Can an insurer get punitive damages against fraudsters and fraudulent claimants? Until today the matter was doubtful. Although such damages had since Kuddus v Leicestershire Chief Constable [2002] 2 AC 122 been available on principle for all causes of action, they were still subject to Lord Devlin’s other limits in Rookes v Barnard [1964] AC 1129: statute aside, there had to be either public authority wrongdoing or an intent to make gains exceeding any compensation payable. The former was not relevant: as for the latter, even if the fraudster made a gain his liability was not less than but equal to, or — once other heads of damage such as investigation were thrown in — greater than, that gain.
Logical, but from today not correct, courtesy of some slightly tortuous reasoning from the Court of Appeal.
Axa Insurance UK Plc v Financial Claims Solutions Ltd & Ors [2018] EWCA Civ 1330 (15 June 2018) involved a couple of fraudulent fender-bender-cum-whiplash claims against Axa. Axa, to their credit, smelt a rat. They paid nothing and instead sued the lawyers responsible for making the claims in deceit. In this action they claimed their costs in investigating, and superadded a claim for punitive damages. Reversing the trial judge, the Court of Appeal said they could have the latter, and mulcted each defendant in the sum of £20,000. The requirement for calculation of gains exceeding liabilities was satisfied, it was said, because even if the fraudsters knew they were liable for the full amount of their ill-gotten gains they hoped never in fact to pay; this hope was sufficient to generate the element of hoped-for profit.
The result is welcome, even if the reasoning is a bit surprising. It is also highly significant, since it seems to mean that almost any fraudulent claim against an insurer is now capable of generating a punitive damages liability in the person bringing it if the court thinks fit to exercise its discretion in favour of an award. This presumably includes cases where the fraudster is the claimant himself; although fraudulent claims by policyholders are now dealt with by Part 4 of the Insurance Act 2015, it seems unlikely that this provision was intended to pre-empt the right of the underwriter to sue in tort for deceit if he so wished.
As to when such awards will be made, this is not yet clear. At a guess they are most likely where the whole, or a large proportion, of the claim is bogus: it seems doubtful whether simple exaggeration cases will attract them. But all we can do now is wait and see.
