Gold and Good faith – County Court rejects an insurer’s denial of claim on the basis of fraud

Key Points
  • Despite the facts of a claim indicating fraud, insurers should be cautious when seeking to deny a claim on this basis.
  • An insured’s failure to provide sufficient proof of ownership or valuation in support of a claim will unlikely be considered to be an “act” for the purposes of s54 of the Insurance Contracts Act 1984 (Cth).

The County Court of Victoria recently considered a case involving a range of insurance issues, including what is required to substantiate a claim, the duty of utmost good faith, fraud and the application of s54 of the Insurance Contracts Act 1984 (Cth) (“ICA”). Hicksons regularly advises in matters involving such issues, including travel insurance cases where an insurer is seeking to deny a claim for want of adequate proof of ownership.
 
Mr Emad Ebraham returned from holidays to his home in Ballarat to discover that a leather pouch containing a claimed $186,000.00 worth of gold jewellery had been stolen.
                      
Mr Ebraham made a claim for the jewellery under a home and contents policy that he held with GIO. In support of his claim, the insured submitted a receipt from “Samir Jewellery Products” in Lebanon as proof of ownership of the gold jewellery and a handwritten valuation from “Baghdad Jewellery” in Sydney as proof of value.
 
GIO’s investigations into the claim revealed that, amongst other things:
  1. On the same day of the alleged theft, the insured’s brother (who had been on holiday with Mr Ebraham), had also suffered a burglary at his home in similar circumstances;
  2. The insured had made two previous insurance claims with his previous insurer, AAMI, arising out of burgled gold jewellery;
  3. The insured’s brother had also made two previous claims for burgled gold jewellery with GIO;
  4. “Samir Jewellery Products” in Lebanon did not exist; and
  5. The appraiser from “Baghdad Jewellery” did not hold any formal valuation qualifications.
 
GIO denied the claim, on the basis that:
  1. the insured had failed to comply with the ‘sufficient proof’ requirements contained in the PDS, namely proof of ownership and valuation of the jewellery;
  2. the insured had made a fraudulent claim in breach of s56 of the ICA; and
  3. the insured had not complied with his duty of utmost good faith in breach of s13 of the ICA.
 
Although the Court found that the insured had not provided sufficient proof of ownership and an acceptable valuation of the jewellery and therefore GIO was entitled to deny the claim on this basis, the Court found that the circumstances of the loss alone were inadequate for a finding that the insured had acted dishonestly and in breach of his duty of utmost good faith. Further, despite raising serious concerns about the insured’s credibility, the Court found that there was insufficient evidence to establish that the insured had knowingly made a fraudulent claim for the purposes of s56 of the ICA and in discharge of the ‘Briginshaw principle’, which places a very high standard of proof on an insurer in respect of allegations of fraud. 
 
In response to GIO’s denial of the claim for a failure to provide sufficient proof of ownership and valuation of the jewellery, the insured contended that his failure in that regard was an “act” for the purposes of s54 of the ICA and therefore GIO could not deny the claim, but could only reduce the claim by an amount reflective of the prejudice suffered by GIO as a result of the failure. However, the Court decided that the insured’s failure was not an “act” for the purposes of s54 because the insured’s failure to substantiate his claim was not the same as doing or omitting an act during the currency of the policy as is required by s54, and even if it was, the insured’s inability to substantiate the claim would have reduced GIO’s liability to nil in any event.  
 
Ultimately, the Court found that there was insufficient evidence to establish that the insured’s claim was fraudulent or amounted to a breach of the duty of utmost good faith. However, the Court found that GIO was entitled to deny the claim on the basis that the insured had failed to provide reasonable proof of ownership and valuation to substantiate his claim in breach of his obligations under the PDS.
 
This decision provides further insight into the Court’s attitude toward the issues considered, especially in circumstances where an  alleged theft clearly indicates fraud.
 
Despite the Court ultimately finding in favour of GIO, the case serves as a reminder of the need for insurers to tread cautiously when denying claims on the basis of fraud.

Post by Patrick Hodgetts

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