WHAT IS FRAUD IN THE CONTEXT OF
A claim will be fraudulent or based on fraud:-
If it is false and the persons making the claim intend to deceive the
insurer, by getting out of it money or some benefit to which they have
If the person making the claim is reckless as to its truth, or if the
person making it is careless whether it be true or false - See
Sampson v Goldstar Insurance Ltd  2 NZLR 742.
WHAT IS FRAUD?
A fraudulent claim requires:-
A representation, in the sense that, when reading its full context, what
was said would give a false impression to the reasonable insurer;
The misrepresentation must have been given in support of, and appear
to have been relevant to, the claim on a policy;
The misrepresentation must have been deliberate in the sense the
insured knew that it was incorrect or was deliberately reckless as to its
truth or falsity;
The misrepresentation‟s impact and falsity must have been of real
significance when considering the causes, nature, extent or
investigation of the loss.
The Fraud Must Be
Material to the decision to pay
Section 267 of the Crimes Act 1961 defines arson as:-
(1) Every one commits arson and is liable to imprisonment for a term not
exceeding 14 years who –
(a) intentionally or recklessly damages by fire or by means of any
explosive any property if he or she knows or ought to know that
danger to life is likely to ensure; or
(b) intentionally or recklessly, and without claim of right, damages by
fire or by means of any explosive any immovable property, or any
vehicle, ship, or aircraft, in which that person has no interest; or
(c) intentionally damages by fire or by means of any explosive any
immovable property, or any vehicle, ship or aircraft, with intent to
obtain any benefit, or to cause loss to any other person.
Practical things investigators need to consider:
Ascertain all physical evidence for the cause of the fire;
Enquiries to exclude the possibility of the fire having an accidental or
Critical analysis of combustible material with a source of ignition;
Important to prepare thoroughly to establish deliberate action or
Site plans, photographs, samples, written records of witness
Sort out what is factual and what is opinion;
Try to remember that evidence based on sound scientific principles is
Interview with policyholders should be as comprehensive as possible;
Written authorities obtained from policyholder.
Must prove the insured:-
Knew the statement was incorrect; or
Was deliberately reckless as to the statement‟s truth or falsity.
Guardian Royal Exchange Ltd v Ormsby
(1982) 2 ANZ Insurance Cases 60-472
Claim supported by photographs of the damaged property
showing damage, which was inflicted after the insured event
The Court found that a statement of this kind may make the
claim false, but it is not material fraud because the insurer would
have paid the same amount anyway.
“any lie, directly related to the claim to which it relates, which is
intended to improve the insured‟s prospects of obtaining a
settlement or winning the case, and which would, if believed, tend,
objectively, prior to any final determination at trial of the parties
rights, to yield a not insignificant improvement in the insured‟s
prospects, whether they be prospects of obtaining a settlement, or
better settlement, or of winning at trial”. See Agapitos v Agnew
 EWCA CIV 247  Lloyd‟s Rep 1R 42.
“the over-estimate, although not deliberately put forward with the
directly fraudulent intent of inducing the insurers to pay the full
amount claimed, is designedly made for the purpose of fixing a
basis upon which to negotiate with insurers”.
Standard of Proof
When proving fraud in the civil context it is thought that the
standard of proof is:-
Higher than the normal „balance of probabilities‟.
New Zealand authorities indicate a high standard – Gate – “differs
little from proof beyond reasonable doubt”.
The insurer has the burden of proof in alleging fraud.
Legal Consequences of Fraud
A policy is able to be avoided from inception for misstatements
made but only if they are:-
Substantially incorrect (a prudent insurer would have considered
the difference between what is stated and what is actually correct to
Material – the statement would have influenced the prudent
insurer‟s judgment in fixing the premium or in determining whether
to take or continue the risk on substantially the same terms.
Re Life Insurance, can be avoided if:-
Made within 3 years of the date on which the policy was
sought to be avoided, or the date of death of the life insured,
whichever is earlier.
The Consequences of making a fraudulent claim are:-
The insurer may avoid the contract of insurance and the insured will
forfeit all benefit under the contract.
Cancellation - may be available at common law and/or
Avoidance/cancellation are available even where a claim may have
been initially honest or if insured finds out statement that was
initially true turns out to be false and does not notify insurer of this.
In addition to avoidance/cancellation an insurer can:-
Refuse to pay the claim;
Seek to recover under the policy for moneys paid out pursuant to
the fraud, including:-
Repayment of previous benefits;
Interest on the amounts paid from the date they were paid.
There are three important aspects to privilege:-
Confidentiality – the nature of the communication must be that it was
made in confidence by one person to the other;
Dominant Purpose – the dominant purpose of the communication must
be for the purpose of giving or receiving legal advice;
Communication – the privilege only attaches to communications.
Leading case in New Zealand is Mudgway v The New Zealand
Insurance Co Ltd (1988) 5 ANZ Ins Cases 60-827
Litigation privilege extended in Australia by two cases:-
Century Drilling Ltd & Anor v Gerling Australia Insurance
Company Pty Ltd (2004) 13 ANZ Insurance Cases 61-608 and
Pratt Holdings Pty Ltd & Anor v Commissioner of Taxation
 FCAFC 122.
In practical terms in order to protect investigators‟ reports with
privilege an insurer should:-
Appoint a solicitor at the earliest opportunity;
Ensure that the reports are addressed to the solicitor and copied to
the insurer and marked „private and confidential‟;
Ensure the reports state that the investigator is acting on behalf of
the insurer for the purposes of liaising with and providing
information to the solicitor;
The reports should refer to a request by the solicitor to obtain and
provide information so the solicitor can advise the insurer.
Privacy Act 1993
Applies to „agencies‟ which is defined as „any person or body of
persons whether corporated or unincorporated‟
Personal information must not be collected unless done for a lawful
Personal information must be collected from the individual to whom
the information relates.
The agency must take reasonable steps to ensure the individual is
aware of the fact of collection of information, the purpose, intended
recipients, the right of correction.
Privacy Act 1993 continued
Personal information cannot be collected by means that are unfair
or intrude to an unreasonable extent on the privacy of the
Personal information must be reasonably secured.
The individual is entitled to seek confirmation from the agency that
the information is held and to have access to it.
The individual is entitled to seek correction of information.
Before use, personal information must be checked to ensure it is
accurate and not misleading.
Privacy Act 1993 continued
Personal information may not be retained for longer than is required
for the purposes for which it may lawfully be used.
Personal information obtained for one purpose must not be used for
any other purpose, subject to exceptions.
An agency who holds information may disclose the information to a
person or body or agency only in certain circumstances.
An agency may not assign a unique identifier to an individual
unless it is necessary to do so to carry out the agency‟s function