Insurance Fraud: What does it take to prove who lit the match?
Mar 2022 | InsuranceIntroduction
Insurance fraud can take many forms, from exaggeration of loss to deliberately causing the loss, such as in cases involving arson. Proving fraud, however, can be difficult. There is usually no ‘smoking gun’, and insurers are often left to gather what circumstantial evidence they can in the hope the weight of the evidence will tip the scales in their favour.
This issue was recently considered by the Supreme Court of Queensland in the decision in Cassa Bedding Pty Ltd v Insurance Australia Ltd.3
Background
The plaintiff, Cassa Bedding Pty Ltd (Cassa), operated a bed manufacturing and wholesale business from a leased factory premises at Yeerongpilly, a suburb in Brisbane. At approximately 9:25pm on Saturday, 29 August 2015, a fire was ignited in the vicinity of the main factory. The fire destroyed the factory and its contents.
Cassa made a claim for indemnity under its policy of insurance with the defendant, Insurance Australia Ltd (IAL). After a lengthy investigation, IAL declined indemnity, alleging Mr John Cassimatis, the sole director of Cassa, deliberately lit the fire.
Cassa subsequently issued proceedings against IAL claiming damages for breach of the policy. The amount claimed was significant, with the value of the loss likely exceeding $7 million.4
IAL denied liability and sought to rely on an express exclusion under the policy for loss or damage caused by the wilful act of the insured. It also argued the claim on the policy was made fraudulently within the meaning of s 56(1) of the Insurance Contracts Act 1984 (Cth) (ICA).
Policy Exclusion
The policy contained the following exclusion:
“Wilful Acts
Subject to the provisions of the Insurance Contracts Act 1984, we will not pay for any loss or damage caused by either Your wilful act or by the wilful act of another party committed with Your knowledge and consent and which You were capable of preventing.”
It was not in issue that a loss caused by the deliberate lighting of a fire by the sole director of the insured would constitute a ‘wilful act’ within the meaning of the exclusion, and, if proven, would allow the insurer to refuse to pay under the policy.5
Section 56 ICA
Section 56(1) of the ICA provides:
“56 Fraudulent claims
(1) Where a claim under a contract of insurance, or a claim made under this Act against an insurer by a person who is not the insured under a contract of insurance, is made fraudulently, the insurer may not avoid the contract but may refuse payment of the claim."
The term ‘fraudulently’ is not defined in the ICA. It was therefore necessary for the Court to turn to the common law to interpret its meaning. The Court considered a finding of fraud would necessarily involve a finding that the insured was deliberately untruthful with the intention of obtaining a financial gain.6 It further found that the deliberate destruction of property followed by a claim for indemnity with respect to the loss of that property met that description.
Onus and Standard of Proof
IAL bore the onus of proving, on the balance of probabilities, that Mr Cassimatis deliberately lit the fire and advanced a fraudulent claim ‘on the strength of his handiwork.’7
In commenting on the civil standard of proof, the Court referred to various court decisions, including the often-cited High Court decision in Bradshaw v McEwans Pty Ltd,8 the relevant passage being:
“The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture …”9 (emphasis added)
The Court also referred to the decision of the Queensland Court of Appeal in Leigh v Bruder Expedition Pty Ltd,10 in which Sofronoff P stated:
“In particular, the seriousness of the allegation made, the inherent unlikelihood of an occurrence, or the gravity of the consequences flowing from a particular finding, are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal.”11 (emphasis added)
The Court held that, given the gravity of the allegations in this case, particularly because they involved allegations amounting to serious criminal conduct, ‘a high degree of persuasion [was] required before those allegations [could] be made out.’12 It also noted that members of the public do not ordinarily engage in criminal conduct and, for that reason, ‘the court should be slow to make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.’ 13
The Facts
The Factory
The factory was a predominantly steel structure with a roof height of approximately eight metres and a total volume of approximately 16,000 cubic metres. At the time of the fire, the main factory contained a large quantity of highly combustible manufacturing materials and stock.
