Update | RTA: Retrospective fraud claims

Like the mythological Hydra, motor insurance fraud has many ugly faces. The plain, vanilla form of fraud is simple, dishonest exaggeration of disability in order to recover greater compensation. A more sophisticated fraud is the staged accident or 'crash for cash' where two fully loaded vehicles are involved in a pre-arranged collision. The 'slam-on' accident is where a vehicle travelling in front of an innocent motorist will suddenly apply the brakes causing the innocent vehicle to run into the back of the vehicle in front. On many such occasions the brake lights of the vehicle in front will have been deactivated. In other cases 'phantom passengers' claim to have been an occupant in a crashed vehicle when in fact they were not. Personal injury claims are sometimes brought arising out of legitimate accidents but where the transfer of forces involved in the collision is insufficient to cause injury to the occupants of the vehicles in low velocity collisions as often occur in car parks.

Such fraud undermines the civil justice system. It makes insurers and their advisors cynical, leading to undue investigation of genuine cases. It costs the insurance sector and their premium payers substantial amounts of money. It makes trials take longer than they otherwise would leading to concomitant delay in the administration of other cases.

Evidence of fraud may become apparent at all stages of the litigation process. It may be from the outset, for example where a recently hired vehicle is involved in an accident with another and both vehicles are fully occupied generating several potential claims. On further investigation it may be possible to establish links between the occupants of the two vehicles by Facebook searches or by the involvement of the same claims company. It may be that a series of similar accidents have taken place in the same geographical area and that some participants are common to more than one accident. Practitioners should be mindful of the guidance issued in Locke v Stuart [2011] EWCA Civ. 339 (QB); the court should not be faced with volumes of pages from Facebook but instead should summarise such evidence setting out the links that can properly be drawn and the weakness of any links. The parties should attempt to agree such evidence.

Where insurers suspect fraud they must be careful to exercise judgment before making allegations of fraud. It is all too easy to judge cases through jaundiced eyes and to convince oneself that fraud is at play when the evidence only properly gives rise to suspicion. In Hussain v Amin [2012] EWCA Civ. 1456 the Court of Appeal commented that it was not appropriate to plead fraud by insinuation. A defence should not be filed pleading circumstances said merely to give rise to concern about the legitimacy of the claim. If fraud is to be alleged it should be alleged in a clear and unambiguous way and proper particulars of fraud should be set out in the defence.

Close call

In Singh v Habib [2011] EWCA Civ 599 the first defendant was driving a short-term hire vehicle in which there were three passengers. The vehicle allegedly collided with another vehicle the identity of which was never established. The three passengers brought claims against the first defendant, who was uncooperative with his own motor insurers, who in turn joined the action as second defendant in order to protect their interests. The trial judge was clearly concerned about the accident and found two of the claimants to be unconvincing witnesses but the third claimant carried the day with her evidence and accordingly damages were awarded to each of the three claimants. After the trial the first defendant provided a statement to an investigator stating that the accident had never happened and that he had been promised £500 from each of the claimants. Ultimately the matter came before the Court of Appeal where the issue was whether the insurers should be permitted to adduce fresh evidence on appeal, namely the evidence of the investigator. Noting that there is a strong public interest in admitting fresh evidence of fraud in road accident cases, a fresh trial of the case was ordered. It was observed that the original trial had been close-run and that the claimants had apparently succeeded by a narrow margin and so the additional evidence could well have produced a different outcome at trial. In all, the Court of Appeal identified a series of additional factors in this case which gave rise to suspicion so as to support the argument that the fresh evidence should ?be heard.

If evidence of fraud only comes to light after the conclusion of litigation the question arises as to whether a subsequent action would be barred by the doctrine of res judicata or issue estoppel. This was considered in Zurich v Hayward [2012] EWCA Civ 1456. In the original action Hayward had suffered injuries due to his employer's negligence. The employer's liability insurers were suspicious from an early stage and arranged for surveillance video evidence to be obtained. The defence specifically pleaded that the claim was exaggerated. An offer of settlement in the sum of £135,000 was accepted some time after the disclosure of the surveillance evidence. The settlement was incorporated into a Tomlin order by consent between the parties. After the first litigation had thus concluded, Mr Hayward's neighbours provided information that he had made a recovery a year sooner than he had claimed and that although he had used two sticks to aid walking when he had been outside his house in fact he had good mobility and was perfectly capable of walking.

