Liquor store burgled
In August 2014 Exquisite Liquor Limited (“Exquisite Liquor”) took out business interruption insurance with BIZ Insurance (“BIZ”). Brendan was Exquisite Liquor’s sole director and shareholder.
In October 2014 Exquisite Liquor’s premises were burgled. The burglary was recorded on security CCTV camera. Brendan reported the burglary to the police. He told the police that 4 bottles of alcohol and an unknown quantity of cigarettes had been stolen.
Brendan then filed Exquisite Liquor’s insurance claim with BIZ for $8349.49 of lost stock. Brendan claimed 21 bottles of alcohol and 331 packets of cigarettes had been taken.
In March 2015, BIZ advised Brendan that his claim had been declined because of fraud. BIZ also cancelled Exquisite Liquor’s business interruption policy.
Brendan complained that BIZ incorrectly declined his claim for loss of stock and unreasonably cancelled his insurance policy. Brendan said that the claim for $8,349.49 was an honest estimate of loss based on the difference between an end of month stock take completed on 30 September 2014 and a stock take completed following the burglary on 4 October 2014.
Brendan said if BIZ had an issue with the quantum of his claim, BIZ should have made him a reasonable settlement offer rather than decline his claim and cancel the insurance policy.
Brendan wanted BIZ to make a reasonable offer to settle the insurance claim and reinstate the insurance policy, and complained to FSCL.
BIZ relied on its fraud clause in the policy to decline Brendan’s claim and to cancel the policy.
BIZ accepted that Brendan had suffered a loss. However, BIZ alleged that Brendan acted fraudulently by significantly inflating his loss.
BIZ’s fraud clause states:
“If any claim under this policy is in any respect fraudulent or if any fraudulent means or devices are used to obtain any benefit under the policy, or if any loss, destruction or damage be occasioned by wilful act or with the insured’s connivance, all benefit under this policy shall be forfeited.”
To exclude Brendan’s claim and to cancel the policy under the fraud clause BIZ had to prove that Brendan’s claim was fraudulent or Brendan used fraudulent means or fraudulent devices to obtain a benefit under the policy.
A fraudulent claim is where the insured submits an insurance claim but has not suffered a loss, or the insured has suffered a loss but claims for a larger loss. A fraudulent device is used when the insured has suffered a loss but lies to improve or embellish the facts surrounding the claim.
1. Did Brendan make a fraudulent claim?
“Fraudulent” and “fraud” were not defined in the terms of the policy. New Zealand courts accept that a claim is fraudulent only if the insured is dishonest or reckless as to honesty.
Brendan attributed $8,349.49 of stock to the burglary, while BIZ estimated the actual loss to be $1,502.28. The fact that Brendan’s claim appeared inflated was not conclusive evidence of fraud. However, the greater a claim has been inflated, the more likely it is there has been fraud.
BIZ said that Brendan had been fraudulent because he made a claim that:
- relied solely on the stock take records of questionable validity and accuracy
- did not consider the security CCTV footage although this was the most reliable account of the burglary – the CCTV footage showed the burglar putting the goods into a small backpack
- was markedly different to the police report
- failed to take into account Exquisite Liquor’s sales between 30 September 2014 and 4 October 2014.
We considered that Brendan was dishonest or at least reckless in not taking into consideration the security CCTV footage in determining Exquisite Liquor’s loss. We also considered that a reasonable, honest person would take into account sales when using stock take records to determine loss.
In the circumstances we were of the view that Brendan was aware he was acting dishonestly and he purposely did not take into account sales that occurred between the 30 September 2015 stock take and the burglary. We found that Brendan made an exaggerated claim with the intent to defraud BIZ.
2. Did Brendan use a fraudulent device?
If Brendan had not acted fraudulently when he made his claim, his claim could still be declined for fraud if he used fraudulent devices to further his claim.
Our case manager watched the security CCTV footage and agreed with BIZ’s observations. The footage did not show the exact amount of alcohol and cigarettes the offender stole from Exquisite Liquor. However, it was clear that the offender stole significantly fewer than 21 bottles and 331 cigarettes.
Our case manager listened to the interview between BIZ and Brendan after they had watched the security CCTV footage. We considered that a reasonable, honest person would have accepted that the video footage was more accurate than the stock take records and would have amended the claim when presented with the discrepancy.
3. Was BIZ entitled to decline Brendan’s claim and cancel the policy?
We found that BIZ had correctly applied the fraud clause in Exquisite Liquor’s business interruption insurance policy. We accepted that BIZ was entitled decline to pay the claim and to cancel the policy.
It doesn’t pay to over-inflate an insurance claim as you could find that you are accused of fraud. If the insurance company believes on reasonable grounds that fraud has been committed, it is entitled not to pay the claim and to cancel the insurance policy. If you have had an insurance policy cancelled because of fraud, you will find it very difficult to obtain alternative insurance cover with another insurer.
 Agapitos v Agnew  1 ll ER (Comm) 714 Lord Justice Mance said “A fraudulent claim exists where the insured claims, knowing that he has suffered no loss, or only a lesser loss than that which he claims (or is reckless as whether this is the case). A fraudulent device is used if the insured believes that he has suffered the loss claimed, but seeks to improve or embellish the facts surrounding the claim by some lie.”
 Twinsectra Limited v Yardley  UKHL 12,  2 AC 164 Lord Hutton said “before there can be a finding of dishonesty it must be established that the defendant’s conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that his actions were dishonest”.