Fraudulent claims: dishonest exaggeration and supporting a third party’s fraudulent claim

Whilst claims in tort and contract cannot be dismissed in their entirety if an element of the claim is dishonestly exaggerated, an insurance claim can be.

The Court of Appeal recently refused to strike out genuine personal injury claims on the grounds that the claimants had colluded with another party to make a fictitious claim.

Mr Ul-Haq and his wife claimed against Mrs Shah following a road traffic accident. Mr Ul-Haq’s mother also made a claim, supported by Mr Ul-Haq and his wife. However, she was not in the car at the time of the accident. The court therefore considered whether it had the power to dismiss the two genuine claims on the ground that the claimants had been involved in a fraud on the court in respect of the associated claim.

The court stated that there were no reported cases in which a judge had dismissed an entire claim depriving a claimant of damages to which he was entitled because the claim was dishonestly exaggerated. Whilst a claimant’s credibility may be damaged due to the finding of dishonesty such that he cannot prove his loss, it is not for the court to express disapproval by dismissing the claim entirely (although it may make an order for costs to reflect the dishonesty).

The Court of Appeal noted that the law in relation to exaggerated claims under insurance policies is different. Insurance contracts are contracts of good faith. Therefore, if a genuine claim made under an insurance contract is dishonestly exaggerated, the whole claim will be dismissed. In coming to its finding in the present case, the court emphasised that the existence of this exception proves the absence of a similar rule in tort or contract claims.

While the court had some sympathy with the view that fraudulently exaggerated claims should be dismissed in their entirety, it stated that the law was well established on the point and any policy changes would be a matter for Parliament. In contrast to general claims in contract or tort, however, even the smallest dishonest exaggeration of a claim under an insurance policy will entitle insurers to refuse to pay the claim at all.

The case emphasises the unique status of an insurance contract, the reliance insurers are required to place on the good faith of the policy holder and, in turn, the way courts will approach a claim under an insurance policy that displays any hint of dishonesty on the part of the policy holder.

Further information: Shah v Ul-Haq and Others [2009] EWCA Civ 542