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England and Wales Court of Appeal (Civil Division) Decisions
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Cite as:  Lloyd's Rep IR 209,  EWCA Civ 2487
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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
(HIS HONOUR JUDGE BUTTER)
B e f o r e :
LORD JUSTICE MILLETT
LORD JUSTICE MUMMERY
|- v -
|GUARDIAN ROYAL EXCHANGE (UK) LIMITED
Smith Bernal Reporting Limited, 180 Fleet Street,
London EC4A 2HD
Tel: 0171 831 3183
Official Shorthand Writers to the Court)
MR N WILKINSON QC (Instructed by Messrs Merricks, Ipswich, IP1 1BQ) appeared on behalf of the Respondent
Crown Copyright ©
LORD WOOLF MR: This is an appeal against a decision of His Honour Judge Butter given in the Central London County Court on 4 July 1996. He decided two preliminary points in relation to claims under a policy of insurance. As a result of his decision (which was in favour of the defendants, the Guardian Royal Exchange insurance company) the plaintiff's claim was dismissed. He also granted a declaration that the policy under which the claims had been made was void ab initio.
The policy was a home contents policy and the admirable judgment of Judge Butter sets out the facts very shortly and succinctly. I will refer to that judgment for the purpose of indicating briefly the facts.
On 18 January 1990 the plaintiff filled in a proposal form for a home contents policy with the defendants. Question 6 of the proposal form asked:
"Have you or your spouse been subject to any declaration of bankruptcy or conviction of arson, fraud, forgery, theft, robbery or handling of stolen goods?"
To that question the plaintiff replied "No". In fact, on 17 November 1989 (a short time before he signed that proposal form) the plaintiff had been convicted in a Crown Court as a result of making a false claim for income support from the Department of Health and Social Security. The particulars of the charge were:
"Obtaining property by deception, contrary to section 15(1) of the Theft Act 1968.
Ian Robert Galloway on a day between the 15th day of October 1988 and the 15th day of June 1989 dishonestly obtained Income Support Benefit from the Department of Health and Social Security with the intention of permanently depriving the said Department thereof by deception namely by falsely representing that you were not in recept of any pay."
During the night of 27/28 May 1990 a burglary took place at the plaintiff's premises. He then made a claim, not just for £16,133.94, which probably represented the true value of the loss, but included an additional £2,000 in respect of a computer. He identified the computer; he stated the date it was purchased; he identified the place from which it was purchased and indicated a cost of £2,399. He said that the value of the loss after allowing for age and wear and tear, was £2,000, and he thus put forward the claim for £2,000 above what would otherwise have been the true value. The form which he filled in contained a declaration that "the particulars given on this form are true and complete". In fact that was an untrue statement. There had been no loss in relation to the computer. He was subsequently convicted on 10 July 1991 at another Crown Court of attempting to obtain property by deception, that is to say, money from the present defendants in this action.
The offence in relation to the claim as to the computer was clearly dishonest, and I agree with the description of the learned Judge (although this is a matter of complaint by Mr Shrimpton who appears on behalf of the plaintiff on the appeal) that the crime must have involved premeditated dishonesty since it included the production of a false receipt.
The plaintiff commenced proceedings on the policy. The defendants filed a defence and counterclaim. In due course, sensibly, two preliminary issues were ordered to be tried by the Court. The issues are in the following terms:
"If the Plaintiff's insurance claim dated 17th July 1990 was fraudulent in that it included a claim for computer equipment purchased from Micro & Peripheral Services for £2398 and was supported by a receipt from Micro and Peripheral Services for £2398 when in fact the receipt was not genuine and the computer equipment was not purchased by the Plaintiff from Micro and Peripheral Services, is the Plaintiff entitled to recover from the Defendant in respect of any genuine loss or losses which he may establish and which forms/form part of the same insurance claim."
