Court: a suspicion of fraud is insufficient to defeat an entire claim (2017)

In December 2017 the District Court handed down a ruling in a case in which an insured resisted the outright rejection of his claim. The insurer had refused payment on the basis of what it described as “a justified suspicion of fraud”. The insured argued in response that a suspicion is not proof, that his statement of loss was fully substantiated, and that the real reason for the refusal probably lay in the size of the claim. The court sided with the insured — not on the facts, but on the principle.

The background

For several years now, insurers in the Netherlands have operated a structured system of fraud management. Part of this is the possibility, where there is well-founded doubt, of refusing or limiting payment of a claim, terminating the policy, and passing the insured’s data to national registers such as the Central Information System (CIS) and the Incident Warning System for Financial Institutions (EVR). The consequences for the insured are far-reaching: in effect, becoming uninsurable in the insurance market for years.

It is — given those serious consequences — no surprise that courts in fraud disputes are paying increasing attention to the quality of the evidence an insurer puts forward. A “suspicion” may justify the start of an investigation; it may not be the basis for a sanction with lifelong effect.

What was at stake in this case

The insured had reported a loss which, on his account, had arisen in the usual way. The insurer launched a cause-and-origin investigation and arrived at a number of observations which, in the investigation report, were classed as “unexplained” or “deviating”. None of those observations contained in itself proof of intent or deception; taken together, they were said by the insurer to form a pattern which made fraud more likely than a chance set of circumstances.

On that basis, the insurer drew three conclusions: the claim was rejected in full, the policy was terminated, and the insured was registered. The insured took the matter to court.

What the court held

The court structured its reasoning along a number of settled lines that are by now firmly embedded in Dutch case law on fraud in insurance matters.

The burden of proof rests on the insurer. A party that relies on fraud to refuse a claim bears the burden of proof. That follows from the general rule on the allocation of the burden of proof — he who alleges must prove — and from the fact that fraud is an exception to the main rule that a covered loss is paid out.

The standard is “reasonably plausible”. The Dutch Supreme Court has, in earlier rulings, applied the criterion that the facts must be sufficiently plausible that an intention to deceive reasonably follows from the evidence. A suspicion, however serious, is at that level insufficient. The threshold is higher than “it might be the case”.

Unexplained facts are not evidence. The fact that an insured cannot, or cannot fully, explain certain matters — for example why some receipts are missing — does not in itself constitute proof of deception. People lose documents; memories fade; ordinary damage does not always leave a tidy paper trail. An insurer that uses this against the insured is effectively reversing the burden of proof.

Outright rejection is a heavy measure. Even where there is doubt about one element of a claim, that does not in itself justify rejecting the entire claim. An insurer that considers a single item to be incorrect must reason that specifically and may apply a targeted correction — not close the whole file down.

The court ordered the insurer to pay the claim, to lift the termination of the policy and to remove the data from the registers.

The broader framework: good faith and reasonableness

The ruling fits within a wider line in which the civil court assesses the relationship between insurer and insured against the standard of reasonableness and equity (article 6:248 of the Dutch Civil Code). An insurance contract is by definition an unequal contractual relationship: the insurer has legal capacity, fraud investigators and standard procedures at its disposal; the insured stands opposite this — at the moment when they need it most — often alone. Reasonableness requires that this inequality must not be used to saddle the weaker party with an evidential position they cannot bear.

The principle works in both directions. An insured who genuinely commits fraud can be sanctioned on fraud grounds — that remains. But an insured who is unfortunate in the way they come to be examined, on the basis of unexplained circumstances, and is thereby punished as if they had committed fraud, receives protection.

What this means for insured persons

Three practical lessons follow from this ruling.

Anyone who receives a refusal on the basis of “suspicion of fraud” would do well to first request the concrete evidence. A suspicion without underlying evidence is procedurally a weak position for the insurer. Anyone registered in CIS or EVR without substantiation can have that registration reviewed via Kifid or the courts. Removal is possible and happens regularly. And anyone who feels compelled to accept a rejection without investigation because “it would be no use anyway”: this ruling and the broader case law show that resistance can indeed be worthwhile.

Closing thoughts

Combating fraud is a legitimate interest of insurers; society has an interest in it, and honest insureds ultimately have an interest in it too. But the instrument by which this is done — the ability to reject an entire claim — is so heavy that, legally, it requires compelling evidence. The 2017 ruling is a reminder of that balance: not everything an insurer finds suspicious must also be found suspicious by a court.