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In common parlance, the liability regime deals with unintended accidents and related issues.[1] Legal action by the injured under the liability rules against the wrong-doer is generally a private suit (over injuries) as opposed to criminal prosecution.[2] If the liability of the alleged wrong-doer is established, such a wrong-doer is required to compensate the victim.[3] In this article, the author intends to study how the standard of proof and liability rules have played a significant role in the passing of the awards by the tribunals/courts in cases of a fraudulent claim by the parties to the suit against the general insurance companies in the domain of insurance. In legal terms, fraud is defined as ‘intentional perversion of truth for the purpose of obtaining some valuable thing or promise from other’.[4]
The International Association of Association of Insurance defines fraud as:
“an act or omission intended to gain an unlawful advantage for a third party committing fraud or for other parties. This may, for example, be achieved utilizing:
· Misappropriating assets;
· Deliberately misrepresenting, concealing suppressing or not disclosing one or more material facts relevant to a financial decision, transaction or perception of the insurer’s status;
· Abusing responsibility, a position of trust or a fiduciary relationship.”[5]
Insurance fraud involves the intentional misrepresentation of material facts and circumstances to an insurance company to obtain payment that would otherwise not be made. The complexity and degree of insurance fraud can range from relatively innocuous to large and highly complex scams involving millions of dollars. Whichever form it takes, it always violates a cornerstone of insurance: utmost good faith between the parties to the contract.[6]
It is pertinent to note that fraud can happen at any level, viz. a) During the process of applying, using, buying, selling, underwriting insurance or b) While staking a claim; which can be broadly classified as pre-insurance fraud and post insurance fraud.[7]
Pre - Insurance Fraud (Application Fraud):
This kind of fraud is committed when material misrepresentations are made while making an application for insurance with the intent to defraud the insurance company. [8]
Post - Insurance Fraud (Claims Fraud):
This kind of fraud occurs in cases wherein the losses are not real, overstated, manipulated etc. The magnitude and occurrence of any insurance fraud are greater at the claim stage in comparison to the pre-insurance stage.[9] The Motor Insurance Sector is the most possible and weak fraud-ridden sector in comparison to another line of insurance. [10]
Generally, motor fraud has two types:
· Hard frauds: It includes total damage to the vehicle deliberately to get rid of the same or to earn money than its market value. Eg. Theft of the vehicle, burnt by fire, fall into the river, loss under an excluded risk etc.[11]
· Soft fraud: It accounts for the majority of motor insurance frauds. Eg: more than one claim for a single loss, higher cost for the repair, damage caused earlier, replacement of old spare parts etc.[12]
According to a survey done by Ernst and young[13] motor insurance ranks second in terms of fraudulent claims next to the health insurance sector. Some common types of Third-party motor claims frauds are:
1. Fake policy
2. Using fabricated and bogus cover note, policy document orCertificate of Insurance.
3. Forging a cover note or Photocopy of the existing cover note, by way of interpolation of dates, name of insured and vehicle number.
4. Issuance of ante-dated cover note/deposit challan/receipt/by an authorised person of the company.
5. Fake license
6. Driver swapping
7. Driver implant
8. Vehicle Implant in hit and run cases
9. Converting a non-road transport accident into RTA
10. By way of furnishing wrong information to Police Authority or by way of arranging False FIR through Police Authority
11. Fake medical records or exaggerated medical bills
12. Fake or exaggerated disability certificates
13. Furnishing wrong information in the application for compensation filed in the MACT and/or criminal court, in respect of dependency, occupation, income, age, injury, the accident itself, impersonation, etc.
14. By way of staging examination-in-chief through stock witness about the information laid down above.
15. By way of collusion with the insured and sometimes in connivance with advocates of the Company.
The above list is only illustrative; there are many more kinds of fraudulent practices carried out in third party motor claims. The issue with frauds with third party motor claim is that it is difficult to detect the fraud and even more difficult to prove the fraud before the Court of Law with adequate documentary evidence.
Let's classify the different type of frauds in the following three broad categories:
[1] Ram Singh, The Relationship between Liability Regimes & Economic Development – A study of Motor Vehicle Accidents in India, CSLG/ WP/10, available at: <http://www.jnu.ac.in/cslg/workingPaper/10-Relationship%20(Ram%20Singh).pdf>, accessed on: 14/12/2015.
[2] Ibid.
[3] Ibid.
[4] Kaeter Margaret, Pinet Angelique, The Everything Negotiating Book: Savvy Techniques For Getting What You Want ..., Fraud – Merriam – Webster’s Dictionary of Fraud, p. 160, available at:
[5]IRA, Launch of Fraud Investigation Unit, available at: <http://www.ira.go.ke/attachments/article/102/Launch%20of%20Insurance%20Fraud%20Investigation%20Unit.pdf>, accessed on: 20/12/2015.
[6]Sanjeev Sood, Trends in Insurance Fraud – Way Forward to Tackle the Problem, available at: <http://www.assocham.org/upload/event/recent/event_1144/Sanjeev_Sood.pdf> last seen on 20/12/2015.
[7] Sithic H.Lookman, Balasubramanian T., Survey of Insurance Fraud Detection Using Data Mining Techniques, International Journal of Innovative Technology and Exploring Engineering (IJITEE) ISSN: 2278-3075, Volume-2, Issue-3, February 2013, available at: <http://arxiv.org/ftp/arxiv/papers/1309/1309.0806.pdf>, accessed on:21/12/2015.
[8] Ibid.
[9] Ibid.
[10] Ibid.
[11]Supra, N. 7.
[12]Ibid.
[13] Ernst & Young, Fraud in Insurance on Rise, Survey (2010-11), available at: <http://www.ey.com/Publication/vwLUAssets/Fraud_in_insurance_on_rise/$FILE/Fraud_in_insurance.pdf> accessed on: 20/12/2015.
The answer to the question is simple. We need to revisit each type of fraud and study it to determine what are the scenarios as well as pointers (Red Flags) to identify the suspected fraud cases.
This exercise will help us to find out what set of documents are needed and what actions needs to be taken in order to establish fraud committed by third parties and exonerate insurance company(s) before courts.
Vehicle implication/Substitution - Scenarios
Vehicle implication is normally done in the following cases:
• Accident is a self-fall and there is no second vehicle involved
• Hit and run case where the offending vehicle is not traced
• The actual offending vehicle has no valid insurance/ other mandatory documents
Pointers (Red Flags) to Look for Suspected Fraud Cases:
• Inconsistency in Criminal Docs; viz. Delay in FIR/ If vehicle has been seized/ there is an General Diary Registered and Back dated FIR has been created.
• Fault vehicle RC Engine Chassis No. or Registration No. does not match with the records available in Policy No. issued in respect of insured vehicle.
Driver Swap- Scenarios Pointers for Suspected Fraudulent Claims:
Ø When actual driver does not posses valid Driving license.
Ø When the medical record of the actual driver indicates that he was under the influence of alcohol at the time of accident.
Ø Two wheeler- Rider to Pillion rider conversion.
Ø To claim as a third party for the driver.
Ø Injuries sustained by the driver is distinct from Pillion Rider