Key Point
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“Insured’s answers, where suspected of being false, need to be considered in the context of all the evidence, and not in isolation.”
Insurers are sometimes encouraged to refuse claims when an insured gives false answers to an investigator. Great care needs to be taken to look at the answers in the context of all the evidence. Proving that the answers are false is not sufficient. It has to be proved that the answers are knowingly false and made to induce payment. This is not an easy burden. The insurer need to ask itself, among other things: are the answers in fact false; is there an interpretation to the answers which may favour the insured; even if the answer is false, could the insured be given the benefit of the doubt by finding that the insured was merely mistaken; has the insured otherwise acted in a fashion more consistent with honesty (e.g. as in the following case, giving the insurer, by means of authorities etc, access to the accurate information despite the insured’s answer being wrong).
In Rolleston v Insurance Australia Ltd [2016] NSWSC 1561 McDougall J of the NSW Supreme Court found in favour of a home owner whose insurance claim had been rejected. The claim had been refused mainly on the bases first, that the house, whilst under construction, had been deliberately destroyed by a fire lit by or with the connivance of the insured and secondly, that the claim was fraudulent because the insured had made knowingly false representations in connection with, and to induce payment of, the claim. The insurer’s case was circumstantial; the insured was at the Opera House at the time of the fire.
With respect to the issue of arson, despite some contradictory evidence as to the number of seats of fire and the means of access to the house, McDougall J was prepared to find that the fire had been deliberately lit. However, he did not find that the fire was lit by or with the connivance of the insured. Importantly, the judge:
- even though the insured had some financial difficulties, found that the insured did not have a financial motive to light the fire; rather it was in the insured’s interests to have the construction complete and the property sold;
- found that there were others who had access to keys to the house and knowledge of the alarm code who could have set the fire but whose movements were not accounted for in the evidence.
With respect to the issue of fraud arising from the insured’s knowingly false representations during the course of the investigations, the insurer relied mainly on allegedly false and inconsistent statements made by the insured during the course of very extensive interviews. The statements related to a number of topics including where the insured lived, where his personal possessions were kept, the existence and extent of his liabilities including credit card debt. McDougall J examined each of the statements but found that each were either true or that the insured may have been mistaken and that it could not be concluded that the insured had knowingly given false answers.
Despite thorough and expensive investigations and engagement of experts, there was insufficient evidence to link the insured to the deliberately lit fire.
Interestingly, the insured did not give evidence and was therefore not cross examined. The judge did not hold this against the insured because of the extensive interviews he had been subject to. In any event the insurer bore the burden of proving the defence of fraud.
Post by Paul Hendriks