Abstract

Insurance Agent's Duty to Insurer

Compensation and Exemplary Damages for Fraudulent Claim

Article

Insurance Agent’s Duty to Insurer

An agent has a duty to keep its principal’s property separate, and upon request to deliver to it its business records and correspondence. On that principle, it was ordered that the agent, through an officer familiar with a claim against the principal in relation to business which the agent transacted as such, file and serve affidavits setting out the facts, matters and circumstances giving rise to a defence to the claims in the proceeding, in particular the relevant claims; and produce to the principal, or a person appointed by it, all books, correspondence and documents (both in electronic and paper form) under its control relating to the affairs of the principal, insofar as they relate to the claims made in the originating application and statement of claim: QBE Insurance (Australia) Limited v Martin Insurance Agencies Pty Ltd [2018] FCA 903.

Compensation and Exemplary Damages for Fraudulent Claims

In an action by an insurer for compensatory and exemplary damages against fraudulent claimants for the torts of deceit and unlawful means conspiracy, the compensatory damages may include the recovery of any money paid out under the fraud,  the value of time expended by the insurer’s staff in unravelling its effects and disbursements to counsel, investigators and solicitors in unravelling it and setting aside the judgments obtained by the claimants.

Exemplary damages may be awarded when the defendant's conduct with a cynical disregard for a plaintiff's rights has been calculated to make a profit for himself which may well exceed the compensation payable to the plaintiff. It is necessary for the law to show that it cannot be broken with impunity. Exemplary damages can properly be awarded whenever it is necessary to teach a wrongdoer that tort does not pay. Thus a case for exemplary damages must be presented quite differently from one for compensatory damages; and the judge should not allow it to be left to the jury unless he is satisfied that it can be brought within the establisshed categories. But the fact that the two sorts of damage differ essentially does not necessarily mean that there should be two awards. In a case in which exemplary damages are appropriate, if, but only if, the sum to be awarded as compensation (which may be a sum aggravated by the way in which the defendant has behaved to the plaintiff) is inadequate to punish him for his outrageous conduct, to mark disapproval of such conduct and to deter him from repeating it, then there can be an award of some larger sum. If an award is reviewed upon appeal, the court will consider first whether the award can be justified as compensation and if it cannot, the court must consider whether the punishment is excessive in all the circumstances: Rookes v Barnard [1964] AC 1129 at 1226-8. These remarks are not to be read as though they were an Act of Parliament. nor a code. The jurisdiction is not limited to cases of money making in the strict sense, nor does "calculated" mean that there has to have been a careful, mathematical computation. What is necessary is that the tortious act must be done with guilty knowledge for the motive that the chances of economic advantage outweigh the chances of economic, or perhaps physical, penalty: Broome v Cassell [1972] AC 1027 at 1079. It is not necessary that the claim be based on a cause of action where exemplary damages had been available at the time Rookes v Barnard was decided: Kuddus v Chief Constable of Leicestershire Constabulary [2002] 2 AC 122.

The criterion of the claimant’s calculation to make a profit for himself which may well exceed the compensation payable by him is satisfied in fraudulent insurance claims and exemplary damages are awarded. The object is to extract a large sum from the insurer where if the fraud is discovered before it succeeds, any compensatory damages would be limited to the costs of investigating it, which would probably be a much lesser sum. The availability of exemplary damages is not affected by whether the insurer could have claimed the disgorgement of the claimant's profit as compensatory damages. The availability of contempt of court or criminal proceedings against the claimant is irrelevant.

The sum must be principled and proportionate. Given the need to deter and punish outrageous conduct and abusive behaviour in this context, the principled basis is to make a punitive award. If the claimantss choose not to place before the court any evidence as to their means, it is not appropriate to limit the amount by reference to inability to pay: AXA Insurance UK PLC v Financial Claims Solutions Ltd Ors [2018] EWCA Civ 1330.