Insurance Contracts CP - Law Reform Commission

common law position relating to separate claims which are still unpaid at the time of the
fraud…‖ 35
8.18 In Agapitos v Agnew (No 1) 36 a warranty in a policy against port risks required a certificate from
the London Salvage Association prior to ―hot work‖ being carried out. After commencement of the
litigation of a claim for a loss caused by fire the assured disclosed statements of hot works occurring
before the fire. The insurers applied to amend its defence to plead that the insured had a postcontractual
duty of good faith and was in breach of it, so as to entitle them to avoid the policy. However,
the Court of Appeal held that the rule whereby fraud in attempting to enforce a claim operated to defeat
the claim was not part of a post-contractual duty of good faith derived from the Marine Insurance Act
1906, s 17; in any event, as in The Star Sea, once litigation had begun the matter was governed by
procedural rules of litigation.
D
Non payment of a fraudulent claim, not avoidance of the policy
8.19 It is now clear that the principle denying recovery on a claim made by a person who has
fraudulently exaggerated the loss, the claim itself being otherwise valid, is a special rule of insurance
law. 37 Efforts to extend this rule into personal injury claims 38 outside the insurance contract have been
rejected, whether the dishonesty seeks to benefit that individual 39 or a third party. 40 The fact that this rule
is specific to insurance and that it pre-dates the 1906 Act – Britton v Royal Insurance Co, is a fire
insurance case after all – suggests that there is much to be said for Mance LJ‘s view that the common
law principle governing fraudulent claims has a separate origin and existence to any principle that exists
under, or by analogy with, section 17 of the Marine Insurance Act 1906. 41 After noting that counsel for the
insurer was pressing for an interpretation of the forfeiture principle in relation to fraudulent claims that
would have had a similar effect to avoidance ab initio, Mance LJ decided that the effect of the forfeiture
rule does not to enable the insurer to recoup payments made earlier during the life of the policy when
those claims were valid and untainted by fraud.
8.20 To summarise, English case-law seems to be setting down around the proposition that the
forfeiture of fraudulent claims provisions can be based upon the express terms in the contract, but that
even if there are no such express terms, a fraudulent claim will be forfeit as a matter of common law. The
forfeiture operates on the claim and is not a facet of any common law duty of utmost good faith or section
17 of the Marine Insurance Act 1906.
8.21 However, it would be desirable to legislate to carify what the appropriate penalty should be in
the context of a fraudulent claim. Unlike pre contractual fraud, whereby the common law declared the
contract to avoid ab initio, there is no doubt that post contractual fraud disentitles the claimant from
recovering on it but that a valid contract subsists. The Law Commissions 42 cite the Scottish case of
Fargnoli v GA Bonus Plc 43 as clarifying this point. It would be helpful if a declaratory statement were
made in forthcoming legislation making it clear that the forfeiture of claims fraudulently made rested upon
public policy considerations rather than any common law or statutory (ie section 17 of the 1906 Act) duty
35
36
37
38
39
40
41
42
43
[2005] EWCA Civ 112 at para. 22
[2002] EWCA Civ 247.
The Star Sea [2001] UKHL 1, [2003] AC 469; Agopitos v Agnew [2002] EWCA Civ 247; Axa General
Insurance v Gotlieb [2005] EWCA Civ 112.
Molloy v Shell UK [2001] EWCA Civ 1271 per Laws LJ.
Churchill Car Insurance v Kelly [2006] EWHC 18 (QB).
Shah v Ul-Hag [2009] EWCA Civ 542.
Axa General Insurance Ltd v Gottlieb [2005] EWCA Civ 112.
Issues Paper 7, para 2.26.
[1997] CLC 653.
168