The vintage watch that never existed
Daniel's home contents policy with Fernhill Insurance covers theft. After a break-in he submitted a claim for £9,500. The schedule included a 'vintage Rolex, value £4,000, bought in 2019', supported by a receipt, and a £3,500 laptop. Fernhill made an emergency payment of £2,000 for the laptop and for replacing door locks. Its investigator found that the receipt's typeface and serial number did not match Rolex records and that Daniel had never owned such a watch. When interviewed, Daniel said his wife had completed the schedule and he had 'just signed it'. Fernhill also found that Daniel had failed to disclose, at inception, a £1,200 theft claim made two years earlier. Fernhill has not yet made a decision. Daniel has threatened to complain to the Financial Ombudsman Service and says that at worst he should lose only the watch element of the claim.
1. Advise Fernhill on its remedies in respect of the fraudulent claim under section 12 of the Insurance Act 2015 and at common law. Can it recover the £2,000 already paid, and can it refuse the laptop element?
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Section 12 remedies. Where an insured makes a fraudulent claim, the insurer:
- has no liability to pay the claim;
- may recover any sums already paid in respect of the fraudulent claim;
- may, by notice, terminate the contract with effect from a date specified in the notice.
The whole claim is tainted. The common law 'all-or-nothing' rule, preserved by s.12, means the insured forfeits the entire claim, not just the fraudulent part. Daniel's argument that he should lose only the watch element is wrong in principle. The laptop element is not severable, so Fernhill can refuse it.
Recovering the £2,000. The emergency payment was made in respect of the claim. Once the fraud is established, Fernhill can recover it as a sum paid in respect of the fraudulent claim. It should write a clear letter setting out the basis, the evidence and the amount demanded.
Proving the fraud. Fernhill must prove the fraud on the balance of probabilities. The forged receipt and the Rolex records are strong evidence. Daniel's claim that his wife completed the schedule is not decisive: if he signed and presented the claim, he is responsible for its truth. If the evidence shows his wife acted dishonestly without his knowledge, s.12 may not be available against Daniel, but Fernhill should investigate before deciding.
Separate non-disclosure. The undisclosed £1,200 theft claim may also be a qualifying misrepresentation under ss.7–8 of the Insurance Act 2015, giving separate remedies. Fernhill should not conflate the two issues.
2. Can Fernhill terminate the policy? If so, from what date, and must it return any premium? What if Daniel's wife completed the schedule without his knowledge?
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Termination. Section 12(2) allows the insurer to terminate by notice with effect from a date specified in the notice. Termination is prospective; the insurer cannot treat the policy as void from inception under s.12. The notice should be clear, specify the date (which may be the date of the fraudulent act or the date of the notice) and explain the consequences.
Premium. The Act does not expressly require a refund. Fernhill should consider the unexpired portion of the premium, the policy's own cancellation clause, and fairness under the Consumer Duty. Many firms refund the unexpired premium on termination for fraud to avoid a windfall, but this is a commercial and conduct judgement, not a strict statutory requirement. If Fernhill instead avoids for the inception non-disclosure, the premium must be returned unless the breach was deliberate or reckless.
If the wife acted without Daniel's knowledge. Section 12 applies to a fraudulent claim by the insured. If Daniel did not know and did not authorise the false schedule, the s.12 remedy may not be available against him. Fernhill would need to rely on other terms, such as a claims cooperation condition, or on the inception non-disclosure. The evidential picture matters: who completed the schedule, who signed it, who submitted it and who received the money. Fernhill should not assume fraud by Daniel simply because the document was false.
3. What regulatory and conduct issues arise if Fernhill reports the matter to the police and a fraud database, and Daniel complains to the Financial Ombudsman Service?
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Data protection. Sharing personal data with the police and a fraud prevention database can be lawful for the prevention and detection of crime and fraud, but it must be fair, lawful and transparent. Fernhill's privacy information should explain the sharing, and the data shared should be accurate, relevant and proportionate. Daniel has rights of access and rectification, and any database entry must be corrected if the fraud finding is not upheld.
FCA conduct and Consumer Duty. Fernhill must act with integrity and treat Daniel fairly. Communications should be clear and not misleading or threatening. Reporting to the police is a legitimate step, but it must not be used to deter Daniel from complaining. Any vulnerability should be identified and accommodated.
- Consumer understanding: explain the fraud finding and the remedies in plain language.
- Consumer support: give Daniel a clear route to challenge the decision.
- Price and value: consider whether any premium adjustment is fair.
FOS. Daniel can complain. Fernhill must issue a final response within eight weeks and tell him about FOS and the six-month time limit. FOS can review the fraud finding, the recovery of the £2,000 and the termination, and can award compensation up to £430,000. Fernhill should cooperate fully and keep the evidence trail, including the Rolex verification and the interview notes.
Reputational and regulatory reporting. Fernhill should consider whether the matter is reportable to the FCA and should review whether its fraud investigation and communications meet its obligations.