There was a large industrial skip bin used for the disposal of manufacturing waste on one corner of the factory. The bin was used from time to time by members of the public because it was largely unattended on weekends, and there had also been a number of incidents in the past where rubbish bins had been set alight within the complex.
Weather
It had been raining heavily on the evening of the incident. According to Mr Cassimatis, the rain had ‘started to ease off' when he left the factory.14
CCTV Cameras
There was no security footage from the factory in evidence.
There were, however, two CCTV cameras installed on the exterior of a nearby unit occupied by Black Moth Technologies Pty Ltd. This unit was situated about 50 metres from the factory. Both cameras were operating at the time of the fire. The Yeerongpilly Railway Station on Wilkie Street, which was about 700 metres from the factory, also had security cameras running.
Mr Cassimatis left the factory at approximately 9:25pm. The footage from the Black Moth cameras showed Mr Cassimatis’s vehicle in motion at approximately 9:25:32pm. Eight seconds later, the footage showed his vehicle’s lights switched off just before disappearing from view. Less than a minute later, the footage from the Yeerongpilly Railway Station also showed Mr Cassimatis switching his head lights off.
At approximately 9:25:56pm, less than a minute after Mr Cassimatis left the premises, the first sign of the fire could be seen on the Black Moth footage, being a glow in the line of trees and shrubs along one side of the driveway.
Lay Witness Evidence
A number of witnesses observed the fire and called ‘000’.
One reported the fire at approximately 9:28pm, stating there was a ‘building on fire, fully on fire’ and that ‘everything [was] fully ablaze’ with ‘flames coming out of the windows’.15
Another, who also called ‘000’ at around the same time, took several photos and video recordings of the fire, which were said to take on particular importance to the conclusions reached by the fire experts.16
QFES Investigation
The fire was investigated by the Queensland Fire and Emergency Services (QFES).
The first QFES officer arrived at approximately 9:34pm, around eight minutes after the first signs of fire were observed. All three faces of the building visible from the roadway were observed with flame heights of above six metres. At this time, parts of the building were already starting to collapse, and the structure was starting to weaken.17
The QFES officer gave evidence that he walked around the perimeter of the building to look for a potential entrance, but the building was secured so he could not gain access. Significantly, he did not detect any petrochemical odour nor find any evidence of jerrycans or other fuel receptacles.18
Expert Evidence
Three witnesses with expertise in fire investigation gave evidence at the trial: Mr Murray Nystrom, Ms Belinda Jones and Mr Morgan Cook. Mr Nystrom was retained on behalf of IAL. Ms Jones and Mr Cook were retained on behalf of Cassa. At trial, however, only Ms Jones was called on behalf of Cassa. Mr Cook, along with Mr Nystrom, was call by IAL.
Mr Nystrom attended the fire scene the day following the fire. Ms Jones attended what remained of the factory around two weeks later. Mr Cook was engaged in 2017 and did not see the fire scene for himself; he conducted a desktop review of a range of material.
Given the short timeframe between the first glow and the substantial fire observed in the building, both Mr Cook and Mr Nystrom considered it likely there was a fire inside the factory at the same time as a fire in the area of the skip. Ms Jones accepted that there was a fire in the area of the skip and ‘could not exclude’ a possible second area of origin within the building.19
Mr Nystrom considered it was most likely the skip fire had been started by an ignition source being applied to an accelerant, although his examination did not identify the presence of an accelerant. Mr Cook agreed the use of an accelerant was more likely given the speed of the fire growth and the sudden appearance of the glow. Ms Jones considered that the lack of physical evidence of an ignition source and presence of an accelerant meant she could not identify nor exclude any specific mechanism, however, the strong evidence of multiple fires was ‘highly suggestive of an overall deliberate fire event.’20
The experts all agreed that if an ignitable liquid was used, it may not have been detected in analyses carried out during the investigation of the fire.
