How Insurers Use “Fundamental Dishonesty” to Discourage Accident Claims

Picture of Jack Hudson, Trainee Chartered Legal Executive. He discusses fundamental dishonesty in this blog post.
Jack Hudson explains how insurers use allegations of fundamental dishonesty to discourage claimants.

By Jack Hudson, Trainee Chartered Legal Executive

Owen Deary is angry.

Insurers recently settled his personal injury accident claim days before trial. And while Owen is happy that he did not have to go to court, the insurer’s tactics in alleging “fundamental dishonesty” left a sour taste in his mouth.

This is why.

Road Traffic Accident

On 1 July 2015 Owen Deary (details used with his kind permission) was a passenger in his friend’s car when it was involved in a road traffic accident with another vehicle.

The other car, a Land Rover, was driven by a friend of Owen’s nephew. Owen and his nephew were in a family feud. The nephew urged his friend to ram Owen’s friend’s car. He did. Three times.

Owen suffered physical and psychological injuries in the ordeal. He saw his doctor, who prescribed medication and rest for “whiplash” and associated injuries.

Personal Injury Compensation Claim

Mr Deary was understandably upset about the incident. He approached my law firm for advice. In theory, Owen’s claim should have been straightforward. He was a passenger in a car and had done nothing wrong, despite the unusual circumstances. We agreed to represent Owen in his passenger accident compensation claim and funded it using a no win no fee agreement.

We investigated and submitted full details of Owen’s claim to the Land Rover driver’s insurers. The insurers held off from admitting liability and indemnity claiming that there were issues with the other driver.

This is not unusual, but in hindsight it was the first clue that Owen’s personal injury case might not go as smoothly as it first appeared.

County Court Proceedings for Compensation

We pressed on despite the insurer’s delays. A specialist medically examined Mr Deary and produced a medical report. We sent it to the insurers with full details of Owen’s claim for “general and special damages”. When the insurers failed to settle the claim, my firm issued formal county court proceedings and sought compensation for Owen’s losses.

The insurers then filed a formal defence saying that they were going to fight the claim. The defence said:

Depending on any judiciary findings, the defendant reserves the right to allege at trial that the claimant has been fundamentally dishonest in respect of this claim and the claimant should be deprived of QOCS protection under CPR 44.16 so as to allow any adverse order for costs to be enforced against the claimant and/or that the claim should be dismissed under s.57 of the Criminal Justice and Courts Act 2015.

The suggestion that he was “fundamentally dishonest” was a huge shock to Owen. The other driver’s insurers appeared to be using a little-known section of the Civil Procedure Rules to challenge his credibility. And it had serious implications for his supposedly straightforward claim.

What the Civil Procedure Rules Say About Fundamentally Dishonest Claims

The Civil Procedure Rules set out how civil compensation claims are handled in England and Wales. Where appropriate, they incorporate and/or add to Parliament-made law (statute). One example is rules introduced under The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO), which came in to force in April 2013. My colleague Kevin Donoghue has previously criticised the Act, which has had far-reaching and negative consequences for innocent accident victims. (This Act was later supplemented with associated rules under s.57 of the Criminal Justice and Courts Act 2015.)

In personal injury law claims like Owen’s, parts of the Civil Procedure Rules are designed to protect genuine claimants from paying the defendant’s costs in the unlikely event they lose their claims. But this protection, known as Qualified One-Way Costs Shifting (QOCS), disappears if the claimant is found to be “fundamentally dishonest”. The relevant section is r. 44.16 of the CPR, which says:

 (1) Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.

And in the supporting Practice Direction it says:

SECTION II – QUALIFIED ONE-WAY COSTS SHIFTING

Qualified one-way costs shifting

12.4

In a case to which rule 44.16(1) applies (fundamentally dishonest claims) –

(a) the court will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at the trial;

(b) where the proceedings have been settled, the court will not, save in exceptional circumstances, order that issues arising out of an allegation that the claim was fundamentally dishonest be determined in those proceedings;

(c) where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4;

(d) the court may, as it thinks fair and just, determine the costs attributable to the claim having been found to be fundamentally dishonest.

How These Rules Affect Claimants

These rules mean that if the claimant loses and is judged to be “fundamentally dishonest” the court can order that he or she pay the defendant’s costs on the indemnity basis. (This punishment gives the benefit of the doubt to the defendant on any costs claimed and can increase the amount the claimant has to pay considerably.)

And because of section 57 of the Criminal Justice and Courts Act, if the Claimant wins but the judge makes a finding of fundamental dishonesty, the court must order that the claimant pay the Defendant’s costs up to the full amount of the genuine part of the claim.

