Car Theft and the Insurance Car Theft and the Insurance Contracts Act 1984 (Cth)Contracts Act 1984 (Cth)

SJ TravesSJ Traves

Scenarios:Scenarios:

Where the insured claims wrongly that his or her Where the insured claims wrongly that his or her vehicle was stolenvehicle was stolen

Where the insured’s vehicle was stolen but the Where the insured’s vehicle was stolen but the insured has breached a clause in the insurance insured has breached a clause in the insurance policypolicy

Where the insured claims his or her vehicle was Where the insured claims his or her vehicle was stolen but makes an actionable non-disclosure stolen but makes an actionable non-disclosure or misrepresentation prior to entry into the or misrepresentation prior to entry into the insurance contractinsurance contract

Scenario #1Scenario #1

Where the insured claims wrongly Where the insured claims wrongly that his or her car was stolen.that his or her car was stolen.

Australian Institute of CriminologyAustralian Institute of Criminology

10% of all claims paid are received by 10% of all claims paid are received by policyholders who have fabricated or inflated a policyholders who have fabricated or inflated a claimclaimMajority of insurance fraud is committed by Majority of insurance fraud is committed by otherwise law abiding peopleotherwise law abiding peopleFraud adds $70 to the cost of every general Fraud adds $70 to the cost of every general insurance policy issued in Australiainsurance policy issued in Australia25% of people knew someone who had made a 25% of people knew someone who had made a false claim or “padded” a claim, 14% agreed that false claim or “padded” a claim, 14% agreed that “padding” a claim is acceptable and almost 50% “padding” a claim is acceptable and almost 50% said they would do nothing if they became aware said they would do nothing if they became aware of an instance of insurance fraudof an instance of insurance fraud

In order to prove fraud the insurer must show In order to prove fraud the insurer must show that the insured intended to deceive the that the insured intended to deceive the insurer.insurer.

The insurer must prove there was not merely The insurer must prove there was not merely an error, or carelessness, or mistake on the an error, or carelessness, or mistake on the part of the insured, but an intention to deceive part of the insured, but an intention to deceive it.it.

What is a “fraudulent claim?”What is a “fraudulent claim?”

Proving fraudProving fraud

Insurer bears the onusInsurer bears the onus

Standard of proof is the balance of Standard of proof is the balance of probabilitiesprobabilities

The court will require cogent evidence of The court will require cogent evidence of such conduct: such conduct: Neat Holdings Pty Ltd v Neat Holdings Pty Ltd v Karajan Holdings Pty LtdKarajan Holdings Pty Ltd (1992) 110 ALR (1992) 110 ALR 449.449.

s56(1):s56(1): Where a claim under a contract of Where a claim under a contract of

insurance, or a claim made under this insurance, or a claim made under this Act against an insurer by a person who Act against an insurer by a person who is not the insured under a contract of is not the insured under a contract of insurance, is made fraudulently, the insurance, is made fraudulently, the insurer insurer may not avoid the contract but may not avoid the contract but may refuse payment of the claimmay refuse payment of the claim..

Dishonesty may attach to all or only Dishonesty may attach to all or only part of a claimpart of a claim

Person claims vehicle Person claims vehicle stolen when in fact it stolen when in fact it was not then the was not then the whole claim is made whole claim is made fraudulentlyfraudulently

Person truthfully Person truthfully claims vehicle stolen claims vehicle stolen but wrongly claims but wrongly claims that it contained at the that it contained at the time a $5000 laptop time a $5000 laptop and $20 000 worth of and $20 000 worth of jewellery then only jewellery then only part of the claim is part of the claim is made fraudulently.made fraudulently.

56(2):56(2):The Court may, if only a The Court may, if only a minimal or minimal or insignificant part of the claiminsignificant part of the claim is made is made fraudulently and non-payment of the fraudulently and non-payment of the remainder of the claim would be harsh remainder of the claim would be harsh and unfair, order the insurer to pay, in and unfair, order the insurer to pay, in relation to claim, such amount (if any) relation to claim, such amount (if any) as is just and equitable in the as is just and equitable in the circumstance”.circumstance”.

56(3):56(3):

The Court shall have regard to the The Court shall have regard to the need to deter fraudulent conduct in need to deter fraudulent conduct in relation to insurance but may also relation to insurance but may also have regard to any other relevant have regard to any other relevant matter.matter.

Cases which satisfy s56(2) are Cases which satisfy s56(2) are relatively rare.relatively rare.

Entwells Pty Ltd v National & Entwells Pty Ltd v National & General Insurance Co Ltd General Insurance Co Ltd (1991) 6 (1991) 6 ANZ Insurance Cases 61-059.ANZ Insurance Cases 61-059.

Ricciardi v Suncorp Metway Insurance Ricciardi v Suncorp Metway Insurance LimitedLimited [2001] QCA 190 [2001] QCA 190

56(2) seems only to apply where there is a 56(2) seems only to apply where there is a distinct component of a claim which, although distinct component of a claim which, although fraudulent, was minimal.fraudulent, was minimal.

