Australia: Court Limits An Insurer´s Ability To Raise Fraud In Insurance Disputes.

Last Updated: 21 May 2008
Article by Ray Giblett

Section 56 of the Insurance Contracts Act (s56) does not apply to fraudulent statements made in the course of giving evidence in connection with a disputed insurance claim.

Setting the scene

Much has been written about the decision of Justice Hammerschlag in Brescia Furniture Pty Ltd v QBE [2007] NSW SC 598.

One of the many interesting aspects of that decision was his Honour's finding that s56 of the Insurance Contracts Act (relating to fraudulent claims) does not apply to claims within Court proceedings, as opposed to the initial claim presented to the insurer. Section 56, therefore, would not preclude recovery under an insurance policy even if part of the claim made within the Court proceedings proved to be exaggerated.

The insured would nevertheless be required to prove the claimed loss and any judgment procured by a fraud could be set aside.

Where does fraud come in?

This limited view of the application of s56 has recently received support from the Victorian Court of Appeal in Allianz Australia Insurance Ltd v Douralis & Ors [2008] VSCA 72.

The Court of Appeal considered two appeals from decisions of the primary judge in the Victorian County Court. The first related to the scope of a builders home warranty insurance contract. Although not the focus of this update, the judgment on this subject provides a cautionary tale in respect of accurately defining the scope of cover, particularly the insured and additional beneficiaries of cover, and the importance of consistency between the policy wording, schedule and certificates of currency. The insurer's appeal against the finding that cover extended to Mr and Mrs Douralis in respect of the acts and omissions of a builder not nominated in the policy was dismissed.

The second appeal was by Mr and Ms Douralis against the primary judge's finding that s56 of the Insurance Contracts Act entitled the insurer to refuse payment because the affidavit of Mr Douralis filed in the Court contained untrue statements intended to mislead the Court into concluding that Allianz had no defence.

While it was not contested on appeal that the statements were untrue, the Court held that s56 had no application on the basis that s56 has nothing to do with representations made in evidence in the course of proceedings following the rejection of a claim.

Justice Nettle commented that despite what was said in To v The Australian Associated Motor Insurers Limited [2001] VSCA 48:

"I see no reason in principle why a plaintiff's claim against the insurer should any more be denied on the basis that the plaintiff has given deliberately false evidence than a plaintiff's case against any other sort of defendant is denied on the basis that the plaintiff has given deliberately false evidence."

His Honour noted that, while there may still be consequences associated with giving false evidence (e.g. punishment for perjury), there should be no additional penalty by way of deprivation of the fruits of an otherwise valid claim.

Their Honours generally noted that even if they were wrong in relation to the application of s56, in their view it was just and equitable under s56(2) to otherwise order that the claim be paid in full.


This case highlights the limited application of s56 to claims made extra-curially under a policy rather than evidence submitted in proceedings in respect of a disputed claim. It also provides a further example of the Court's willingness to find that despite the presence of fraud it would be harsh or unfair not to pay a claim - being just and equitable in the circumstances.

The decision is also an example of the Court giving an expansive interpretation of a policy to include persons not expressly referred to in the policy and highlights the importance of accurately defining the scope of cover and ensuring the consistency of all related documentation, such as certificates of currency, to avoid a policy being given an unintended effect.


Wendy Blacker

t (02) 9931 4922


Ray Giblett

t (02) 9931 4833



Jim Demack

t (07) 3231 1570


David Slatyer

t (07) 3231 1532


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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