I've worked in the Insurance Industry for years, specialising in motor claims and I still cannot decide if the following is fraud.

A 17 year old, who holds a full driving licence, buys a car, a total scrapper (but bought before it is scrapped) and stores it in a garage. Therefore the item exists (that's one condition of insurance).

It has no MOT and no tax (it doesn't need either because it isn't going to be used). The V5 is received and it is declared SORN.

Insurance is taken out by the 17 year old, in their name. Because it's an old car, low insurance grouping, has a very low value etc the premium is quite reasonable.

Skip forward 4 years, the car is still in the garage, every year the SORN was updated and every year the policy was renewed. The policyholder never used the car and travelled by public transport.

Just after their 21st birthday the policyholder buys a 'real car', scraps the one in the garage and arranges insurance, claiming 4 years No Claims Discount.

Is that fraud?

The property (original car) did exist, the policyholder was the registered owner and had insurable interest in it. As such they are entitled to insure it on whatever basis they want to (ie TPFT or Fully Comp).

MY understanding is that a no claims discount is a discount for having a policy and NOT making a claim, since a policy has been in force and a claim has not been made then as such they are entitled to the discount and no fraud has been committed.

Not everyone in the office agrees, their arguments are that it was done with the sole purpose to get a no claims discount to which they were not entitled and thus to save money on the cost of the premiums when they actually bought a real car to drive, and therefore have defrauded the insurer.

Since Insurers only ask for MOT docs in the event of a claim they would not see there wasn't one, an MOT is only a condition of a policy IF the car is to be used on the road.

I say it's playing the system and as such is within the rules.

Anyone?

Mossy

I wholly 100% agree with you MC. Whilst I can see that the insurers would be aggrieved at this in many ways, the lad has done nothing wrong whatsoever, and has answered every question honestly.

Although - clearly not my area!!

Fraud can be defined as

For practical purposes fraud may be defined as the use of deception with the intention of obtaining an advantage, avoiding an obligation or causing loss to another party.

The key word is DECEPTION imo.

Fraud can be defined as

 

 

 

The key word is DECEPTION imo.

That's exactly their argument "For practical purposes fraud may be defined as the use of deception with the intention of obtaining an advantage, avoiding an obligation or causing loss to another party"

That an advantage was gained, well yes it was I accept that, that's why they did this.

However, I still argue that since the premiums were paid and no claim was made then the advantage is not fraudulent, nor did they deceive anyone in insuring something that existed.

Mossy

Precisely - deception did not occur IMO. An advantage was gained, but if you want to extrapolate that argument, an advantage is gained in every consumer action, otherwise the consumer would not perform the action. It really is the deception word that is key.

I'm not so sure this is above board. Insurance is a special case, and a customer has an obligation to volunteer relevant information.

However, I don't think it's fraud in the criminal sense, just a breach of contract, and third party cover cannot be voided as I understand it.

I'm not so sure this is above board. Insurance is a special case, and a customer has an obligation to volunteer relevant information.

 

However, I don't think it's fraud in the criminal sense, just a breach of contract, and third party cover cannot be voided as I understand it.

Agreed, so the policyholder states it's off road and wants to insure it, there is an element of risk that a third party may be injured (OK it's very remote and highly unlikely), also a fire or a theft could occur.

The policyholder then decides to 'play the game' a bit more and states that they have bought the car to do up, but funnily enough never gets around to it in 4 years. Nothing wrong with that.

I don't see why it's breach of contract though?

Mossy

I agree with you MC.

I have been thinking about this anyway and I'm not even so sure its saved him much money....maybe you can clarify the figures involved MC(if you can!). I'm thinking that the cost of the car itself and four years premiums will almost certainly have outweighed the NCD....

We looked at a few cars and obviously picked the worst case scenarios, in one the policyholder was better off to the tune of £5700.

I fully accept that this was a one-off scenario, the car in question was high-powered and out of the price zone for most people (let alone 21 year olds).

