Chapter 5

Question 1

Cost Efficiency in Claims Handling

Answer 1

• choosing the correct investigation method
• balancing the claim’s size and complexity
• using approved processes and suppliers

Question 2

Key Considerations for Claims Handlers

Answer 2

• promptly deciding if a claim is covered
• keeping policyholders informed
• minimising complaints

Question 3

Unfair Claims Practices Prohibited in the USA

Answer 3

• misrepresentation of facts or policy provisions
• failure to acknowledge or promptly act on communications
• not maintaining reasonable standards for prompt investigations and processing
• failing to deliver prompt, fair and equitable settlements
• providing inadequate explanations for denial of coverage
• refusing to pay a claim without a reasonable investigation

Question 4

California Insurance Code

Answer 4

unfair claims settlement practises are knowingly committed on a single occasion or frequently enough to indicate unfair and prohibited practice

aims
• set minimum standards for claims handling
• promote good faith
• ensure prompt, efficient and equitable settlement of claims
• discourage and monitor false and fraudulent claims

Question 5

Key Requirements under CFCSPR

Answer 5

• conduct a thorough, fair and objective investigation
• acknowledge claim notice within 15 days, detailing needed information and providing assistance
• start investigating within 15 days of notification
• respond fully to claimant communication within 15 days
• accept or deny the claim within 40 days, explaining any partial denial
• ensure annual training for all claims handlers
• avoid making settlement offers that are “unreasonably low”

Question 6

Australian General Code of Practice

Answer 6

• aims to raise service standards and protect the rights of policyholders by being open, fair and honest
• a voluntary code but over 90% of insurance providers are signed up to it

Question 7

Three Requirements under the Australian Code of Practice

Answer 7

• conduct claim handling honestly, fairly, transparently and timely
• notify the policyholder of a decision within ten business days
• keep the policyholder informed of claims progress at least every twenty business days

Question 8

Australian Financial Complaints Authority (AFCA)

Answer 8

provides free and binding dispute resolution to consumers and small businesses as part of the code

Question 9

Handling Claims in Non-UK Jurisdictions

Answer 9

• is there a code of practice?
• what rules and timescales apply?
• do claims handling systems need amendments for local processes?
• do claims adjusters require specific training?
• can existing experts cover the new jurisdiction?
• are there language or cultural issues?
• what bribery or sanction risks might arise?

Question 10

Bribery and Sanction Risks in International Claims

Answer 10

assessing and mitigating increased risks of bribery or sanctions that may be present in the new jurisdiction

Question 11

Underwriting Fraud

Answer 11

when a policyholder or applicant misrepresents or omits important information during application to benefit financially

Question 12

Staged Incidents

Answer 12

situations where loss, damage or injury is caused deliberately to generate a fraudulent claim

Question 13

Material Misrepresentation

Answer 13

a real loss, injury or incident where the extent of damage or injury is exaggerated for a higher claim payout

Question 14

Nature of the Loss Fraud Indicators

Answer 14

• unrealistic loss circumstances
• inconsistencies in the story
• items in the claim that don’t match policyholders lifestyle

Question 15

Documentation Issues as Fraud Indicators

Answer 15

• unprofessional-looking documents
• incorrect or missing contact info
• mismatched signatures
• lack of supporting evidence

Question 16

Arson Claim Fraud Indicators

Answer 16

• financial troubles
• fire occuring in early hours
• inactive security systems
• inventory listing seasonal/out of stock
• no sentimental valued items lost

Question 17

Stolen Vehicle Fraud Indicators

Answer 17

• lack of vehicle documents
• history of motor theft claims
• unusual theft location
• no signs of forced entry on recovery

Question 18

Claims and Underwriting Exchange (CUE)

Answer 18

a database used to detect repetitive or duplicate claims across motor, home and other insurance types

Question 19

Motor Insurers’ Anti-Fraud and Theft Register

Answer 19

it identifies fraud in motor insurance by cross-referencing data with the DVLA

Question 20

Insurance Fraud Register (IFR)

Answer 20

a national database of known insurance fraudsters to help detect and prevent fraud

Question 21

Insurance Act 2015 on Fraud

Answer 21

the insurer can deny the claim, recover payments made and terminate the policy from the date of the fraud

Question 22

Britton v. Insurance Company (1866)

Answer 22

• good faith is required at the time of formation of the insurance contract
• this duty of good faith exists throughout the policy period and so extends to the claims process

Question 23

Black King Shipping Co v. Massie (The Litsion Pride) 1985

Answer 23

• the ship owners deliberately tried to evade paying additional premiums by slipping in and out of the Gulf, leading to the ship’s loss by rocket attack
• established the right to avoid an insurance contract when utmost good faith is lacking is a right of avoidance ab initio

Question 24

Orakpo v. Barclays Insurance Services (1995)

Answer 24

• the policyholder exaggerated a claim for £265,000 by overstating the number of tenants affected
• the claim was deemed fraudulent, discharging the insurer from all liability despite no specific forfeiture clause in the policy

Question 25

Joseph Fielding Properties (Blackpool) Ltd v. Aviva Insurance Ltd (2010)

Answer 25

• the insured presented a condition that allowing avoidance for fraudulent claims did not apply f a lesser, non-fraudulent claim could have been made
• the judge rejected the insured’s argument

