AXA General Insurance Ltd. v Gottlieb & Anor

A fraudulent insurance claim is governed by a special common-law rule. It is distinct from avoidance of the policy ab initio and from ordinary contractual principles. Where fraud affects any part of a claim, including by a fraudulent device used to support a genuine loss, the insured forfeits the whole claim.

The forfeiture includes interim payments made before the fraud on the claim to which the fraud relates. Their consideration then wholly fails and the insurer may recover them. The rule is deliberately deterrent and does not preserve a genuine part of the same claim merely because it was paid before the fraud. It does not, however, operate retrospectively upon separate claims which were settled before any fraud occurred.

The insured householders made four claims under a buildings policy. The insurer alleged fraud in an alternative-accommodation element of the first claim and in a forged electrician’s invoice supporting the second.

HHJ Bowers, in the Queen’s Bench Division, found fraud. He ordered repayment of all sums paid on the two claims affected by fraud, including sums paid before the fraud, but refused recovery of sums paid on two separate claims that had been fully settled before any fraud occurred.

The householders appealed the recovery of pre-fraud payments on the first claim. The insurer cross-appealed the refusal to recover payments on the separate settled claims. The householders also sought a late extension of time to challenge the fraud findings.

1. Unanimously, the court dismissed the appeal and cross-appeal. Mance LJ gave the reasons, with which Keene and Pill LJJ agreed. The application for an extension of time to appeal the fraud findings was also dismissed.

2. The common-law rule concerning fraudulent insurance claims is a special rule. It is separate from avoidance ab initio under section 17 of the Marine Insurance Act 1906, and from ordinary repudiation, warranty and illegality principles. Its purpose is deterrence: an insured must not be able to gain if the fraud succeeds yet lose nothing if it fails.

3. Where a claim is wholly or partly fraudulent, or a fraudulent device is used to promote a genuine claim, the insured cannot recover any part of that claim. The rule also applies where an initially honest claim is later fraudulently exaggerated or supported.

4. The rule forfeits the whole claim to which the fraud relates. It therefore removes the basis for interim indemnity payments already made on that claim, even if the payments preceded the fraud and related to genuine loss. Once the indemnity obligation is forfeited, those payments were made on a consideration which has wholly failed and are recoverable.

5. The rule does not reach prior, separate claims that were fully settled before any fraud occurred. Extending it to those claims would give it an avoidance-ab-initio effect which the court found neither justified nor necessary.

6. The late challenge to the fraud findings lacked a good explanation for the delay and would prejudice the orderly administration of justice. The proposed grounds also gave no real basis to disturb the judge’s findings.

• Court of Appeal (Civil Division): By [2005] EWCA Civ 112, dismissed the householders’ appeal, the insurer’s cross-appeal, and the late application to challenge the fraud findings.
• High Court, Queen’s Bench Division: HHJ Bowers, by judgment and order dated 7 May 2004, found fraud in two claims; allowed recovery of payments on those claims but refused recovery of payments on separate claims unaffected by fraud.