Chesterman J: “a fraudulent over statement Chesterman J: “a fraudulent over statement of value by $10,000 or more is not capable of of value by $10,000 or more is not capable of being regarded as minimal or insignificant”.being regarded as minimal or insignificant”.

Is there a distinction between a Is there a distinction between a fraudulent claim, and an otherwise fraudulent claim, and an otherwise valid claim which is supported by valid claim which is supported by evidence tainted by fraud?evidence tainted by fraud?

Compare Compare GRE Insurance Ltd v GRE Insurance Ltd v Ormsby Ormsby (1983) 29 SASR 498 and (1983) 29 SASR 498 and TTo v AAMI Ltd o v AAMI Ltd [2001] 3 VR 279.[2001] 3 VR 279.

GRE Insurance Ltd v OrmsbyGRE Insurance Ltd v Ormsby

Held: While it was Held: While it was true insured had true insured had provided a false provided a false statement this did not statement this did not entitle insurer to entitle insurer to refuse to pay the refuse to pay the claim because the claim because the claim itself was valid.claim itself was valid.

To v AAMI Ltd To v AAMI Ltd [2001] 3 VR 279.[2001] 3 VR 279.

Existence of an Existence of an underlying valid claim underlying valid claim did not render fraud did not render fraud irrelevant.irrelevant.

Fraud would disentitle Fraud would disentitle the insured from her the insured from her claim whether the claim whether the claim was in fact claim was in fact valid, or not.valid, or not.

Where more than one insured is insured Where more than one insured is insured under a policy and one of the insureds acts under a policy and one of the insureds acts fraudulently, but the other does not, may the fraudulently, but the other does not, may the innocent co-insured recover?innocent co-insured recover?

Look to the nature of the promise to insure: is Look to the nature of the promise to insure: is the promise made to the insureds jointly, or the promise made to the insureds jointly, or separately?separately?

Co-insuredsCo-insureds

Co-insuredsCo-insureds

Look to words of the policy first.Look to words of the policy first.In absence of provision to the contrary, where In absence of provision to the contrary, where two insureds insure separate interests in two insureds insure separate interests in property the contract will be held to insure them property the contract will be held to insure them separately and the interests of an innocent co-separately and the interests of an innocent co-insured will be unaffected by the fraud of the insured will be unaffected by the fraud of the other.other.In absence of a provision to the contrary, where In absence of a provision to the contrary, where property is jointly owned then the rights of an property is jointly owned then the rights of an innocent co-insured are affected by the fraud of innocent co-insured are affected by the fraud of the other.the other.

No fraud but does the loss come No fraud but does the loss come within the terms of the policy? within the terms of the policy?

Ocean Harvester Ocean Harvester Holdings Pty Ltd v Holdings Pty Ltd v MMI General MMI General Insurance LtdInsurance Ltd [2004] [2004] QCA 41QCA 41

Car theft and insurance claimsCar theft and insurance claims

First determine whether the insured has First determine whether the insured has established on the balance of probabilities that established on the balance of probabilities that the vehicle was stolen so as to come within the the vehicle was stolen so as to come within the terms of the policyterms of the policy

If your vehicle is stolen and not found we will pay If your vehicle is stolen and not found we will pay you the agreed value…you the agreed value…

““Stolen” has been held to mean “taken away Stolen” has been held to mean “taken away without the cooperation or connivance of the without the cooperation or connivance of the insured: insured: Simon v NRMASimon v NRMA

Car theft and insurance claimsCar theft and insurance claims

If this question is determined adversely to the insured, If this question is determined adversely to the insured, there would be judgment for the insurer.there would be judgment for the insurer.If the insured is successful in establishing, on the If the insured is successful in establishing, on the balance of probabilities, that the vehicle was stolen, then balance of probabilities, that the vehicle was stolen, then it is necessary to consider the insurer’s contention that it is necessary to consider the insurer’s contention that the theft of the vehicle was a fraudulent one.the theft of the vehicle was a fraudulent one.The insurer must prove that the insured was involved or The insurer must prove that the insured was involved or knew of the fraudulent event or activity: knew of the fraudulent event or activity: Purcell v SIO Purcell v SIO (1982) 2 ANZIC 60-495; (1982) 2 ANZIC 60-495; Hammoud Brothers Pty Ltd v Hammoud Brothers Pty Ltd v Insurance Australia Ltd Insurance Australia Ltd [2004] NSWCA 366; [2004] NSWCA 366; Rezo v Rezo v NRMA Insurance Ltd NRMA Insurance Ltd [2004] ACTSC 123; [2004] ACTSC 123; Simon v Simon v NRMA Insurance Ltd NRMA Insurance Ltd [1992] NSWCA.[1992] NSWCA.

Where the insured’s vehicle was Where the insured’s vehicle was stolen but the insured has stolen but the insured has breached a clause in the breached a clause in the insurance policy.insurance policy.