Question 26

Nsubuga v. Commercial Union (1998)

Answer 26

if fraud is present in any part of a claim, the forfeiture clause applies to all sections of the policy, voiding the entire claim

Question 27

Agapitos v. Agnew (2003)

Answer 27

• considered the concept of a ‘fraudulent device’
• insured believed he had suffered the loss claims but seeks to improve or embellish the facts surrounding the claim by some lie
• court found the insurer to be entitled to reject the claim

Question 28

AXA General Insurance Ltd v. Gottlieb & Gottlieb (2005)

Answer 28

• the insured submitted fraudulent documents for two claims while the other two claims were genuine
• court of appeal confirmed that insurers could recover all sums paid on all claims if any part was fraudulent
• applying the rule from The Star Sea

Question 29

Galloway v. GRE (1999)

Answer 29

• the policyholder made a small fraudulent claim (£2000) alongside a larger genuine claim (£16,133)
• the entire claim was avoided as the fraudulent claim was treated as if it was the only claim

Question 30

Criminal Justice and Courts Act 2015

Answer 30

• addresses fraudulent personal injury claims brought by third parties
• came into force on 13 April 2015

Question 31

Section 57

Answer 31

• allows defendants to seek dismissal of a personal injury claim based on fundamental dishonesty
• the court must be satisfied, on the balance of probabilities, that the claimant was fundamentally dishonest
• the court must dismiss the entire claim unless doing so would cause substantial injustice to the claimant

Question 32

Example Cases of Section 57

Answer 32

• Mpoznu Hussein Sheikh v. London General Transport Services Ltd
• Summers v. Fairclough Homes
• Fari v. Homes for Harigney
• Basir v. Larizadeh
• Woodger v. Hallas

Question 33

Subrogation

Answer 33

the insurer’s right to recover a claim payment by taking over any rights the insured has against a third party to prevent a profit from a loss

Question 34

Castellain v. Preston (1883)

Answer 34

the seller had to repay £330 from the insurance to prevent making a profit after receiving full payment from the buyer

Question 35

Action in the name of the insured

Answer 35

• the insurer must bring the action in the name of the insured
• the only exception to this is claims under the Riot Compensation Act 2016, where insurers may sue in their own name

Question 36

Recovery Scenarios

Answer 36

• recovery greater than the loss - insured is entitled to surplus
• recovery less than the loss - insured keeps it if they paid the full claim
• recovery is equal to the loss - the insurer retains their payout and any balance is held for the insured

Question 37

Contractual Waiver of Subrogation

Answer 37

an insurer’s agreement not to pursue certain associated third parties to avoid conflicts of interest

Question 38

Ex-Gratia Payments in Subrogation

Answer 38

they are not entitled to subrogation rights

Question 39

Abandonment V Subrogation

Answer 39

abandonment lets insurers take ownership of salvaged property, subrogation allows them to pursue third parties

Question 40

Contribution

Answer 40

ensures insurers share the loss fairly when double insurance exists, preventing the insured from profiting from a single loss

Question 41

When does Contribution arise?

Answer 41

when two or more policies cover the same subject, peril and interest, are each liable for the loss

Question 42

Rateable Proportion Clause

Answer 42

states that each insurer will only pay a portion of any loss when multiple policies cover the same risj

Question 43

Maximum Liability Method

Answer 43

insurers share the loss based on each policy’s maximum coverage, typically used when policies cover identical property without average

Question 44

Independent Liability Method

Answer 44

each insurer’s liability is assessed as if their policy were the only one in force, then they share the loss proportionally

Question 45

Market Agreements

Answer 45

agreements where insurers waive subrogation or contribution rights to reduce disputes and administrative costs

Question 46

Abandonment in Marine Insurance

Answer 46

the insured can abandon the subject for a total loss claim, but must serve a notice of abandonment

Question 47

Total Losses in Non-Marine Insurance

Answer 47

• does not recognise constructive total loss, only actual total or partial loss
• if insurers pay for a total loss, they can claim any remaining value (salvage), supporting indemnity and preventing profit from a loss

Question 48

Reinsurance

Answer 48

• “insurance for insurance companies”
• protects them by sharing risk with reinsurers or buying protection against losses

Question 49

Two main types of Reinsurance

Answer 49

• proportional
• non-proportional (excess of loss)

Question 50

Facultative Reinsurance

Answer 50

reinsurance that covers individual underlying insurances on a case-by-case basis

Question 51

Treaty Reinsurance

Answer 51

reinsurance that covers an entire account or book of business, protecting many risks at once

Question 52

Proportional Reinsurance

Answer 52

reinsurers receive a proportion of the premium and pay the same proportion of any claim

Question 53

Excess of Loss reinsurance

Answer 53

protects against large or unusual losses and indemnifies based on specified occurrences in a separate contract

Question 54

Insurance Company of Africa v Scor (UK) Reinsurance Company Limited (1985)
“Follow the Settlement”

Answer 54

• claim must fall into contract terms
• claim adjusted in a proper manner
• absence of fraud

Question 55

Claims Co-Operation and Claims Control

Answer 55

provisions allowing reinsurers to assist in handling claims or take over decision-making, often conditions for liability