It got even better when an underwriter told us that the policyholder could insure the car for year one on a TPFT and basis and then drop it to fire and theft only (£20 per year) for years 2 3 and 4.

Guess what, the NCD is allowable on the whole 4 years!!!!!!!

Mossy

£20 per year!?!?!?? Bloody ell thats cheap!!

Yes but it's a fire and theft policy ONLY.

The biggest element of a motor insurance policy is the third party risk (ie personal injuries), since this is not covered the insurance premium drops dramatically.

Only condition imposed is it must be secured in a locked garage (which for the hypothetical case this is we agree that it would be).

Mossy

Interesting thread. I know of a case where a collector bought a car and also had it off the road for 3 years so they could undertake restoration work. They insured it since there was a possibility that it could be stolen or destroyed in a fire (eg during welding work), although as in this case they knew it would not be on the road (hence no tax and declared this to the DVLA). Both cases are similar and neither involve fraud (as defined above) since there were legitimate reasons for taking out the insurance and the provisions of the insurance contract were fulfilled, no breach was made in what the insured did with the vehicle. Indeed one could argue that the risk for the insurance company was lowered since the vehicle was not being driven! In both cases the insured informed the DVLA so there was do deception.

I believe the court would look at the provisions of the insurance contract, I cannot see any basis for fraud given there was still an insurance risk (i.e. fire/theft) associated with having the vehicle garaged. The premiums were paid and there has been no loss to the insurance company, their provision of a no claims discount stands since a claim was not made and hence the risk is arguably lower. The insurance risk comprises of all elements of the insured risk and given it is not segmented (i.e. fire, theft and collision/damage/driving liability) there would be no case to answer.

The fire and theft would remove any last doubt that it was fraudulent. It is plainly obvious that he was not driving the car if it was FT only - therefore, it is the insurers own system that is allowing the NCD and all relevant information was obvious.

Yeah that was my take on it.

The other side argue that the policyholders sole intent was to gain an advantage in financial terms on the no claims discount savings later years when they had a 'real' car to drive, and this advantage was gained in a fraudulent way (as quoted by MrShed). Since a no claims discount is not dependent on actually driving a car or even having a car on the road I fail to see their point.

Mossy

The fire and theft would remove any last doubt that it was fraudulent. It is plainly obvious that he was not driving the car if it was FT only - therefore, it is the insurers own system that is allowing the NCD and all relevant information was obvious.

Agreed.

Thanks to everyone who contributed.

I would add that it was a 'friendly' argument in the office which has been simmering away for ages, problem is nobody was putting any fresh views into it, hence why I posted here.

I'm going to declare my side the winner when I get in on Monday morning.

Mossy

I see no fraud. However I do see the potential for a breach of utmost good faith.

I see no fraud. However I do see the potential for a breach of utmost good faith.

Arrrrrrrrrr - I have had a lot of experience with respect to "breaches of utmost good faith" ; Barlaycard, Amex, HSBC, A&L................. worth FA mate!

What planet are you on?

I see no fraud. However I do see the potential for a breach of utmost good faith.

Whyso Bernie?

The policyholder was perfectly entitled to insure the property, the insurer accepted the risk and as a reward for not making a claim they allowed a no claims discount.

Mossy

Whyso Bernie?

 

The policyholder was perfectly entitled to insure the property, the insurer accepted the risk and as a reward for not making a claim they allowed a no claims discount.

 

Mossy

Because a reasonable insurer, having been advised that the owner of the vehicle had no intention of driving the vehicle on the road (if this was the case) may have declined to provide insurance.

(Having said that and thinking again, my recollection is that the duty to disclose material facts does not extend to those which reduce the risk. It does to facts which would influence whether or not to accept the risk and if the fact that the car was SORN would have influenced the insurer and was not declared, there could be an issue.)