The Judge answered this preliminary issue "No. Secondly:
"Does the question 'Have you or your spouse ever been subject to any declaration of bankruptcy or conviction of arson, fraud, forgery, theft, robbery or handling of stolen goods' (such question being part of the insurance proposal form completed by the Plaintiff on 18.01.1990) extend to the offence of obtaining property by deception contrary to Section 15(1) of the Theft Act 1968."
The answer which the Judge gave to that question was "Yes".
Both those answers are challenged on this appeal by Mr Shrimpton in the arguments that he advanced before us. It seems to me that in general it can be said that the way the Judge examined these issues is not capable of being faulted, and that the answers he gave to the preliminary issues were undoubtedly right.
Turning to issue one, Mr Shrimpton's argument on behalf of the plaintiff is that, while part of the claim which was put forward in relation to the computer was fraudulent, the rest of the claim was, on the facts on which the preliminary issue was determined, an honest claim. Therefore, there is nothing in the part that was fraudulent to prevent recovery of the part of the claim which was not fraudulent. The Judge, however, came to the conclusion that on the authorities the fraudulent part of the claim contaminated the remainder of the claim so that none of the claim was recoverable. There was no express term in the policy in question, which said that, if an insured put forward a fraudulent claim, then either the policy would be void or there would be no recovery in respect of the part of the claim which was not fraudulent.
Before the Court and in his skeleton, Mr Shrimpton advances forceful submissions in two directions. First of all he relies on the absence of an express term of the sort that I have just identified. He submits that it is not necessary nor appropriate to imply a term to the like effect. He submits that, if the insurers wish to produce that result in consequence of a contract of insurance which they made, they should have included a term to that effect in the contract. They have not done so, therefore, they cannot take this point. The Judge was wrong to conclude that they could.
As part of his argument, Mr Shrimpton accepts that in relation to a contract of insurance there is a general duty upon the part of an insured of good faith, but he submits that that general duty only relates to the making of the contract, and when the contract has been made, then that is the end of the general duty and in particular it does not apply to claims made under the policy. Mr Shrimpton also argues that on an arithmetical basis, the effect of the plaintiff's conduct which was dishonest only related to approximately 10 per cent of the total amount of the claim, and that should not prevent him recovering the remaining 90 per cent. Here, he draws comfort from the general principle of proportionality which, he submits, has become relevant in this area of our law as a result of its importation from European Union law.
I understand why Mr Shrimpton stresses the absence of an express term. He does so because the relevant learning on this subject starts with a case decided in the mid 19th century, followed by a case in 1927, where there were in fact express terms in the policy of insurance in relation to dishonest claims.
The first case which is often relied upon in this area is J Britton v. Royal Insurance Company (1866) 4 F&F 905. In that case there was an express condition. Willes J, in the course of his summing-up to the jury said (page 909):
"The law is, that a person who had made such a fraudulent claim could not be permitted to recover at all. The contract of insurance is one of perfect good faith on both sides, and it is most important that such good faith should be maintained. It is the common practice to insert in fire-policies conditions that they shall be void in the event of a fraudulent claim; and there was such a condition in the present case. Such a condition is only in accordance with legal principle and sound policy. It would be most dangerous to permit parties to practise such frauds, and then, notwithstanding their falsehood and fraud, to recover the real value of the goods consumed. And if there is wilful falsehood and fraud in the claim, the insured forfeits all claim whatever upon the policy."
It is correct, as Mr Shrimpton says and as that passage in the summing-up makes clear, the Judge was there referring to the common practice of inserting in fire policies conditions of the sort that were absent here. However, when the passage to which I have made reference is looked at as a whole, two things seem clear to me. One is that the Judge is only regarding the existence of a condition as being in accord with what would be the position if there was no such condition, as he says the condition is only "in accordance with legal principles and sound policy". In addition, I would point out that what the Judge said in that case to the jury presupposes that the obligations of good faith continue long after the policy has been entered into and are still relevant when it comes to considering claims.
