Contents
Editorial
Illegality in road traffic accidents
Are you treating your customers fairly?
Intelligence and its place within fraud investigation
Article 75: know your status
Revision of CPR rules
Fraud focus: recent successes and developments
Editorial
Fraud represents more than a financial challenge, it also represents a reputational risk to business. This view was expressed by the FSA in their report of February 2006 entitled Firms’ – High level Management of Fraud Risk. Financially regulated firms are obliged to ‘take reasonable care to establish and maintain effective systems and controls … for countering the risk that the firm might be used to further financial crime’. The ABI estimated this year that fraud is costing the UK economy in the region of £650 million per annum.
Unsurprisingly, the judiciary are starting to sit up and take notice of the problem of fraud and are being persuaded to deal with fraudulent claims through the court system.
In this first edition of Fraud focus, solicitors from our specialist claims investigation teams provide a round up of some of the issues that are currently before the courts, look at the emerging trends and patterns and provide some general pointers to assist clients with the ‘war’ on fraud.
If there is anything you wish to discuss arising from the enclosed, or about BLM’s fraud services, or for general feedback on the inaugural edition, please contact:
Sarah Hill
Partner, BLM Birmingham
DD0121 633 6645
Raymond Southern
Partner, BLM Manchester
DD0161 838 6708
Illegality in road traffic accidents
Background
The claimant parked his car in Edgware, London where it was struck by a car being driven by the defendant’s employee. Despite the fact that the claimant had been paid the pre-accident value of his vehicle, he nevertheless sought to recover credit hire charges in the sum of £34,067.68 as well as storage and recovery charges in the sum of £765.61.
The claim was defended on the basis that the doctrine of ex turpi causa applied (as the claimant was acting illegally) as he and/or his vehicle were uninsured at the time of the accident contrary to section 143 of the Road Traffic Act 1988. It was accepted by the claimant that he was uninsured at the time of the accident and that he was subsequently convicted of failing to have insurance for his car. As a result of his conviction he received a £60 fine and six penalty points.
However, the claimant denied being uninsured from 1 April 2005 to 29 March 2006 and also denied knowingly driving his car without insurance during this period.
A Motor Insurance Database (MID) investigation revealed that the claimant did not hold valid insurance for his car as far back as December 2004. The claimant produced no evidence to the contrary despite specific requests to support his assertion that he held insurance for his car during the 15 months prior to the accident.
It was the defendant’s case that not only did the claimant drive and park his car without insurance at the location where the accident occurred, but that he had also been knowingly using his vehicle over a 12 month period without insurance. It was established that on 1 April 2005, the claimant’s car was subjected to an MOT examination which recorded the vehicle’s mileage as 73,920. However, when the vehicle was inspected by an engineer appointed on behalf of the claimant shortly after the accident, the recorded the mileage was 83,077 which indicated that the car had been driven some 9,000 miles. As the claimant had openly accepted by way of his Part 18 responses that he was the only person who had access and permission to drive the vehicle, it followed that he was the only person who could have driven the vehicle during this time.
The claim was defended on the following basis:
aThe doctrine of ex turpi causa applied by reason of the fact that the claimant illegally and knowingly used his vehicle without insurance contrary to section 143 of the Road Traffic Act 1988.
bThe claimant drove the car 9,000 miles in a 12 month period immediately prior to the accident.
cThe claimant was not entitled to recover credit hire charges because the loss of the ability to illegally drive an uninsured vehicle was no loss at all.
dThe hire charges were not recoverable because granting the claimant capacity to drive an insured motorcar was putting him in a better position than had the accident not occurred. It was submitted that the claimant had simply lost the value of an uninsured car which he could not drive.
eThe principle of the law of tort is to place the parties into a position which they would have been ‘but for’ the accident. ‘But for’ the accident the claimant had an uninsured car which he was unable to use and therefore as he had been paid the pre-accident value of his motor vehicle he had been put back into the position he would have been in.
fThe claimant had not been honest and was evasive when giving evidence and throughout the course of proceedings and therefore the case should have been struck out.
gIt was unlikely that the claimant would ever pay the hire charges or that the hire company had any intention of pursuing the claimant for the hire charges in the event he failed to recover from the defendant.