The insurers, Zurich, commenced a fresh action against Hayward alleging that he had made false representations in his witness statements as to his disability and that he had made false representations to the medical experts. An application was brought by Hayward to strike out Zurich's claim on the grounds that the matter had been compromised in the Tomlin order and that the allegation of fraud was res judicata and could not be re-litigated. The Court of Appeal observed that any judgment by way of judicial decision or by consent can be set aside if it can be shown that it was arrived at by fraud, except where the original action had been defended on grounds of the same fraud so that the issues surrounding that fraud could be said to have been determined in the original litigation.

To create an estoppel there must have been a specifically identifiable allegation of fraud in the original action and then an attempt in subsequent litigation to repeat the same allegation. The court rejected an argument that by raising exaggeration in the defence the original defendant had raised an issue of fraud which had then been compromised. By agreeing to a Tomlin order all the parties to the litigation had done was to compromise the value of the claim. There was a balance to be struck between the public interest in the finality of litigation, which underpins the doctrine of res judicata, and the public interest in the protection of justice from the effects of fraud. Smith LJ noted that in modern litigation witness statements must be concluded by a statement of truth. It is essential that parties can expect to rely on witness statements as truthful in order to make a proper assessment of the strength of the other party's case and to assess the value of a claim. It was important that although the original defendant had pleaded exaggeration in the original defence this should not bar a subsequent allegation of fraud made upon a proper basis, for to do so would provide a disincentive to plead fully pleaded defences.

Flawed assumption

Judicial enthusiasm to counter road traffic fraud only goes so far; it is essential in cases where such a serious allegation is made that there are compelling and clearly set out grounds to make a finding of fraud. In Hussain v Hussain [2012] EWCA Civ. 1367 a man of good character, who had held a driving licence for 12 years, was involved in a collision on a roundabout when the first defendant drove out into his path. Both of the vehicles involved in the accident were old and of modest value. The first defendant's vehicle contained a number of passengers and it was being driven on a motor insurance policy which had been taken out only two days previously. The motor insurers were rightly concerned and joined the action as the second defendant. The trial judge found that the first defendant had been involved in a crash for cash enterprise at the time of the accident and the question was whether the claimant too had been involved in the enterprise.

The trial judge reasoned that a powerful inference could be drawn by 'following the money'; it only made financial sense for the claimant to be involved in the conspiracy. Why would the first defendant choose to crash into the claimant's car unless the claimant was in on the scam? There were some inconsistencies in the claimant's account as to the progress of his injuries when compared with his medical notes and the judge drew on those in forming his conclusion that the claimant had been involved in a deliberate staging of an accident. The trial judge recorded no specific observations as to the demeanour and manner of the claimant in the witness box and he seemed to gloss over supportive evidence called on behalf of the claimant from members of his family who had been passengers in his car but who had not brought any claims for compensation.

The Court of Appeal allowed the claimant's appeal. It was not permissible to reason as the judge had. The 'follow the money' argument did not give rise to a powerful inference that the claimant had been involved in the fraudulent enterprise. Starting with this erroneous analysis may have caused the judge not to appraise other evidence appropriately. The inconsistencies in the medical account went to the issue of the claimant's reliability not his credibility. These matters were of sufficient gravity to overturn the trial judge's finding notwithstanding his advantage of having experienced the evidence at first hand.

If insurers become aware of compelling evidence of fraud then action can be taken at several points in the litigation process: during the original claim, by way of application to adduce additional evidence at an appeal and by way of a separate action from fraud.
Although allegations of fraud should only be made where there is strong evidence, given that imprisonment for contempt of court is a potential sanction, in the right case it can be a powerful weapon with which to smite the ugly Hydra.