Scenario #2Scenario #2

What happens when an insured What happens when an insured breaches a term in the policy?breaches a term in the policy?

Section 54 of the Insurance Section 54 of the Insurance Contracts Act 1984 (Cth) Contracts Act 1984 (Cth)

The section applies whenever an insured The section applies whenever an insured does an act or omission during the policy does an act or omission during the policy period as a consequence of which the period as a consequence of which the insured would, but for s54, be entitled to insured would, but for s54, be entitled to refuse cover.refuse cover.

Insurer’s remedy under s54Insurer’s remedy under s54

Depends upon whether the act or Depends upon whether the act or omission by the insured could reasonably omission by the insured could reasonably have contributed to a loss under the have contributed to a loss under the policy.policy.

Could act or omission cause lossCould act or omission cause loss

If yes, insurer is entitled If yes, insurer is entitled to deny the claim subject to deny the claim subject to the insured proving to the insured proving that it didn’t in fact cause that it didn’t in fact cause the loss or was only partly the loss or was only partly responsible, in which responsible, in which case the insurer must pay case the insurer must pay the claim but can reduce the claim but can reduce it by an amount it by an amount representing the representing the prejudice suffered to it by prejudice suffered to it by the insured’s act or the insured’s act or omission.omission.

If no, the insurer must If no, the insurer must pay the claim but can pay the claim but can reduce it by an amount reduce it by an amount representing the representing the prejudice suffered to it by prejudice suffered to it by reason of the insured’s reason of the insured’s act or omission.act or omission.

Scenario #3Scenario #3

Where the insured claims his or her Where the insured claims his or her vehicle was stolen but makes an vehicle was stolen but makes an actionable non-disclosure or actionable non-disclosure or misrepresentation prior to entry into the misrepresentation prior to entry into the insurance contract.insurance contract.

Section 21 – duty of disclosureSection 21 – duty of disclosure

The insured's duty of disclosureThe insured's duty of disclosure                           (1)  Subject to this Act, an (1)  Subject to this Act, an insuredinsured has a duty to has a duty to

disclose to the insurer, before the relevant disclose to the insurer, before the relevant contract of insurance is entered into, every contract of insurance is entered into, every matter that is known to the matter that is known to the insuredinsured, being a , being a matter that: matter that:

                                          (a)  the (a)  the insuredinsured knows to be a matter knows to be a matter relevant to the decision of the insurer whether to relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or accept the risk and, if so, on what terms; or

                                          (b)  a reasonable person in the (b)  a reasonable person in the circumstances could be expected to know to be circumstances could be expected to know to be a matter so relevant. a matter so relevant.

Section 21ASection 21A

Motor vehicle insurance has been Motor vehicle insurance has been declared an “eligible contract” in the declared an “eligible contract” in the Insurance Contracts Regulations 2000Insurance Contracts Regulations 2000

A less onerous disclosure obligation A less onerous disclosure obligation applies to domestic insurance (as opposed applies to domestic insurance (as opposed to commercial insurance)to commercial insurance)

Insured required to answer the specific Insured required to answer the specific questions asked in the proposal.questions asked in the proposal.

Certain statements not Certain statements not misrepresentations – s26misrepresentations – s26

                      (1)  Where a statement that was made by a person in (1)  Where a statement that was made by a person in

connection with a proposed contract of insurance was in connection with a proposed contract of insurance was in fact untrue but was made on the basis of a fact untrue but was made on the basis of a beliefbelief that that the person held, being a belief that a reasonable person the person held, being a belief that a reasonable person in the circumstances would have held, the statement in the circumstances would have held, the statement shall not be taken to be a misrepresentation. shall not be taken to be a misrepresentation.

(2)  A statement that was made by a person in connection (2)  A statement that was made by a person in connection with a proposed contract of insurance shall not be taken with a proposed contract of insurance shall not be taken to be a misrepresentation unless the person who made to be a misrepresentation unless the person who made the statement knew, or a reasonable person in the the statement knew, or a reasonable person in the circumstances could be expected to have known, that circumstances could be expected to have known, that the statement would have been the statement would have been relevantrelevant to the decision to the decision of the insurer whether to accept the risk and, if so, on of the insurer whether to accept the risk and, if so, on what terms. what terms.

Remedy – s28Remedy – s28

(2)  If the failure was fraudulent or the (2)  If the failure was fraudulent or the misrepresentation was made fraudulently, the misrepresentation was made fraudulently, the insurer may insurer may avoidavoid the contract. the contract. (3)  If the insurer is not entitled to (3)  If the insurer is not entitled to avoidavoid the the contract or, being entitled to contract or, being entitled to avoidavoid the contract the contract (whether under subsection (2) or otherwise) has (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect not done so, the liability of the insurer in respect of a claim is reduced to the amount that would of a claim is reduced to the amount that would place the insurer in a position in which the place the insurer in a position in which the insurer would have been if the failure had not insurer would have been if the failure had not occurred or the misrepresentation had not been occurred or the misrepresentation had not been made. made.