Doctrine of ex turpi causa
The maxim ex turpi causa non oritur actio was formulated by Lord Mansfield in Holman v Johnson [1775] 1 Cowp 341 at 343:
No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff’s (sic) own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted.
The maxim ex turpi causa non oritur damnum applies were the court does not permit the claimant to receive his full damages on the grounds that public policy will intervene; see the leading judgment in the case of Hewison v Meridian Shipping [2002] EWCA Civ 1881 per Clarke LJ at 28. It was submitted that this principle applied to the hire charges as well as the storage and recovery charges as in order to recover the same, the claimant would effectively be relying on his own intended future illegal act of driving his car without insurance.
It is well established that the categories of conduct which may qualify as satisfying the level of turpitude necessary to bring into play the ex turpi doctrine are not limited to the purely criminal. As Lloyd LJ observed in Kirkham v Chief Constable of the Greater Manchester Police [1990] 2 QB283, 291:
The ex turpi causa defence ultimately rests on a principle of public policy that the courts will not assist a plaintiff (sic) who has been guilty of illegal (or immoral) conduct of which the courts should take notice.
In this case, the conduct complained of was undoubtedly criminal (and not simply immoral) and was therefore capable of giving rise to the ex turpi defence.
It was an offence contrary to section 143 of the Road Traffic Act 1988 to have a vehicle on a public highway without insurance.
Throughout the course of submissions, the court’s attention was referred to the scale of the problem which was created by the wholesale failure of a significant minority of motorists to comply with the requirement for compulsory insurance. In particular, paragraph 7.1 of the Explanatory Memorandum to the Road Traffic Act 1988 (Retention and Disposal of Seized Motor Vehicle) Regulations 2005 No 1606. (See the Department of Transport paper Uninsured Driving in the UK at )
According to an insurance industry estimate there are around 1.2 million persons – one in 20 motorists – driving regularly whilst uninsured. Uninsured drivers impose a financial burden on honest motorists. The damage they inflict in road traffic accidents results in claims against the industry-maintained Motor Insurers’ Bureau or against the policies of insured drivers. In addition, uninsured driving imposes other costs on society. These drivers are more likely to be involved in road traffic accidents, to be non-compliant with other road traffic requirements and obligations and potentially to be involved in other criminal activity. The involvement of uninsured drivers in fatal road traffic accidents has been the subject of considerable public and media pressure for action.
Further reference was made to section 152 of the Serious Organised Crime and Police Act 2005 which give the police power to justify the seizure and disposal of uninsured vehicles as well as various statistical data indicating that:
- the premiums of those who pay for their insurance are, on average, £30 higher by way of subsidy of uninsured drivers
- the total cost of financing uninsured drivers is in excess of £500 million per annum
- about 5% of motorists drive whilst uninsured
- about 250,000 motorists are caught driving without insurance each year.
It was averred that as the problem of driving without insurance was a major issue both for the criminal and civil justice system, a unified approach was required since that which was illegal and punishable in the criminal law ought not to be rewarded in the civil law.
Application of the doctrine
The Court of Appeal held in Cross v Kirkby (QBENF 1999/0526/A2) that:
The principle of [ex turpi] applies when the claimant’s claim is so closely connected or inextricably bound up with his own criminal or illegal conduct that the court could not permit him to recover without appearing to condone that conduct.
In R v Shepherd [1981] AC 394, Diplock LJ formulated the rule in this way:
All that the rule means is that the courts will not enforce a right which would otherwise be enforceable if the right arises out of an act committed by the person asserting the right (or by someone who is regarded in law as his successor) which is regarded by the court as sufficiently anti-social to justify the courts refusing to enforce that right. (Emphasis added.)
In the case, it was submitted that the conscious act of driving a car without insurance and then parking it on the road was inexorably and casually linked to the occurrence of the accident.
In Clunis v Camden & Islington Health Authority [1998] QB 978 the court held:
The court ought not to allow itself to be made an instrument to enforce obligations alleged to arise out of the plaintiff’s (sic) own criminal act and we would therefore allow the appeal on this ground.
In this case, the claimant was committing not merely an ‘anti-social’ act but a criminal act with statistically well documented anti-social consequences. It was argued that the claimant drove and parked his car knowing that in the event of a collision, he was not going to pay, by way of his insurance premiums, for the consequences.