The next case to which I should make reference is the case of Lek v. Mathews  29 Ll.LR. That was also a case in which there was a condition which is absent here, but I do refer to the words in the speech of Viscount Sumner at page 145 where he said:
"As to the construction of the false claim clause, I think that it refers to anything falsely claimed, that is, anything not so unsubstantial as to make the maxim de minimis applicable, and is not limited to a claim which as to the whole is false. It means the claim as to particular subject-matters in respect of which a right to indemnity is asserted, not the mere amount of money claimed without regard to the particulars or the contents of the claim; and a claim is false not only if it is deliberately invented but also if it is made recklessly, not caring whether it is true or false but only seeking to succeed in the claim."
I refer to that passage particularly, not so much on the first argument that is advanced in relation to this part of the appeal, but to the third argument, and the reference to "unsubstantial" by Lord Sumner. It is clear that he is using that word in the context of the maxim de minimis.
There were other cases put before us on this subject, but it is not necessary to refer to all the cases, and it is possible to go to the most recent case which has bearing on the subject. It is a decision of this Court in the case of Orakpo v. Barclays Insurance Services and Another  Ll.RLR 443. In that case there were two grounds for the decision. As to one of those grounds (the relevant ground for our purposes) Staughton LJ dissented from the views of the majority, which are set out in judgments of Hoffmann LJ and Sir Roger Parker. It is clear that, in relation to their reasoning, Hoffmann LJ and Sir Roger Parker were giving two separate grounds for their decision. My understanding has always been that, if a Court gives two different reasons for its decisions, both of those reasons form part of the ratio of the decision. However, just before judgment this morning, Mr Shrimpton submitted that overnight he had found considerable authority (largely stemming from judgments of Lord Denning MR) which indicated a contrary view. I did not consider it right to take up the time of the Court in investigating those authorities with a view to seeing whether Mr Shrimpton is right in his contention that, if there are two reasons for a decision given by a Court, then the position is that the reasons which are given are not binding authority. However, I am bound to say I have some difficulty with Mr Shrimpton's position because the consequences of it seem to me illogical. If a Court gives two reasons then the case must be of no authority whatsoever because neither reason can be said to be the authoritative reason. That would seem to me to produce a ridiculous result: if the Court says a particular result is necessary for two good reasons, then it is no binding authority; but if they can only manage one reason, then it is binding authority. Having not explored the authorities to which Mr Shrimpton referred, I leave the matter in that way because I am quite satisfied, in my judgment, that the view of the majority properly reflects the law in this country, and not that of Staughton LJ who, if I may shortly summarise it, gave a judgment which is of assistance to the argument of the appellants.
In his judgment, Hoffmann LJ agreed with Staughton LJ on the other ground of the decision. He then continued:
"In my view, the claim also fails on the ground that it was substantially fraudulent. The relevant principle is stated as follows by Malcolm Clark in his book, The Law of Insurance Contracts (1989), at p.434 ...
This proposition is supported by both principle and authority. In principle insurance is a contract of good faith. I do not see why the duty of good faith on the part of the assured should expire when the contract has been made. The reasons for requiring good faith continue to exist. Just as the nature of the risk will usually be within the peculiar knowledge of the insured, so will circumstances of the casualty, it will rarely be within the knowledge of the insurance company. I think that the insurance company should be able to trust the assured to put forward a claim in good faith. Any fraud in making the claim goes to the root of the contract and entitles the insurer to be discharged. One should naturally not readily infer fraud from the fact that the insured has made a doubtful or even exaggerated claim."
I should also refer to the judgment of Sir Roger Parker in the case. He said:
"The appellant submits that the law, in the absence of a specific clause, is that an insured may present a claim which is to his knowledge fraudulent to a very substantial extent, but yet may recover in respect of the part of the claim which cannot be so categorized. To accept this proposition involves holding that, although an insurance contract is one of utmost good faith, an assured may present a positively and substantially fraudulent claim without penalty, save that his claim will to that extent be defeated on the facts. He may yet, it is said, recover on the honest part of the claim. I would be unable to accept such a proposition without compelling authority and there is none. To do so would, in my view, require me to hold that utmost good faith applies only to inception or renewal and not to matters subsequent thereto, or, in the alternative, that whilst the law provides for avoidance of more representation or non-disclosure on inception or renewal, given only that it is material, it provides no similar remedy for the most heinous fraud in the making of a claim on the policy. I can see no ground for so holding...
