When a claim turns to fraud: Court ruling means that people who over-inflate losses to their insurers could end up with nothing

INSURANCE claimants who fraudulently inflate the value of losses they have suffered could end up receiving nothing if they are caught, according to a landmark legal judgment from the Court of Appeal.

The three judges sitting in the case agreed that some 'inflation' for negotiation purposes is acceptable. But they did not clearly define what would amount to a false or fraudulent claim.

They rejected a claim for loss of pounds 250,000 brought by a businessman, Ifeluma Orakpo, against Barclays Insurance Services, with whom he had taken building cover on a house he bought in Wandsworth, London in 1985.

Alan Bannister, a partner at Jarvis & Bannister, the solicitors acting for Barclays, said: 'This case has provided modern authority that entitles insurers to avoid the policy where there is clearly sustained and exaggerated claim.

'It has, however, still left doubt as to how exaggerated a claim has to be to place it in the category of fraud. That will be, just like the elephant, easy to recognise but difficult to describe.'

Mr Orakpo had divided the house into bed-sitting rooms. He then claimed that flooding and storm damage in 1987, plus subsequent vandalism and storm damage, had seriously harmed the property.

But the Court of Appeal heard that Wandsworth Council had already served a repairs notice on Mr Orakpo in 1985, when he said the property was in a good state.

Mr Bannister said that many buildings insurance policies now have clauses that void any payout if false claims have been made. This case, settled in March, now affects those claims in which such policy wordings do not exist.

Mr Orakpo, who conducted his own case at the Court of Appeal, could not be contacted for comment.

Insurance companies say that many British travellers are using their holiday insurance cover to beat NHS waiting lists by claiming millions of pounds for medical treatment overseas.

The types of surgery claimed for as emergency procedures range from heart operations to less sophisticated, but still expensive, dental treatment.

Sarah Joannides, deputy underwriter at Home & Overseas, a subsidiary of the insurance company Eagle Star said that last year the company received about 100 claims for heart surgery about which its claims department felt some suspicions in the US alone. However, out of these, only about five claims were refused.

Each settled claim involved between pounds 20,000 and pounds 40,000 worth of hospital and surgery bills.

Ms Joannides said: 'We have about a quarter of the market in travel insurance, so it is likely that the industry as a whole is facing hundreds of such claims.

'It could conceivably be the tip of the iceberg. It is possible that there are other cases where we pay up because we do not suspect there is an attempt being made to defraud the company, even though they may well be fraudulent.

'We try to avoid facing such cases by excluding claims on the policy unless a GP has informed us beforehand that although a person had a medical condition they were able to travel.'

A spokesman for Commercial Union, one of the UK's biggest travel insurers, said: 'There is some evidence to suggest that travel policies may be effected with the intention of actually having operations and claiming the cost back.

'No one at a company can put their hand on their heart and say how often it happens. But there is a suggestion that it is creeping in. We believe it does exist and has largely gone undetected,' he added.

The likelihood of a successful claim is increased when treatment has actually been given and, unlike in some other 'non-industrialised' countries, the doctor's documents are regarded as being trustworthy.