Was it fraud or frustration with an insured that saw an insurer seek to avoid a claim on perhaps spurious grounds?

That was the dilemma facing three insurance law experts who dissected a hypothetical case study at the NZILA conference, proffering explanations in accordance with the legal regimes of their jurisdictions.

In the hypothetical case study, “Phil” was insured with “Nero”, whose travel policy required proof of purchase for a claim, unless the insurer in its absolute discretion decided otherwise.

Phil lost his camera, but had no receipt, so Nero rejected the claim a day later. Phil persuaded his then-friend “Brian” to create a backdated receipt for the camera’s sale, which he presented to Nero. When the friends fell out a few days later, Brian alerted Nero to the forged receipt. Phil’s claim was then rejected on the additional ground of fraud.

Professor Rob Merkin said the UK test was “sort of” based on the doctrine of good faith.  While Phil had a genuine loss, he tried to prove it by “making things up”. Prof Merkin cited a UK case in which a London bakery’s equipment was damaged by fire. However, the owners had no proof of ownership.

The owners had sent a false invoice for equipment to a finance company to obtain a loan and used the document after the fire to support their claim.

 Prof Merkin said the court found the fraud defeated the entire claim, and the bakers lost.

Had the hypothetical occurred in the UK, Prof Merkin’s view was the insured would have “gone home empty handed”.

Sydney-based Clayton Utz partner Peter Mann said s56 of Australia’s Insurance Contracts Act said the insurer could not avoid the claim but may refuse payment. If the fraud was minimal or insignificant, the insurer could be ordered to pay a sum that was “just and equitable”.

It was possible s14 would apply to Nero’s discretion, so the claim would be paid, regardless of the subsequent fraud. But that was complicated by 2013 changes to the Act, which gave ASIC control over utmost good faith, which enlivened ASIC’s Corporations Act powers. ASIC could “punch the insurer’s ticket” for repeated unfair treatment.

“Nero would want to be very cautious in the new Australian context,” Mr Mann said. The claim would likely be payable.

Dr Duncan Webb, chair of the performance review committee at NZ’s Legal Services Agency and convenor of the NZ Law Society’s ethics committee, said he felt sorry for Phil. “Fraud at the front end of the policy goes to the terms of the contract, therefore it makes sense to [be able to] avoid the policy.” But fraud at claim time was “conceptually different”.

“Case law runs against Phil, but there is a little ray of sunshine.” NZ law had a concept of “moral wrongness”, which needed more than just dishonesty, ie, not just that something was “knowingly false”, but that there was intention to gain a benefit. But Phil had no “evil intent”.

Dr Webb said the policy’s clause was “a really stupid, unnecessary obstacle”. Phil was entitled under the policy to be paid.

“In NZ, you must show no reasonable insurer would hold that view. What other evidence of ownership was sought? Did the claims manager ask for any? You need to balance the interests of the insurer and the insured.”

Mr Mann said had there been a dispute over the claim in Australia, because travel was a consumer policy, the Financial Ombudsman Service would have heard it and made a judgement according to fairness, not black letter law.

Prof Merkin said a UK ombudsman would have come to a similar conclusion: “Pay up and shut up.”

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