In both cases there is therefore an incentive to honesty, if the assured knows that, if he is fraudulent, at least to a substantial extent, he will recover nothing, even if his claim is in part good. In my view, the law so provides. It is true that in many cases there is a specific false claim clause which brings home to the insured the dire consequences which follow from such a claim. But I respectfully agree with Mr Justice Willes that such a clause is merely in accordance with principles and sound authority. It could possibly be that in the absence of a clause providing that the claim and the policy should be avoided, the claim only would be forfeit. Lord Trayner was of that opinion in Reid & Co v. Employers' Accident and Livestock Insurance Co ... a case in the Court of Session. In my judgment this is not so. It appears to me that it is contrary to reason to allow an insurer to avoid a policy for material non-disclosure or misrepresentation on inception, but to say that, if there is subsequently a deliberate attempt by fraud to extract money from the insurer for alleged losses which had never been incurred, it is only the claim which is forfeit. I too would dismiss the appeal on both grounds."
The views expressed by Hoffmann LJ and Sir Roger Parker seem generally in accord with the views taken in numerous textbooks, extracts from which have been put before us. In his attempt to persuade the Court to distinguish those views in the textbooks and the majority of the Court of Appeal in that case, Mr Shrimpton relied upon cases which have been decided in other jurisdictions. I will draw attention particularly to the case of Johnson v. South State Ins Co 341 S.E.2d 793 (SC 1986) decided in the Supreme Court of South Carolina.
In that case Gregory J, giving the judgment in the Supreme Court of South Carolina, took a different view from that which I have expressed. However, he was careful to indicate that his judgment was based upon the well-established position under South Carolina law, that forfeiture insurance contracts are not favoured. He went on to say that the Court was mindful "... that the result reached today has been accepted only in a minority of jurisdictions." It does not seem to me that the authorities from other jurisdictions should persuade us to take a different view from that which, as I understand it, is a well-established position in this jurisdiction.
Mr Shrimpton in this area also relied upon the well-known textbook of Welford & Otter-Barry's Fire Insurance (4th Ed) by S H Noakes. At page 132 there appears this passage under the heading "The Duration of the Duty to Disclose":
"The duty to make a full disclosure attaches at the commencement of the negotiations, and continues right down to the completion of a binding contract. The assured does not therefore discharge this duty merely by disclosing such facts as are within his knowledge at the time when he makes his proposal for insurance; he must equally disclose every material fact which may come to his knowledge at any stage of the negotiations, whether or not his proposal has been forwarded to the insurers."
He submits that that passage appears to indicate that the duty of good faith to which I referred earlier ends on the making of the contract. However, there is another passage of that textbook which is relevant here. Under the heading "Fraudulent Claims", it is stated (page 289):
"Since it is the duty of the assured to observe the utmost good faith in his dealings with the insurers throughout, the claim which he puts forward must be honestly made; and, if it is fraudulent, he will forfeit all benefit under the policy whether there is a condition to that effect or not."
It seems to me that passage of this textbook is wholly in accord with the view of His Honour Judge Butter, a view of the law which I would adopt, and that there is no help that Mr Shrimpton can get from that textbook. The policy of the law in this area, it seems to me, must be to discourage the making of fraudulent claims.
