At common law, in the absence of a fraud clause in the insurance policy, fraud can only be relied upon to the extent to which it prejudices the insurer. If an element of the claim is fraudulent only the fraudulent portion of the claim is forfeited at common law. There is no implied term in our law that a fraudulently exaggerated loss results in forfeiture of all claims under the policy. Nor are claims forfeited where fraudulent means are used to obtain a benefit to which the insured is entitled under the policy. See for example Schoeman v Constantia Insurance Co Ltd and Videtsky v Liberty Life Insurance Association Ltd.
Appropriately worded fraud clauses can be successfully used to deny claims which are in part fraudulent or where fraudulent means or devices are used. Those clauses will however be restrictively interpreted. Success lies in carefully wording the fraud clause.
For example, in Hiepner v SA Eagle the policy contained a fraud clause which provided that if any claim under the policy is in any respect fraudulent, all benefit under the policy will be forfeited. The insured claimed genuinely for a loss of both their vehicles but also fraudulently for other articles alleged to have been in the vehicle at the time of the loss. The insured sought to argue that there existed two different claims separate from each other and accordingly that the claim for the vehicle should be paid notwithstanding that the contents claim was fraudulent. The court found otherwise. There was only one insurance policy in terms of which the various articles were insured and the fraud clause could be relied on to reject the entire claim.
In Papagapiou v Santam Limited the Supreme Court of Appeal also gave a fraudulent insurance claim short-shift. The insured had approached the loss adjuster with a request to inflate the damage to the property lost. The insurer, when it learnt of the fraudulent request to inflate the claim, rejected the claim relying on the fraud clause. The court found that the fraudulent conduct of the insured constituted fraudulent means or devices in order to obtain a benefit under the policy. It did not matter that the fraud was committed before the claim was lodged or that the loss adjuster had not acceded to the request to inflate the damage and that no fraudulent benefit had been obtained under the policy.
