Axa Insurance (UK) Plc t/a Swiftcover v Goodwin & 8 Others
Claims for exemplary damages in the context of insurance fraud claims have always given Judges the scope to apply discretion in calculating an award in favour of an insurer. In a recent case conducted by Hamida Khatun of Keoghs, the usual boundaries were stretched and an award amounting to 150% of the insurer’s actual loss was made as a punitive measure against a group involved in bringing fraudulent claims.
Detecting fraud can be difficult. The strict timeframes insurers are required to operate within during the early stages of a claim mean that there is a constant need to assess whether suspicion of fraud will ever amount to evidence of fraud. As a consequence, the early stages of RTA claims can see payments being made in claims which subsequently are shown to be fraudulent.
This was the case for Axa who in the course of investigating a series of personal injury claims arising out of an alleged road traffic accident on 12 March 2011 made payments in relation to the vehicles alleged to have been damaged in the collision. As the investigations progressed, it became clear that there were significant discrepancies in the accounts provided by the nine individuals said to have been present in the two vehicles. Axa were assisted in their investigations by the third party insurers, which eventually led to the discovery of prior connections between the parties that had been denied. This supported Axa’s concerns that the parties had conspired with each other to bring fraudulent claims. In addition, forensic engineering evidence obtained by Axa demonstrated that the damage present on the two vehicles would not have been caused by the type of collision described by those said to have been involved.
As the evidence mounted to suggest the accounts of the claimants and the policyholder were fabricated, the claims were repudiated. Although the claims were abandoned and there may have been a temptation to ‘call it quits’ when the saving on such claims had been established, Axa elected to seek to recover the monies they had expended in relation to the claims presented.
After notifying the nine individuals involved of their intention to issue proceedings to recover these sums, only a modest amount was voluntarily paid by one of those individuals and it became clear that any meaningful recovery would only be possible through litigation. A claim in the tort of deceit was issued against the nine individuals involved and identified a total sum of £9,775.48 incurred by Axa prior to the claims being repudiated. Although the bulk of this sum was the pre-accident value of the third party vehicle, the remainder covered a wide range of heads of loss including all of the expenses associated with investigating and ultimately detecting the fraud. This included the costs of intelligence searches, engineer’s fees and the costs of Axa staff being engaged in dealing with claims which had been founded on dishonesty.
In addition to the actual losses incurred by Axa, the claim also included a request for an award of exemplary damages to be made against the nine defendants. Exemplary damages can be sought in a situation in which, in accordance with the principles set out in Rookes v Barnard [1964] 2 WLR 269: “the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the claimant.”
In the context of insurance claims, the potential profit to be made by a fraudster will include the general and special damages forming the basis of their claim. Thus whilst the initial payments made and costs incurred by Axa were just short of £10,000, the potential cost to Axa - had the claims succeeded - would have been significantly more when considering the likely awards for multiple personal injury claims. Given that Axa had been presented with eight personal injury claims together with claims for the damaged third party vehicle, the potential loss to Axa (and therefore the potential gain to the fraudsters) was significantly higher. As a rough but realistic calculation, it was estimated that the potential loss to Axa would have been at least £25,000.
The majority of reported cases in which exemplary damages have been secured in relation to fraudulent insurance claims have seen sums in the region of 50% of the total value of the insurer’s actual losses being awarded. Had the court in the Axa v Goodwin case followed suit, this would have seen Axa recovering approximately £15,000 (the initial sum of just under £10,000 to reflect the insurer’s actual loss, plus an exemplary damages award in the region of £5,000 to reflect 50% of that loss as an additional punishment against the perpetrators of the fraud).
However, in Axa v Goodwin, the court accepted submissions made by Brian McCluggage of 9 St John Street Chambers on behalf of Axa, that the appropriate starting point when calculating exemplary damages awards was the potential profit to be made by the fraudsters had their deceit gone undetected. DJ Shaw sitting in Bolton county court on 24 January 2014 accepted this interpretation and made an award of £15,000 by way of exemplary damages in addition to the initial sum of £9,775.48 claimed through the tort of deceit to reflect the actual losses incurred. Thus the total compensatory award to Axa was just under £25,000 plus costs. In accepting counsel’s interpretation, DJ Shaw noted that an award of exemplary damages comprising of 50% of the compensatory damages was not a sufficient in this case as “it would not fulfil the task of providing a deterrent or a message, or any reasonable exemplary element” in this case.
This decision shows that the courts can and will apply the punitive sanctions available to them in the appropriate cases. It is important to remember that exemplary damages should not be claimed as a matter of course in all claims in which fraud is alleged, such an award remains ‘an exception and not the norm’, but in cases such as this where the evidence was strong and the perpetrators of the fraud were clearly identifiable, it has proved to be a powerful weapon.
The distinguishing feature of this case was the fact that DJ Shaw used her discretion to apply a wider interpretation to the assessment of exemplary damages by using the potential gain of the fraudsters as the starting point, rather than the actual losses incurred by the insurers. As a consequence the award of £15,000 in exemplary damages demonstrates that this is a sanction with real bite and an effective deterrent in the fight against fraud. This case was handled by Hamida Khatun an associate based in Keoghs Manchester office.
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