It was submitted that there is something inherently wrong with the notion that someone who deliberately sets out to default on the social contract of mutual insurance should then be able to take advantage of insurance put in place at the expense of another. The defendant’s case was such that as the claimant was not a man of substantial means, when he chose to deliberately drive his car without insurance he either assumed that anyone who was injured would not be able to recover damages or, alternatively, and no less morally culpably, that the costs of any injuries should be paid by those who did pay their premiums. It was suggested that public subsidy of the guilty by the innocent was wholly unattractive and a last resort.
It was further submitted that as Parliament, the courts and the Sentencing Guidelines Council had all expressed recent concern over the social evils that are promoted by those who continue to drive without insurance, it was both right and proportionate that those who deliberately chose to drive, or knowingly allow others to drive, without insurance should, upon the normal operation of the ex turpi causa doctrine, thereby forfeit the symmetry of support that the law of compulsory insurance is intended to provide. This observation is likely to be a salutary and sharp reminder to insurance defaulters that it is not only those that they harm who may be affected by their actions, but themselves.
It was averred that in all the circumstances, the claimant should be denied compensation for the credit hire charges sustained in the accident as this would be a fair and proportionate result. It was submitted that the court should not countenance awarding damages to legitimise what, in the absence of an accident, would be an illegal act as such a reward would be perverse. The issue was not whether the claimant is barred from recovering all losses but merely part of his losses, the credit hire part. It was contended that the claimant would need to rely on the illegal act of driving whilst uninsured to establish that he suffered any loss otherwise he had only suffered the loss of the damage to his car.
As it had been established that the claimant had been using his vehicle without insurance in the year prior to the accident, the court found that the claimant would have intended to continue driving without compulsory insurance throughout the 341 day hire period.
Accordingly, the claimant’s claim for hire was dismissed as the case fell squarely within the ratio of the Hewison v Meridian Shipping [2002] EWCA Civ 1821:
… where a claimant has to rely upon his or her own unlawful act in order to establish the whole or part of his or her claim the claim will fail either wholly or in part.
Satpal Gidda
Solicitor, BLM Birmingham
Are you treating your customers fairly?
The Treating Customers Fairly initiative (TCF) is the focus of the FSA on placing responsibility upon firms to deliver fair treatment or ‘outcomes’ to consumers.
In July 2006 the FSA set a deadline for all firm to have implemented the TCF in the majority of their business by the end of March 2007.
Six outcomes were identified by the FSA as being key to the fair treatment of the consumer:
iConsumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
iiProducts and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
iiiConsumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
ivWhere consumers receive advice, the advice is suitable and takes account of their circumstances.
vConsumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and as they have been led to expect.
viConsumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
Progress in implementing the TCF has been mixed with major retail groups, according to figures obtained by the FSA and reported in its progress report, being the most successful in meeting the March 2007 deadline and small business being the least successful. However, this is hardly surprising. The management teams of large firms must not rest on their laurels as the FSA requires them to demonstrate how they are treating their customers and whether they are delivering fair outcomes.
Many have commented on the use of Management Information being the means by which businesses should capture their progress and most, if not all, insurers will be familiar with this concept. However, it is the demonstration of how TCF is being implemented which may cause problems for most insurers.
Focusing on the third outcome of the TCF initiative, BLM’s experience has shown that most insurers fall down when they should be keeping the customer informed, particularly in the investigation of suspected fraudulent claims. This is particularly so when indemnity rights have been reserved and occasionally in cases where indemnity has been withdrawn.
BLM’s experience suggests that there is a gap in communication where a claim is in the process of being validated, in particular, where it is suspected that the policyholder has conspired with the claimant and/or any other person in an attempt to defraud his/her insurer.
An insurer should inform the policyholder that indemnity rights are being reserved upon commencement of investigations as to the veracity of a claim or at the earliest possible opportunity. When, and only when, there is substantial evidence obtained to support the withdrawal of indemnity should this be communicated to the policyholder.
The concern is that invariably the first point at which the policyholder becomes aware of the withdrawal of indemnity or the reservation of rights in this regard is when they are in receipt of claim papers and contact the insurer or worse when they are in receipt of an application to join their insurer into the proceedings as a second defendant.