Does fundamental dishonesty remain an effective tool for preventing fraudulent claims while protecting the rights of legitimate claimants?

Leanne Conisbee on the legal principle of “fundamental dishonesty” and its implications for insurers.

Claims inflation was a major talking point in this year’s Rendez-Vous de Septembre, with increased pressures driving up claims settlement costs – often above normal inflation rates – a major concern for (re)insurers. The legal principle of ‘fundamental dishonesty’ was established to ensure that only legitimate claims are paid out, thereby preventing inflated costs.

The concept of "fundamental dishonesty” was introduced under section 57 of the Criminal Justice and Courts Act 2015, in a bid to deter fraudulent or exaggerated personal injury claims, particularly in relation to motor accident cases and ‘trips and slips’ claims. Since its introduction, assessing fundamental dishonesty in claims has been a key defence strategy. However, given the constantly evolving nature of case law, it is worth assessing whether this remains the powerful strategic tool it once was.

Because fundamental dishonesty undermines fairness and the integrity of the claims process, it is of particular interest to insurance companies. Correct application of the concept deters dishonest claims while safeguarding the rights of genuine claimants. Severe measures are in place to ensure that those who act deceptively face consequences, such as loss of compensation and liability for judicial costs. Prosecution for perjury or contempt of court can be pursued too if the claimant provides false statement, which can mean prison time and fines if proven.

Various methods exist to detect fundamental dishonesty in personal injury claims, such as surveillance (private investigators or CCTV footage), investigation of claimants’ social media profiles, witness and claimant interviews and advice from medical experts. The burden of proof is on the defendant to demonstrate that either the claim or the claimant themselves have been fundamentally dishonest.

This means that they have deliberately lied, exaggerated or hidden important information that is significant or serious enough to affect the outcome of the case. The court will take into account the claimant’s understanding or perception of the facts. However, this belief does not necessarily have to be reasonable.

Case study: Beliefs and fluctuating health conditions

One recent case worth analysing, where fundamental dishonesty was not found, is Preater v Betsi Cadwaladr University Health Board from 2022. The defendant in that case alleged the claimant exaggerated her injuries because she presented her symptoms to medical experts only when suffering from flare-ups, so they would be at their worst and significantly impacting her quality of life, while surveillance evidence showed no such effect on other days. Also, it was alleged that she was fundamentally dishonest when she said she could not work due to her condition because she had been offering beauty treatments to clients on an ad-hoc basis, as evidenced by surveillance as well.

The court found that there was no fundamental dishonesty in this case because the claimant suffered from a fluctuating pain condition, with good days and bad days, and believed, even if mistakenly, that sporadic beauty treatments in exchange for fees do not constitute employment.

Case study: Substantial injustice

Under section 57(1) the court must dismiss a claim where it finds that the claimant has been fundamentally dishonest. However, s57(2) adds: “unless the court is satisfied that the claimant would suffer substantial injustice if the claim were dismissed”. Up until April 2024, no judicial guidance had been issued for determining whether the claimant would suffer substantial injustice. However, in Kirsty Williams-Henry v Associated British Ports the judge set out a non-exhaustive list of eight factors to consider when determining whether dismissing a claim would cause substantial injustice.

These factors include the amount claimed versus the genuine damages, the scope and depth of the dishonesty, the effect of the dishonesty on the claim, the scope and level of the claimant’s genuine disability, the nature and culpability of the defendant’s tort, the cost consequences if the claim is not dismissed, whether the defendant has made interim payments, and the effect of dismissing the claim on the claimant’s life. In this case, the judge concluded that there would not be substantial injustice if the claim was dismissed, as the defendant had not applied for repayment of interim payments.

Case studies can prepare defendants to better anticipate potential outcomes and plan their strategy accordingly. While an allegation of fundamental dishonesty combined with surveillance which undermines the claimant’s evidence remains an extremely valuable negotiating tool, especially in the lead up to a joint settlement meeting, the recent developments analysed show that in court other factors also play a role. Fundamental dishonesty continues to be a powerful strategic tool but its application must be nuanced and considerate of the complexities inherent in each case.

The court’s decision in Preater v. Betsi Cadwaladr University Health Board suggests that whenever fluctuating conditions are present both ‘worst day’ and ‘best day’ symptoms need to be considered in the strategy. Another takeaway from the same case is that defendants should investigate, as much as possible, the beliefs of the person accused of fundamental dishonesty with regards to their injuries and the facts of their case. The framework set out in Kirsty Williams-Henry v Associated British Ports can guide defendants and help them present a more robust argument when fundamental dishonesty is suspected.

Leanne Conisbee is a partner in the Insurance, Risk and Regulatory Team at HCR Law.