There can also be criminal proceedings if fundamental dishonesty is proven.

Fundamental Dishonesty Definition

Despite these serious consequences, the Civil Procedure Rules do not define “fundamental dishonesty” (perhaps deliberately). This means that the courts have had to step in with judge-made case law. Since 2013 there have been many cases about fundamental dishonesty. These are fact-based so don’t really help with a clear definition. Effectively, courts view fundamental dishonesty the same way as fraud, defined in the Cambridge dictionary as:

the crime of obtaining money or property by deceiving people.

Standard of Proof in Civil Cases

But it’s worth noting that the standard of proof of fundamental dishonesty is the lower civil standard (more probable than not that the claimant is fundamentally dishonest). Contrast this to the criminal standard (beyond reasonable doubt) which normally applies to fraud offences. This means that fundamental dishonesty is easier to prove, despite the serious consequences of such a finding.

Looking at Owen Deary’s case, there are three reasons why the insurers were tempted to accuse him of fundamental dishonesty:

  1. the threat alone might put him off carrying on with his claim
  2. if they could prove that Owen was fundamentally dishonest, he would lose QOCS protection. Then the insurers could claim some, or all, of their legal costs from him personally. (The no win no fee agreement he had with my firm would only cover Owen in respect of his own legal costs. It would not apply to the insurer’s costs, or his own expenses like medical records and the doctor’s report)
  3. the insurers would get a valuable PR victory which they could use to frighten off other claimants.

Statement of Truth

Owen was understandably angry and upset about this dark turn of events. He knew that the consequences of fabricating or exaggerating his claim were serious.

But the insurers were effectively accusing him of lying.

Mr Deary had signed the “statement of truth”, a formal declaration he made when he issued court proceedings which says:

“I believe that the facts stated in this Particulars of Claim are true.”

To Owen, that solemn promise to the court should have been enough for the insurers.

Inference

By contrast, the insurers did not have to formally plead their allegation of fundamental dishonesty. They could just infer it. This is because of a key case on how the allegation is raised.

In Howlett v Davies and Ageas Insurance Limited (2017) the Court of Appeal said that insurers did not have to plead fundamental dishonesty in formal defences to get the benefit of the QOCS removal provisions in the CPR. In that case the Court said that putting the Claimant on notice of a possible fraud defence was enough, even if the insurer did not specifically say that they were alleging that.

This judgment updated the case of Kearsley v Klarfeld (2005) and meant that insurers could raise fundamental dishonesty arguments but that they were not required to allege fraud in formal defence documents. (Insurance company solicitors and barristers tend to avoid formally pleading fraud because of their professional obligations.)

How We Dealt With the “Fundamentally Dishonest” Allegation

With Mr Deary’s agreement we invited the insurers to agree a Part 36 offer to settle the claim. This is an offer on terms, including time limits. They should normally be accepted within 21 days to avoid costs consequences later.

But the insurers ignored the offer, so Mr Deary’s court proceedings continued towards trial. This meant Owen and Donoghue Solicitors had more to do. He filed a formal witness statement with a further statement of truth. We also had to consider and deal with the defendant insurer’s documents, correspondence, and court filings.

As the trial approached the insurers offered to “drop hands”. If accepted, this suggestion meant that both parties would walk away. Owen would not receive any compensation or legal costs, and the insurers would not claim any costs against him.

We discussed the offer. We remained confident in Owen and his case, and were prepared to back it to trial. Emboldened by our support, Mr Deary rejected the drop hands offer, even though he knew it meant going to trial and giving evidence.

We filed trial bundles, booked and briefed a barrister, and made sure Owen was prepared to give evidence.

Just three days before trial the insurers got in touch. They accepted Owen’s Part 36 offer from six months earlier. This meant that his case was settled and the court hearing vacated.

We sent Owen his damages and dealt with legal costs. His case is over. But no amount of compensation could make up for the offence Owen felt when the insurers raised fundamental dishonesty.

Impact of the Civil Liability Act

Fundamental dishonesty allegations are common in road accident claims. It is hard to avoid the conclusion that insurers are playing the system to cheat innocent, genuine people out of compensation. It didn’t work in Owen’s case, but he was lucky. He had lawyers willing to stand by him to trial.

Next year, when the Civil Liability Act (2018) comes into force, most road traffic accident victims will be expected to bring claims without expert legal help. Will insurers keep using these tactics to put off genuine claimants? Regrettably, I expect so.

Jack Hudson is a Trainee Legal Executive and expert in road traffic accident compensation claims. Contact him here.