In brief - What should insurers and solicitors consider when pursuing a fraudulent claim?
In
Ebraham v AAI Limited t/as GIO Insurance [2018] VCC 18, the Victorian County Court emphasised the stringent proof required under the test in
Briginshaw v Briginshaw [1938] HCA 34 necessary to establish a fraudulent claim within the meaning of
section 56 of the
Insurance Contracts Act 1984 (Cth) (ICA). Although the insurer was ultimately successful because the Court found that the insured failed to reasonably substantiate his claim, the case provides some reminders for insurers and solicitors as to the high threshold of proof required to make out fraud claims and the perils of pleading a fraud case which relies primarily upon the insured's inability to prove its own claim.
In Ebraham v AAI Limited—and although the Court had significant reservations about the credibility of the insured—in the absence of "clear and cogent evidence" of fraud the Court was not satisfied on the Briginshaw standard that GIO had established that the insured knowingly made false statements to GIO in order to induce a payment under the policy. On this basis, the Court determined that GIO was not entitled to rely on section 56 of the ICA to deny indemnity to the insured.
However, the Court ultimately found in favour of GIO in determining that it was entitled to deny indemnity to the insured on the basis that the insured had failed to reasonably substantiate his claim.
Insured claims on GIO house and contents insurance policy after alleging gold jewellery stolen during burglary
In August 2014, Ebraham arranged a house and contents insurance policy with GIO. In the specified contents section of the insurance proposal form, he listed $136,988 worth of jewellery which his father had allegedly provided to him in Beirut, Lebanon on 27 November 2013 together with a receipt (in Arabic from Samir Jewellery Products, Lebanon). The jewellery apparently represented his share of his father's business and was said to have been subsequently valued by Baghdad Jewellery in Sydney Road, Brunswick to be worth $186,629. No receipt was ever provided for this valuation. Ebraham also said that when he phoned the GIO sales representative to arrange insurance cover, he told them that the relevant jewellery included six snake bracelets that he wanted to insure and was told that as each bracelet was worth less than $10,000, they did not need to be stipulated in the proposal, but would still be insured.
On 31 December 2014, Ebraham was holidaying in Ballarat with his family. He and his family returned home on 1 January 2015 after receiving an SMS alert from their home security system and discovered that their house had been burgled. Ebraham submitted a claim through his insurer, GIO, pursuant to a house and contents insurance policy, for $186,629 in respect of gold jewellery which he alleged was stolen in the burglary. There were no signs of forced entry at the house and the home security system had been disabled without any signs of damage to the cover plate, although some roof tiles had been removed.
GIO denies claim on basis that insured's claim was fraudulent
The terms of the Policy required, in effect, Ebraham to prove his ownership of the jewellery before a claim would be paid.
GIO declined the claim on the basis that it was made fraudulently. GIO said that it considered that Ebraham had provided false and misleading statements regarding the circumstances of his claim. Accordingly, GIO gave notice of cancellation of the Policy and refused to refund any premium.
The evidence which GIO pointed to as supporting its view that the claim was fraudulent can be summarised as follows:
- Investigators employed by GIO were unable to locate any jeweller by the name of Samir Products and the telephone number contained on the Samir Products receipt had never been assigned to anyone.
- The Syrian government requires receipts to include the total price in words as well as numerals. The Samir receipt refers to numerals only and therefore did not comply with the mandatory obligations imposed by the Syrian government.
- The Samir receipt incorporated details of an association known as “The General Union for Artisans Association in the Syrian Arab Republic/Union of Artisans Association in Aleppo Governorate/Association of Goldsmiths Artisans in the Aleppo Governorate”. Evidence from investigators retained by GIO disclosed that no such organisation exists either in trade directories in Syria or via internet searches.
- The Samir receipt was issued in the name of Ebraham despite the fact that his father purchased the jewellery. Ebraham claimed that his father had put Ebraham’s name on the receipt because the jewellery was for him.
- Ebraham does not have any photos of the gold jewellery said to have been stolen. Further, Ebraham said he had not declared any of the claimed items when he returned to Australia with the gold jewellery.
- Ebraham had made two previous insurance claims for stolen jewellery, the first in 2009 for $33,155 (which was paid by AAMI), and the second in March 2013 for $333,100 (AAMI paid $318,000 of that claim). Neither of these claims were disclosed to GIO.
- It did not appear that a burglary had occurred at all.
- Baghdad Jewellery was not a qualified valuer and its valuation report was suspicious.
GIO also said that the Samir receipt did not meet the minimum standards of proof of purchase contained in the Policy.
Insurer and insured's entitlements under Insurance Contracts Act examined by the Court
The issues in the proceeding were as follows:
1. Was GIO entitled to deny the claim on the basis that Ebraham had failed to provide:
(a) strict proof that the burglary occurred
(b) reasonable proof of ownership of the jewellery said to have been stolen
(c) a valuation by a qualified jeweller or valuer, and
(d) honest and complete information for any claim, statement or documents supplied to GIO?
2. Was GIO entitled to rely upon sections 13 and 56 of the ICA* to refuse indemnity?
3. Was Ebraham entitled to rely upon sections 31 and 54 of the ICA** in answer to GIO's denial of indemnity?
4. Was GIO entitled to cancel the contract of insurance by reason of section 60 of the ICA (which sets out the circumstances in which an insurer may cancel a contract of insurance)?
*
Section 13 requires each party to a contract of insurance to act towards each other party in respect of any matter arising under or in relation to it with the utmost good faith. Section 56 provides that where an insured makes a fraudulent claim, the insurer may not avoid the contract but may refuse payment of the claim.
