Aviva Insurance Ltd v Brown

In an insurance claim, fraud requires more than carelessness or gross negligence. The insurer must prove a false representation or fraudulent device, together with dishonesty assessed by the combined objective and subjective test. Recklessness means indifference to truth, not merely a failure to take care.

A fraudulent claim or material fraudulent device may forfeit the insured’s claim and permit recovery of sums already paid. The court must assess materiality in context. A lie may be immaterial when considered alone, but a substantial and material fraudulent presentation attracts the full contractual or common-law consequences.

Aviva sought repayment of sums paid under a subsidence policy and an order relieving it from further liability. It alleged that Roger Brown had fraudulently presented claims for alternative accommodation, including accommodation at properties in which he owned or controlled an interest.

Brown denied fraud and counterclaimed for unpaid repair and accommodation costs. The central issue was whether his conduct in presenting the alternative-accommodation claim was fraudulent, and, if so, what consequences followed for the wider insurance claim.

1. Fraud and proof. Aviva bore the burden of proving relevant fraud. The applicable standard was the balance of probabilities, but the seriousness and inherent improbability of fraud required cogent evidence. Fraud required dishonesty, not merely carelessness or incompetence.
2. Applicable test. The court applied the combined test from Twinsectra Ltd v Yardley [2002] 2 AC 164: the conduct must be dishonest by ordinary standards and the defendant must have realised that it was dishonest by those standards. Recklessness in the Derry v Peek (1889) 14 A.C. 337 sense involved absence of honest belief and therefore satisfied the subjective limb. Motive was irrelevant.
3. Materiality and context. Whether conduct was fraudulent depended on the particular facts. A fraudulent device had to be more than immaterial or insignificant. The court adopted the cautious approach in Agapitos v Agnew [2003] QB 556, under which a device ordinarily had to be objectively capable of improving the insured’s prospects in a significant way.
4. Findings. Brown fraudulently represented that No. 38 was available to rent in the context conveyed, namely as accommodation supplied by another owner. That conduct was substantial and material. His separate lie that he was being chased by the landlord was dishonest but, taken alone, immaterial. Brown did not act fraudulently in relation to No. 15: Northway was a separate legal entity, and the evidence supported an honest belief that the proposed letting was an arm’s-length transaction at market rent.
5. Consequences. Under the principles stated in The Star Sea [2003] 1 AC 469, the fraudulent claim was forfeited. Aviva could recover the £58,500 paid for alternative accommodation and, because the repair and accommodation claims formed part of the same claim arising from the subsidence, the £176,951.68 paid for repairs as well. Brown’s counterclaims failed. The parties were asked to agree a draft order, subject to the separate skylight item.

First-instance judgment. No prior appellate decision is stated in the judgment.