Insurers Need Proof

There is a burden of proof on the insurer if they decline your insurance claim based on allegations of false or fraudulent statements.

Consider the scenario where an insured lodges a claim with his/her insurance company for his/her stolen vehicle which was lit on fire in the middle of the night. The insurer investigates and asks the insured to provide more information, specifically to explain how the crime has occurred. The insured does not know how the crime occurred and therefore the extent of information provided is limited. The insurance company then declines the claim on the basis that the insured had made a false or fraudulent statement.

The Onus is on the Insurer

In cases where the insurer suspects the insured has committed a criminal act prior to lodging a claim, the burden rests on the insurer to prove its allegation. The standard of proof is the normal civil standard, being on the balance of probabilities. Where the insurer is alleging criminal activity on the part of the insured, the insurer must prove on the balance of probabilities that the insured is guilty of the alleged criminal conduct.

Any assessment of evidence provided by the insurer will also need to take into account the serious nature of the allegation. In light of allegations that are of a criminal nature, the insurer must provide sufficient evidence strong enough to support and justify its serious allegation against the insured.

Considerations by the Court

In making any assessment as to the alleged criminal conduct by the insured, the court will consider multiple factors including:

  • Motive of the insured;
  • Previous dishonesty offences (if any);
  • Personality of the insured; and
  • The evidence provided by the insurer in support of its serious allegation.

Insured’s Requirement to Establish a Prima Facie Case

An insured would have established a prima facie case once he/she has complied with the conditions of his/her policy. Normally, this would be when an insured lodges a claim (within a reasonable time period) and when the insured has informed the insurer of the details of the claim lodged (to the best of his/her knowledge and belief).

If the insurer becomes suspicious that the insured has made a false statement and that a valid claim has not been lodged, the insurer is not entitled to put the insured to proof. There is no obligation on the insured to prove the method in which his/her car was stolen and then lit on fire, or why the incident had occurred in the first place.

Angus v Ace Insurance Limited [2014] NZHC 258

In this case, the insured lodged a claim with its insurance company claiming that intruders had forced their way onto the property and doused the insured with petrol, threatening to burn him if he did not hand over all his money. The intruders then set fire to the main areas of the building before leaving the premises with the money. The insurers declined the claim, alleging that the insured had committed arson.

It was held by Justice Cooper that the standard of proof is indeed the civil standard of balance of probabilities. It is not the criminal standard of beyond reasonable doubt and is also not an intermediary between the civil and criminal standards. However, the civil standard can be applied flexibly taking into account the seriousness of the allegation by the insurer.

A comprehensive analysis of all the evidence was undertaken including:

  • the insured’s evidence and his credibility;
  • the insured’s previous history, his character and motive;
  • the insurer’s evidence;
  • a “logic of events”;
  • fire experts; and
  • forensic evidence

It was found that the insured was a good businessman and had no previous convictions of dishonest offending. However, the conclusion reached by Justice Cooper was that the insured had deliberately lit the building on fire for financial gain. This result was based on a number of undisputed facts, including:

  • the hotel business was making a loss;
  • the insured had in the past made many attempts to sell the hotel business unsuccessfully;
  • the insured’s failure to set an alarm in the main building;
  • the insured’s shoes had traces of petrol, found only in the main building, but according to the insured’s evidence he would not have been within the vicinity of the main building when the petrol was poured

Justice Cooper held that the insured’s version of events was not plausible and his account of the incident had adversely affected his credibility. Looking at the evidence collectively, Justice Cooper found that the insured’s account of the incident on the evening of the fire could not be correct. The case was found in favour of the insurer.

Despite cases of this nature relying heavily on accounts from witnesses and circumstantial evidence, the insurers must be able to point to strong evidence to support its claim. In this case, the expert and forensic evidence provided by the insurer, coupled with the inconsistencies found in the insured’s account of events ultimately led Justice Cooper to conclude that the insured had committed arson in an attempt to receive an insurance payout.

An insured whose claim has been declined by an insurer will inevitably suffer the consequences. If you believe an insurance company has wrongly declined your claim, it may be worthwhile having your matter reviewed by a lawyer prior to making any determination to challenge the insurer’s decision.

This article contains general information only, and is not intended to be a comprehensive review of the law surrounding insurance claims.  For specific advice tailored to your individual needs, please contact Cherry Mo.