**
Section 31 provides, in effect, that where a policy is avoided on the grounds of fraudulent failure to comply with the duty of disclosure and fraudulent misrepresentation, the Court may disregard the avoidance if it would be harsh and unfair not to do so. If the Court exercises that power, it shall allow the Insured to recover the whole or part of the amount that would have been payable had the contract not been avoided as the Court considers just and equitable in the circumstances.
Section 54 provides, in effect, that an insurer may only refuse to pay a claim due to some act of the insured after the contract was entered into where it can demonstrate the extent of the prejudice caused to its interests by that act.
GIO fails to prove that insured knowingly made false statements about burglary, ownership and valuation of jewellery
The County Court of Victoria found that:
- The plaintiff was an unimpressive witness who was argumentative and had convenient lapses in memory when it suited him, and that parts of his evidence stretched credulity. Similar findings were made in relation to Ebraham's brother and wife.
- The jeweller of Baghdad Jewellery had no recollection of Ebraham and had no formal qualifications as a jeweller or valuer.
- Mr Graham Thomas, Group Business Development Manager from Rime Information Bureau Ltd who is experienced in conducting international investigations, gave evidence that he could not locate any evidence which identified the existence of Samir Jewellery Products.
- Ebraham was not entitled to tender in evidence an "affidavit" of his father deposing as to the origin of the alleged jewellery. Whilst Ebraham said that he had lost contact with his father, who had travelled to Damascus at the time of the Syrian civil war, the Court found that Ebraham had not established that his father was not available to give evidence, and was particularly concerned by the fact that Ebraham said that his father could not be located, and yet was somehow able to produce an affidavit from his father which was purportedly sworn in Syria.
- GIO had proved that Ebraham had not established his ownership of the alleged jewellery. Specifically, the Court referred to the absence of any record of Samir Jewellery Products and the fact that its alleged receipt was missing a great deal of information required to be contained in that document. Further, the absence of a declaration to Customs or anyone else was evidence weighing against Ebraham in this regard.
- Further, Ebraham failed to establish the value of the jewellery. The Court found that Baghdad Jewellery was not a reliable or qualified valuer.
Despite all of those findings, the Court held that GIO was not entitled to refuse to pay the claim pursuant to section 56 as that section required proof that Ebraham knowingly made false statements to GIO in order to induce a payment under the Policy. In order to establish this, the Court considered it necessary for GIO to establish that Ebraham had knowingly made a false statement in respect of either:
- the burglary
- ownership of the jewellery and reliance upon the Samir receipt, or
- the valuation from Baghdad Jewellery
The Court noted its reservations as to Ebraham's veracity, but said that as there were at least some signs of a burglary and break-in, GIO had not proved that Ebraham made a false statement about the burglary occurring.
Further, with respect to ownership of the jewellery, the Court held that notwithstanding the above findings concerning Samir Jewellery Products, it did not mean that it did not exist, and there was no evidence that Ebraham fabricated the receipt or caused someone else to create a false receipt.
Finally, the Court was also not prepared to find that Baghdad Jewellery and Ebraham behaved fraudulently and gave false evidence. Simply put, there was no evidence that Baghdad Jewellery was involved in a fraud.
As a result, the Court held that GIO had not satisfied the stringent requirements of the principles set out in
Briginshaw v Briginshaw, as codified in the Uniform Evidence Acts (such as
section 140(2) of the
Evidence Act 2008 (Vic)), and which include that:
The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding, are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal; and
It is often said that such an issue as fraud must be proved "clearly," "unequivocally," "strictly," or "with certainty" ((1938) 60 CLR 336, 362)
Insured failed to comply with Policy condition which required proof of ownership and valuation of jewellery
Ebraham argued that the effect of
section 54 of the ICA was to prevent GIO from denying his claim as his failure to comply with the ownership condition in the Policy was an act or omission of a kind which section 54 responds. The Court rejected that argument and held that the Policy imposed requirements as to proof of ownership as a condition of GIO granting indemnity which condition was not met. As a result, Ebraham's conduct was properly characterised as a failure to comply with a condition, rather than the commission of an act or omission to which section 54 responds.
The Court also found that even if it was wrong on that matter, then the relevant omission of Ebraham was a failure to tell GIO that he could not prove ownership of the jewellery, which would have entitled GIO to cancel the Policy and reduce its liability to nil.
The Court held that GIO was not entitled to cancel the Policy due to fraud, but was entitled to cancel the Policy as a result of Ebraham's breach of the Policy's requirement that he provide reasonable proof of ownership of the jewellery and its valuation to substantiate the claim.
7 lessons for insurers and solicitors in successfully pursuing a fraudulent claim
- Allegations of fraud must be clearly pleaded and properly particularised.
- The obligation of procedural fairness requires that a person be put on notice of the suggestion that a case is false or fraudulent. A defence which does not adequately plead fraud may preclude the insurer from pursuing such a claim.
- In order to rely on a defence under section 56 of the ICA, an insurer needs to plead and prove that a false statement was knowingly made for the purposes of inducing it to pay the claim.
- Evidence of dishonest intent will need to be adduced in order to satisfy the threshold requirements to prove fraud.
- The insurer will need to establish fraud on the balance of probabilities in accordance with the Briginshaw test (Briginshaw v Briginshaw (1938) 60 CLR 336) as codified in the Uniform Evidence Acts (such as section 140(2) of the Evidence Act 2008 (Vic)).
- It is unlikely to be sufficient if the insurer relies only on circumstantial evidence. Clear and cogent evidence is necessary to positively prove the fraud.
- Insurers and their solicitors must be mindful of the costs risks associated with making allegations of fraud. Where allegations of fraud are made speculatively, the Court's jurisdiction to award indemnity costs or personal costs orders may be enlivened, notwithstanding that the party may have won the case overall.*