That brings me to the argument that Mr Shrimpton advances based on the fact that both Hoffmann LJ and Sir Roger Parker used words which indicated that there must be fraud to a "substantial extent". If as Hoffmann LJ said the claim failed on the ground that it was "substantially fraudulent". Sir Roger Parker referred to fraudulent "to a very substantial extent", and also referred to material non-disclosure. In my judgment, the language that was there used, both members of this Court is to be understood as indicating that, if there is some immaterial non-disclosure, then of course, even though that material non-disclosure was fraudulent, dire consequences do not follow in relation to the claim as a whole; but if the fraud is material, it does have the effect that it taints the whole. In determining whether or not the fraud is material so that it has that effect, one of course has, in my judgment, to look at the whole of the claim. But if you have a claim (which admittedly here is for a much more substantial sum than the part which is fraudulent) where the part which is fraudulent is nonetheless in relation to £2,000 (which amounts to about ten per cent of the whole) that is an amount which is substantial and therefore an amount which taints the whole. I would take the view that the consequences are that the view of the Judge was right and the whole of the claim was thus tainted by the fraud. The position is that the contract remains one of good faith and the insured is required to exercise good faith in the making of the claim. In the making of the claim the facts are normally wholly within the insured's knowledge. The insurers are dependent on the insured exercising good faith in order to evaluate the claim.
Turning to the second issue, I can deal with it shortly as it is one of pure construction of the provision in the policy. Mr Shrimpton relies on the principle (which is undoubtedly right) that the policy must be construed against the insurers and in favour of the insured where there is a doubt as to its meaning. That applies also with regard to a proposal form which is filled in by an assured when the proposal form has been prepared by the insurer, as happened in this case.
I agree also that in interpreting a document there can be situations where the maxim expression unius est exclusio alterius can have application. If you expressly identify one situation in a document it can be inferred, in appropriate circumstances, that the matters which are not referred to in the document are not intended to be included in the reference. But here, although the words "theft", "arson" and "forgery" were used in the relevant question, the position was that the word "fraud" was also used. Fraud is not in itself an offence identified by our criminal law. It is an ingredient in other offences, often the most important ingredient in determining whether a person is guilty or not.
The offence in relation to which the plaintiff was found guilty was one which did not have in its title the word "fraud", but it was an offence of which fraud was an important element, the critical element. In my judgment, on any reading of this document, the position is that an offence of this nature was intended to be included. Accordingly, on this issue, as on the first issue, I would determine this appeal in the same way as it was determined by the Judge. Accordingly, I would dismiss this appeal.
LORD JUSTICE MILLETT: I am in full agreement with the judgment that my Lord has just delivered. I wish to add a few words of my own on what I take to be the meaning of the expression "substantially fraudulent" which is found in the authorities.
Assuming (without deciding) that a policy of insurance is avoided only by a claim which is "substantially fraudulent" or "fraudulent to a substantial degree", I reject the submission that this is to be tested by reference to the proportion of the entire claim which is represented by the fraudulent claim. That would lead to the absurd conclusion that the greater the genuine loss, the larger the fraudulent claim which may be made at the same time without penalty. In my judgment, the size of the genuine claim is irrelevant. The policy is avoided by breach of the duty of good faith which rests upon the insured in all his dealings with the insurer. The result of a breach of this duty leaves the insured without cover. In the present case the insured took advantage of the happening of an insured event to make a dishonest claim for the loss of goods worth £2,000 which to his knowledge had not occurred. In my view, the right approach in such a case is to consider the fraudulent claim as if it were the only claim and then to consider whether, taken in isolation, the making of that claim by the insured is sufficiently serious to justify stigmatising it as a breach of his duty of good faith so as to avoid the policy.
The making of dishonest insurance claims has become all too common. There seems to be a widespread belief that insurance companies are fair game, and that defrauding them is not morally reprehensible. The rule which we are asked to enforce today may appear to some to be harsh, but it is in my opinion a necessary and salutary rule which deserves to be better known by the public. I for my part would be most unwilling to dilute it in any way.
I agree that the appeal should be dismissed.
LORD JUSTICE MUMMERY: I agree with both judgments.
ORDER: Appeal dismissed with costs; order nisi against the Legal Aid Board.