Danepoint Ltd v Underwriting Insurance Ltd

Fraudulent insurance claims require proof, on the balance of probabilities, that the insured knowingly or recklessly advanced a false or exaggerated claim. Mere exaggeration is not necessarily fraudulent. The assessment depends on whether the exaggeration was wilful, material and substantial, and whether the relevant information was controlled by the insured or capable of independent verification by the insurer.

A breach of a settlement agreement concerning the conduct or valuation of reinstatement works does not, by itself, avoid the policy. Where one policy claim contains several heads of loss, fraud in one head may taint the entire claim and require repayment of an interim payment.

Following a fire at a property divided into flats, the insured’s claim under a commercial insurance policy comprised reinstatement and repair costs and lost rent. The insurer alleged fraud in relation to both heads and sought repayment of £25,000 paid on account.

The court considered whether changes to the contractor, allegedly inflated interim invoices, and the lost-rent claim amounted to fraudulent claims under the policy and at common law. The central issues were the materiality and substantiality of the alleged fraud, the significance of independent scrutiny by the insurer’s loss adjuster, and whether fraud in one head of loss forfeited the whole policy claim.

1. Applicable principles. The insurer bore the burden of proving fraud. The civil standard remained the balance of probabilities, with the inherent improbability of serious allegations taken into account. A fraudulent claim included knowingly claiming no loss or a lesser loss, or acting recklessly as to that fact. A fraudulent device involved a lie intended to improve the insured’s prospects of settlement or success. The fraud had to be material and substantial.
2. Reinstatement and repair. The agreement that Titchfield Construction would carry out the works was separate from the insurer’s underlying liability for the reasonable cost of reinstatement. Breach of that agreement did not itself make the policy voidable for fraud. The insured had not falsely represented that Gulf Falcon was carrying out the works as Titchfield Construction. The inflated interim invoices were troubling, but the loss adjuster was entitled to inspect the works before authorising further payment. The alleged fraud was therefore not material, and the claim under this head was not fraudulent.
3. Lost rent. The claim was based on the false premise that all tenants had stopped paying rent immediately after the fire. Occupancy evidence, rent records and the condition of the flats showed that many tenants remained in occupation or continued paying rent. The claim was deliberately and substantially exaggerated. At minimum, the insured was reckless as to its accuracy. Unlike the repair claim, the rent claim depended on documents controlled by the insured and could not be independently assessed by the loss adjuster.
4. Effect of fraud. The lost-rent fraud tainted the entire claim because there was one claim under the policy arising from one fire, despite the division into two heads of loss. The whole claim was forfeited and the £25,000 interim payment had to be repaid. A declaration was granted accordingly.