19 August 2020

Insurance Fraud: Taylor v. Asteron Life

 Cancelling insurance cover following a fraudulent claim does not permit insurers to recover prior payments on claims validly made, the Court of Appeal ruled.

Dunedin insurance broker Peter Taylor was entitled to keep initial income protection payments made for partial disability totalling $51,830 while required to repay some $320,000 for ongoing monthly claims proved to be fraudulent.

Mr Taylor claimed on an Asteron policy after being diagnosed with bone cancer in 2009, receiving regular payments of about $6000 monthly.  Required to provide ongoing evidence of his loss of income to justify continued payments, Mr Taylor did not disclose income generated by staff or trailing commissions on cover written in earlier years.  Asteron cancelled the policy in 2016, claiming repayment of all benefits paid.

The Court of Appeal was asked to rule on how the recently enacted Contract and Commercial Law Act applied to fraudulent insurance claims. Cancellation for fraud operates prospectively, not retrospectively, the court ruled.  Any current fraudulent claim can be refused; this includes a refusal to pay anything on a ‘padded claim’ where an otherwise valid claim has been fraudulently misrepresented by overvaluing the value of a loss or including as a loss items which never existed or were never lost.  Allowing any recovery at all on padded claims would encourage fraud, said the court.  Otherwise: if the padded claim is successful, I gain; if not, I suffer no loss since the valid part of the claim is paid.

A fraudulent claim does not cancel an insurance contract retrospectively, the court ruled.  Claims properly made previously under the policy still stand.

Evidence did not establish that Mr Taylor was deliberately dishonest with initial claims under his Asteron income protection policy, the court said.  Rather, the information provided was confusing and contradictory.

Taylor v. Asteron Life Ltd – Court of Appeal (19.08.20)

20.142