Because a reasonable insurer, having been advised that the owner of the vehicle had no intention of driving the vehicle on the road (if this was the case) may have declined to provide insurance.

 

(Having said that and thinking again, my recollection is that the duty to disclose material facts does not extend to those which reduce the risk. It does to facts which would influence whether or not to accept the risk and if the fact that the car was SORN would have influenced the insurer and was not declared, there could be an issue.)

Ooh that's a new take on it (ie one that hasn't come up in the office).

OK I'd counter that by saying the policyholder does not have to disclose anything not asked that reduces the risk.

Furthermore, the car was legally off road, years 2 and 3 were insured fire and theft basis only and kept in a locked garage (as per condition of policy). It is reasonable to expect that a reasonable person would assume that a car insured fire and theft only is not in use.

Accordingly there was no breach of utmost good faith.

Mossy

I agree Mossy.

The u/w had all the information needed.

It ALWAYS comes back to "reasonable person" doesn't it?!

The Insurer will argue that the p/h should have disclosed the material fact that the car was not in use as it would affect the risk/premium, etc (as you know).

Was this an innocent non-discloure as far as the ph was concerned (i.e. did the p/h deliberately withold information in an effort to gain a benefit (in this case a lower premium))?

Hmmmmmm

I don't think this is fraud, because NCD places no requirement upon actual usage, - ie the amount that you use it. In this sense it's a pretty bad rating factor, but until the ability to collect data becomes far more robust (which I think is basically impossible) it's all we have.

For example who has 'earnt' their NCD more, a 30 year old housewife who only uses the car about 2000 miles a year to pop to the shops and run the kids to school in the same town, or a 30 year old sales rep who does about 18000 miles a year. It would take the housewife 6 years to build up the sort of experience that the sales rep has in 1, but her NCD is just as good. This is why mileage rating is never linear (ie it doesn't cost you 6 times as much to drive 18k mi a year as 2k mi a year even though you use the car more) because people who drive a lot of miles gain experience very quickly (also they are likely to use the roads differently, ie motorways that are much 'safer' risks).

A few years ago Direct Line started offering full NCD building to named drivers. This I thought was an abuse of what NCD was supposed to represent (and fundamentally changed the way it works). For example you could have a named driver that was an equal user, or one that only used it a couple times a year.

Other problems with NCD include how long you have been driving. For example you could have a 22 year old who has 3 years NCD because they have been driving for 3 years without an accident, or a 35 year old with 6 years NCD because they had an accident 7 years ago. They could have driven for 15 years and had say 5 accidents in that time (1 every 3 years) - who's NCD should be 'worth' more?

It hurts when people play the system because it messes up the data we use to price the risk, but at the moment NCD places no demand upon usage, so it's not fraud. (A better factor would be to declare the number of miles driven without a claim).

so what about the situation where a car is being restored? It will be off the road, no tax but insured against the possibility of theft & fire. Is this fraud then?

One would have to provde that in the case by the OP the insured deliberately paid insurance to gain a no-claims advantage and subseuqnelty reduce his/her premiums when he/she came to insure a vehicle. I do not think it would wash personally. How could it be proven? They would also have to quantify loss = not easy

The u/w had all the information needed.

 

It ALWAYS comes back to "reasonable person" doesn't it?!

No it's a "prudent insurer" when it's an issue of material fact. Different test altogether. (MIA 1906 s1-21)

so what about the situation where a car is being restored? It will be off the road, no tax but insured against the possibility of theft & fire. Is this fraud then?

 

One would have to provde that in the case by the OP the insured deliberately paid insurance to gain a no-claims advantage and subseuqnelty reduce his/her premiums when he/she came to insure a vehicle. I do not think it would wash personally. How could it be proven? They would also have to quantify loss = not easy

The fact of restoration is a material fact that would have to be disclosed to insurers - it increases the fire risk (among others).

Proof of loss is not required for breach of utmost good faith.