wages he had paid his staff when they had cleaned some of the stock in the showroom in addition to their other duties.

Finally, Millan’s view was that if the insurer had any issues with the claim, it could have contacted him and negotiated a fair settlement.

The insurer’s view:

The insurer accepted that Millan had suffered a genuine loss, but believed he had exaggerated his claim and had been dishonest in dealing with the insurer.

The policy was clear that should Millan make a claim which is, in some respect fraudulent, all benefits under the policy are forfeited.

Review

We reviewed Millan’s claim and the insurer’s response. We accepted Millan had suffered genuine loss from the fire on 22 October.

We then reviewed the insurer’s reasons for declining Millan’s claim. The insurer relied primarily on a clause that said If the insured shall make any claim knowing it to be false or fraudulent, all benefit under this policy shall be forfeited in respect of such claim.

In New Zealand it is generally accepted that a claim will be fraudulent if the assured is dishonest, or reckless to the honesty of the claim submitted. The standard was that Millan’s conduct must be dishonest by the ordinary standards of reasonable and honest people.

The insurer considered Millan’s conduct was dishonest and he knew his claim was false.

The insurer relied on a pattern of dishonest conduct, including:

  • Millan did not tell the insurer or its agents about the auction until after the event, and did not seek approval.
  • Photographic evidence that the televisions from the collapsed racks had all suffered damage which pre-dated the fire, were not fit for sale at the time of fire, and should not have been claimed as new.
  • Millan had disposed of the 34 allegedly fire damaged televisions before the assessor could sight these.
  • Millan had sold the goods at auction as undamaged stock, but claimed for the price difference in retail value and fair market value due to the goods being smoke damaged.
  • Requiring the uplift of a further 160 televisions for cleaning by the cleaning agency.

We considered the evidence supported a finding that Millan had knowingly submitted a fraudulent claim, and, on the balance of probabilities, we found Millan’s conduct and statements were fraudulent devices used to further his claim.

We also noted that the insurer was not obliged to make a settlement offer of the genuine aspects of Millan’s claim once it had determined that his claim was fraudulent.

Outcome:

We considered that the insurer correctly declined Millan’s claim due to Milan’s use of fraudulent devices and we did not uphold Millan’s complaint.

Key insight for consumers

When making an insurance claim you must be completely truthful. Any dishonesty could impact on the entirety of your claim being declined. Insurers are not obligated to make a settlement offer or pay the genuine aspects of a claim if your claim is fraudulent in any respect.