Mr Cassimatis’ Evidence
Mr Cassimatis’ evidence at trial was essentially that, on the night in question, after being alone in the factory for about three hours from approximately 6:30pm, he set the alarm and secured the factory. He then drove to his home at Mount Ommaney, where he ate dinner and watched television with his wife before later learning about the fire.21
The Court found Mr Cassimatis ‘repeatedly lied under oath’.22 For example, on one occasion, he informed the QFES he left the factory on the night in question at 8.00pm, and, on another occasion, at 8.30pm. He also informed the Queensland Police Service he left the factory between 8:30pm and 9:00pm. When attempting to explain why he reported leaving between half to one and a half hours before he actually did, Mr Cassimatis ‘gave an elaborate explanation’ as to how he lost track of time due to leaving his mobile phone at the factory, having his watch in for repairs, the pixels dropping out on the digital clock on his car, and there being no clock anywhere in his home.23
Similarly, the reason Mr Cassimatis gave for switching his lights off on his car when driving away from the factory was that he was engaging in some motor vehicle diagnostics related to a traction control warning light on the dashboard of his vehicle.24 The Court considered this explanation ‘arrant nonsense’ and the real reason Mr Cassimatis had kept his headlights off as he drove through the precinct was to avoid detection.25
The cumulation of Mr Cassimatis’ lies was found to be a ‘shameless concoction.’26 However, the Court considered the rejection of Mr Cassimatis’ version of events alone was not sufficient to satisfy the ‘heavy burden’ on IAL to prove its case.
Burns J outlined that the correct approach was to:
“[P]ut Mr Cassimatis’ version to one side because it proves nothing and to focus instead on the circumstances that I do accept are proved by the evidence in order to decide whether those circumstances are sufficient to support the drawing of inferences of wrongdoing to the standard earlier discussed.”27
Motive
IAL alleged Mr Cassimatis had a financial motive to light the fire, which was addressed at some length in the judgement. However, the motive could not be satisfactorily proved.28
The Court noted that the absence of any motive may be a powerful consideration against a finding of wrongdoing, although there was a distinction between an absence of proven motive on the one hand (being the case here), and a proven absence of motive.
The Court considered that where, as here, the evidence connecting Mr Cassimatis to the act of destruction was so potent, the absence of any proven motive assumes less importance.29
Decision
The Court accepted the expert evidence that there was insufficient time for the fire to migrate from the skip bin to inside the factory to produce a fire of the magnitude observed by witnesses, which supplied an ‘irresistible inference’ that at least one other fire must have been started inside the factory at about the same time.30 This was said to put to rest the theories advanced by Cassa as alternative explanations for the fire, such as spontaneous ignition, a wayward cigarette butt thrown into the skip, or a stranger starting a fire in the skip.
As to Mr Cassimatis’ involvement, the Court found he was the only person with the opportunity to access the skip and then return inside, set the alarm, secure the building and then escape.31
After weighing up all of the evidence and considering the applicable principles, the Court was satisfied IAL had proven ‘to the high standard’ Mr Cassimatis lit the fire or fires at his factory.32 In arriving at its conclusion, the Court took into account the absence of proven motive and the ‘inherent unlikelihood’ of the alleged conduct but found the ‘only reasonable and definite inference available on the proven facts’ was the fire was deliberately lit and Mr Cassimatis was the perpetrator.
The Court also found Mr Cassimatis subsequently caused a claim to be advanced on the policy of insurance on behalf of Cassa for the loss caused by the fire, and that he knew Cassa had no entitlement to advance such a claim. It followed that the claim was excluded from cover under the policy, and the claim was also fraudulently made within the meaning of s 56 of the ICA. IAL was therefore entitled to refuse payment of the claim on the policy and judgment was awarded in its favour.
