Cirencester Friendly Society Ltd v Parkin

An award of the Financial Ombudsman Service obtained by fraud may be set aside and declared unenforceable. An insurer may avoid an insurance contract ab initio where the insured obtained it by fraudulent misrepresentation. The court may also grant consequential relief, including repayment of money paid under an award made as a result of the fraud. Fraudulent statements made in an application for membership or in claims for benefits may also justify expulsion from a mutual society under its rules.

The claimant was a mutual insurer providing income-protection insurance. The defendant made false answers in his membership application, including by failing to disclose panic attacks, medical consultations and habitual cannabis use. The claimant accepted the application and later paid him £19,096.84 following a Financial Ombudsman Service award.

The defendant subsequently obtained a further Ombudsman award relating to a later period of alleged incapacity. The claimant did not accept that award and brought proceedings after discovering evidence that the defendant had misrepresented his health, incapacity, circumstances and activities. His defence and counterclaim were struck out for failure to comply with disclosure and medical-examination obligations. The issues were whether the Ombudsman awards had been obtained by fraud, whether the insurance contract could be avoided from the outset, and whether repayment and related declarations should be ordered.

1. Relief concerning the Ombudsman awards. The evidence established that the defendant had made fraudulent representations about his medical condition, incapacity for work and failure to disclose prior cannabis use. The awards made by the Financial Ombudsman Service on 10 September 2010 and 25 July 2012 had therefore been obtained by fraud. Each award was set aside and declared unenforceable.
2. Avoidance of the insurance contract. The defendant’s answers in the membership application concealed material matters which would have caused the claimant to reject the application. The income-protection contract was accordingly obtained by fraudulent misrepresentation. The claimant was entitled to avoid it ab initio by its solicitors’ letter of 29 January 2013.
3. Further declarations. The defendant had made reckless and fraudulent statements or declarations to the claimant in connection with his application for membership and his claims for benefits from 29 August 2007 to 28 February 2013 and continuing. Those statements were in breach of the claimant’s rules. The claimant was entitled, alternatively, to avoid the contract ab initio or expel the defendant from membership.
4. Consequential order. The claimant was ordered to recover the £19,096.84 previously paid to the defendant under the fraudulently obtained award.

The judgment describes procedural steps in the action, including the striking out of the defendant’s defence and counterclaim following an unless order dated 23 May 2014. No appeal history or lower-court decision is stated.