Dilip had insurance for his liquor store arranged through his broker. The policy provided cover for loss up to $150,000 with a $1,000 excess. On 20 August, 3 armed offenders burst into the liquor store and grabbed bottles of alcohol, took cash from the register and emptied a tobacco dispenser. The robbers were gone within minutes and the staff, who were threatened, immediately called police.
On 26 August, Dilip’s broker forwarded Dilip’s claim form to the insurer. The claim form recorded the loss as an armed hold up with further details of loss to be provided. The insurer appointed an assessor to assess the liquor store’s loss.
A week later, the assessor met with Dilip at the liquor store. The assessor asked Dilip for the CCTV footage, a schedule of loss stating what had been stolen, costing documents for the stock claimed and an explanation of how Dilip had calculated the lost cash.
On 11 September, Dilip submitted a loss schedule, stating that $513.99 in cash, 41 bottles of alcohol totalling $1,345.18 and 218 packets of cigarettes at $5,164.28 had been stolen, for a total claim of $7,023.45.
The assessor reviewed the schedule of loss. The assessor then asked Dilip to review and confirm that all the items had been listed correctly and to forward him the CCTV footage. Dilip replied the same day stating the schedule of loss was correct.
The assessor reported to the insurer they had concerns the claim had been inflated after reviewing the CCTV footage and recommended the insurer appoint a private investigator. After the investigator had gathered and reviewed all the evidence, the investigator concluded that 20 bottles of alcohol and, at the most, 50 packets of cigarettes had been taken.
The insurer declined Dilip’s claim because it believed that Dilip had deliberately fabricated and exaggerated his loss. As a result of the dishonesty, the insurer also cancelled Dilip’s policy. Dilip’s broker immediately asked for a review of the declinature and cancellation.
The insurer reviewed its position and maintained its declinature in reliance on a policy exclusion which stated that if any claim under the policy was in any respect fraudulent, or if any fraudulent means or devices are used to obtain any benefit under the policy, all benefit under the policy shall be forfeited.
Dilip did not agree with the decision and complained to FSCL.
Dilip complained the insurer unreasonably declined his claim and unfairly cancelled his insurance policy. Dilip believed that the insurer should have reassessed the claim, discussed any issues surrounding the claim with him, and paid his genuine loss, rather than taking the extreme action of declining his claim and cancelling his policy.
Dilip reasoned it was his first claim ever and he had not intended to make a false claim. Dilip felt the schedule was an estimate of loss, and it was the insurer’s responsibility to review it and make a settlement offer based on its assessment of the claim.
The insurer’s view
The insurer inferred fraudulent intent because Dilip’s claim was so inflated and he had not relied on the CCTV footage in preparing the loss schedule.
The insurer believed Dilip had made no attempt to ensure the accuracy of his estimates in direct contravention of his declaration of the correctness of all the information and answers in his claim form.
The insurer believed Dilip had been dishonest, or at least reckless in his honesty, and that it was reasonable to decline the claim and to cancel Dilip’s policy.
We reviewed Dilip’s claim and the insurer’s response.
The policy had clear fraud exclusions and there was no obligation to pay the ‘genuine amount’ of the claim. However, ‘fraudulent means’ and ‘fraudulent’ were not defined in the policy itself.
We researched the leading insurance fraud cases for the courts’ interpretation of fraud and fraudulent means to determine the correct policy response.
The courts have found an insurance claim is fraudulent only if the assured is dishonest, or at the very least reckless as to honesty, although mere negligence will not suffice. There must also be an intention to obtain an advantage.
Fraudulent means are where an insured person seeks to improve or embellish the facts surrounding the claim by some lie. This requires some proof that there was a lie directly related to the claim which was intended to improve the insured’s prospects of obtaining a settlement.
The insurer estimated Dilip’s actual stock loss at $1,533.50, whilst Dilip had calculated his claim at $7,999.88, an ‘inflated’ value of more than 450 percent. We noted that while an exaggerated claim is not evidence of fraud by itself, the greater the inflation of the claim, the easier it becomes to impute fraudulent intent.
After reviewing all the evidence we determined that, on the balance of probabilities, Dilip had submitted a claim with the intent to defraud the insurer. Although Dilip had suffered a genuine loss in the aggravated robbery, the insurer correctly applied its fraud exclusion clause in denying his claim.
Even if Dilip had not intended to defraud the insurer, Dilip’s false statements about the correctness of his estimates and his schedule of loss, constituted use of fraudulent means.
We agreed with the insurer’s estimate of actual loss on the evidence and we found Dilip’s insurance claim was reasonably declined by the insurer.
Key insight for consumers
If your claim is not accurate, or you support it by lies or deceit, the insurer may refuse to pay your claim even though the event that caused the loss was genuine. You are responsible for the accuracy of all the information you give to the insurer at claim time. You must take all reasonable care to ensure your claim is truthful and accurate and supported by the evidence.