Dennis Lalor, chairman of the ICWI Group Limited, parent of the Insurance Co-mpany of the West Indies, wrote me in response to two articles that were published on August 25 and September 1.
Both commentaries - 'Sometimes it's best to fight back' and 'Fired up over fire claim' - dealt with cases in which the persons who had contacted this column for information and advice reported that their insurers had concluded they were being dishonest.
Their claims were alleged to be fraudulent.
Most of this column is dedicated to the ICWI chairman's response, with partial edits by the Business Editor.
"I refer to the article which was published on August 25 and feel obliged to respond as I am of the opinion that not only did the article possibly create a false expectation in the affected party, but a fundamental principle of insurance law was ignored.
"As you are aware, despite the policy wording in relation to fraud, the insured has a duty of utmost good faith which continues throughout the life of the contract.
"The duty of good faith continues throughout the contractual relationship and does not only apply when the contract is initially concluded. Therefore, an insured who is making a claim must make full disclosure of all the circumstances surrounding the loss as it is this disclosure which will influence the insurer as it relates to the treatment of the claim.
"If the statement is subsequently found to be fraudulent then the nature of the relationship which is supposed to be based on good faith has changed and the insurer is entitled to rescind the contract.
"In the case referred to in your article, the insured ... stated that she was the driver in respect of the June accident ... if she had indicated that someone else was driving then clearly no indemnity would be offered due to the breach.
"In those circumstances where ... actions did not amount to a mere misrepresentation ..., there can be no doubt that the insurer is entitled to avoid the contract altogether.
"In Orakpo v Barclays Insurance Services (1995) LRLR443, the majority of the Court of Appeal was of
this view and as one of the judges stated: '... any fraud in making the claim goes to the root of the contract and entitles the insurer to be discharged'.
"There, the insured sought to make a claim under his policy. His insurers however declined payment on the basis that a part of the claim was fraudulent. The Court of Appeal held that a claim which is fraudulent entitles the insurer to avoid the contract ab initio (from the beginning) irrespective of whether there is a term in the policy to that effect.
"Similarly, in Galloway v Guardian Royal Exchange (UK) Ltd (1999) Lloyds 209 the Court Rep IR 209, the Court of Appeal held that 'the absence of an express condition providing that where there was a fraudulent claim the policy would be void made no difference, for the duty of good faith continued long after the policy was effected and applied to the claims process'.
"Therefore, the insured referred to in the article having breached her duty of good faith, any claim she may have is defeated and the insurer is entitled to void the contract of insurance, albeit the policy wording does not make mention of this.
"This is so because the implied duty of good faith is a fundamental principle of insurance law which goes to the root of the contract so that any breach of this implied duty renders the contract void.
"As correctly stated in your article of September 1, 2013, 'in theory as in practice, insurance companies have the legal right to act as though a contract never existed when fraud is alleged'. I dare say, therefore, that ... given the magnitude of her ... statement and the possible effect of same had it not been discovered, this insured has no reputation at stake and there can be no doubt that she has breached her duty of good faith thereby rendering her policy void."ADVICE STANDS
Note: I am glad to learn that Mr Lalor reads this column. I also appreciate the fact that he has invested time to research and express his opinion on the very important matter of insurance fraud.
His perspective as an insurance professional and founder of a leading regional insurer is very valuable. It offers insights into some of the arguments that influence insurers' decisions in relation to claims that are considered iffy.
Readers of this column will benefit from these views.
I read parts of Chapter 11, The Assured's Duty of Utmost Good Faith and Claims (pages 274-283), in the third edition of Good Faith and Insurance Contracts by Peter MacDonald Eggers, Simon Picken and Patrick Foss, after I studied Mr Lalor's comments, particularly the reference to the two UK court cases that he cited.
My conclusion: JP of Spanish Town should not walk away from the claim because of Mr Lalor's comments. He should seek the advice of an attorney as I suggested in August.
Cedric E. Stephens provides independent information and free advice about the management of risks and email@example.comSMS/text message to 812-7233