Speculative defence before the Ombudsman

Go Back 07.2.22 INSIGHTS

Mr and Mrs D’s complaint against LV, and the Ombudsman’s finding for the policyholder (represented by Wynterhill LLP) is a stark reminder of the risk of alleging fraud against a policyholder where the factual basis of that policy defence is speculative:


Anyone interested in insurance law, property damage claims, claims advocacy and dispute resolution generally should take time to read this final award in order to better understand how the Financial Ombudsman approaches such complaints.

Mr and Mrs D suffered a fire at their home, caused by an accidental event, and they made a claim on their home insurance policy. They appointed a loss assessor, who in turn appointed a professional surveyor, who collectively oversaw the tender process for the building reinstatement works. LV, following the appointment of adjusters, raised concerns about the tender returns and how the tender process was run. LV went on to allege fraud against the policyholders and used the nuclear option to avoid the policy and decline the claim.

In this case, whilst finding there was prima facie evidence of wrongdoing by the contractors involved in the tender process, and whilst acknowledging some inconsistencies in the policyholders’ explanation of certain facts, namely, how the second and third contractors were found and came to be appointed, the Ombudsman rejected LV’s submission that the evidence ought to be tested in the Courts rather than before the Ombudsman, and found that LV’s case against the policyholders or their professional agents was speculative, as was the assertion that had insurers had the benefit of litigation, it would have probably established fraud by the policyholder or their agents.

In terms of the Ombudsman’s approach to such disputes, it is worth noting that the Ombudsman will review the evidence provided by the parties, may ask questions, and decide whether, on the balance of probabilities, it is more likely than not that the policyholder or, as in this case, their agents and representatives, were part of a fraud or deliberate attempt to exaggerate the quantum of the claim. The Ombudsman will then consider what’s fair and reasonable, in all the circumstances of the case.

The Ombudsman’s award is a sobering reminder in current hard-market conditions, coupled with well-intentioned anti-fraud initiatives, that the burden of proving fraud is always on insurers and strong and cogent evidence of fraud by the policyholder or their agents should be obtained before a claim is declined. A hunch or one or two indicators of something which does not make sense to an insurer or which may have been inaccurately recalled or communicated by the insured, just isn’t enough to establish serious allegations of fraud against a policyholder.

For more information about disputes of this nature, please contact Dan Brooks (Partner) or Jenny Hutchinson (Consultant Solicitor).

This post is intended to provide guidance of a practical nature but does not contain legal advice or advice as to what action you should or should not take specific to your insurance needs or those of your business, or with regard to any particular situation.