Commentary on Sections Part 4: Fraudulent Claims Section 13: Remedies for fraudulent claims: group insurance
106.Group schemes are an important form of insurance. Many schemes are set up by employers to provide protection insurance for their employees. The policyholder is typically the employer, who arranges the scheme directly with the insurer. The group members (typically employees) have no specific status. As they are not policyholders, if a group member makes a fraudulent claim, the insurer’s remedies are uncertain.
107.This section is intended to give the insurer a remedy against a fraudulent group member, while protecting the other members who are covered by the insurance.
108.Section 13(1) defines a group scheme to which this section applies. It may cover not only the typical employment scheme, but many other types of arrangement including block building policies taken out by landlords for tenants, and potentially insurance arranged by one company for a group of companies, if the contract is so structured. It is possible for group insurance to cover only one member, where (for example) a freeholder takes out insurance for a single leaseholder.
109.This section envisages a policyholder (A) taking out a policy which is of direct benefit to one or more third parties who are not parties to the contract (the Cs). The contract must not simply insure A’s liability in respect of the Cs, though A may itself be a beneficiary under the policy. The section applies where one of the Cs (CF) makes a fraudulent claim.
110.Section 13(2) provides that the insurer has the same remedies against the fraudulent group member (CF) as it would have against a policyholder who makes a fraudulent claim. These remedies are set out in section 12. This means that where a fraudulent claim has been made by CF, the insurer is not liable to pay the fraudulent claim. It may retain any premiums paid by, or on behalf of, CF. It may also treat CF’s insurance cover as having been terminated at the time of the fraudulent act. To exercise this option, it must serve notice on both A and CF.
111.Importantly, the insurer may not treat its entire liability under the contract as terminated, but only its liability to CF. Sections 13(2)(a) and (b) provide that the remedies are only exercisable against, and can only affect the rights of, that fraudulent member.
112.The arrangements for payment of insurance monies under a group insurance contract differ. The insurer may either pay insurance monies to the policyholder A (who would pass it on to the relevant group member), or may pay the group member directly. Section 13(3)(a) provides that the insurer may reclaim any sums paid in respect of the fraudulent claim from either A or CF, depending on which of them is (or was last) in possession of the money.