Conclusion
Broadly speaking, there are two standards of proof: the criminal standard and the civil standard. For criminal matters, guilt must be proved ‘beyond reasonable doubt’. In civil matters, the standard of proof is “on the balance of probabilities”.
The relevant standard of proof in Cassa, which concerned arson and insurance fraud, was the civil standard. However, the Court made several statements to the effect the standard of proof in such a case was ‘high’ and that ‘a high degree of persuasion [was] required before those allegations [could] be made out.’
Based on these statements, one could be forgiven for questioning whether, in civil matters involving arson and insurance fraud, there might be some higher standard than the general civil standard of proof; a standard that requires not a complete removal of doubt (as required by the criminal standard), but perhaps a standard somewhere in between.
The High Court in the past has made it clear there is only one civil standard of proof and has warned that statements to the effect that clear and cogent proof is necessary in matters involving fraud should not be understood as directed to the standard of proof. As stated by the majority in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd:
“If such generalisations were to affect the proof required of the party bearing the onus of proving the issue, the issue would be determined not on the balance of probabilities but by an unbalanced standard. The most that can validly be said in such a case is that the trial judge should be conscious of the gravity of the allegations made on both sides when reaching his or her conclusion.”33
This appears to have been the approach adopted by the Court in Cassa. Rather than seeking to modify the civil standard of proof, the Court, conscious of the seriousness of the allegations of fraud, carefully evaluated the evidence so as to satisfy itself the civil standard had been met.
Learning Point
When seeking to establish fraud in the context of an insurance claim, in the absence of direct evidence of such fraud, it is important for insurers to be diligent in gathering as much circumstantial evidence as possible. Allegations of arson and fraud are very serious matters and a court will carefully examine all of the evidence before making a decision on whether the requisite standard of proof has been met.
Where suspected arson is concerned, this will include engaging a fire expert to examine the fire scene at the earliest opportunity, speaking to as many witnesses as possible, checking for CCTV footage, including from neighbouring buildings, and obtaining the statutory fire investigation file. The more evidence that can be gathered, the better the prospect of tipping the scales in the insurer’s favour.
1 Insurance Fraud Bureau of Australia, ‘Insurance Fraud, you are already paying for it’ Insurance Fraud (Web Page, 2021) < http://www.ifbaintelligence.com/#intro>.
2 Stephen Pedneault, ‘Fraud's fertile breeding ground, how the global supply shortage sets the stage for an uptick in financial shenanigans’ (January/February 2022) Fraud Magazine.
3 [2022] QSC 1.
4 It was accepted by IAL that the value of the contents and stock destroyed by the fire and the value of the payroll, up to the relevant policy limits, totalled approximately $3.37 million. The Court accepted the evidence of Cassa’s forensic accountant that the net loss of profits from the date of the fire to May 2020 was approximately $3.4 million, and this needed to be extrapolated to the present. The calculation for future loss was to be proceed on the same basis. Interest was also payable.
5 Cassa Bedding Pty Ltd v Insurance Australia Ltd [2022] QSC 1 [51].
6 Ibid [55].
7 Ibid [62].
8 (1951) 217 ALR 1.
9 Cassa Bedding Pty Ltd v Insurance Australia Ltd [2022] QSC 1 [65].
10 [2020] 6 QR 475.
11 Ibid [16].
12 Ibid [60].
13 Ibid [62]; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449, 450.
14 Cassa Bedding Pty Ltd v Insurance Australia Ltd [2022] QSC 1 [88].
15 Ibid [101].
16 Ibid [103]-[106].
17 Ibid [112].
18 Ibid [110].
19 Ibid [125(c)].
20 Ibid [125(k)].
21 Ibid [140].
22 Ibid [138].
23 Ibid.
24 Ibid.
25 Ibid.
26 Ibid.
27 Ibid [141].
28 Ibid [69].
29 Ibid [154].
30 Ibid [137].
31 Ibid [153].
32 Ibid [156].
33 (1992) 110 ALR 449, 451.
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The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
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