Fraud is frequently dealt with in ARPI policies in the conditions section, although occasionally it is also an excluded peril unrelated to the actions of the assured. For example, the fraud exclusion may exclude acts of fraud and dishonesty by anyone.

Typically, the condition most frequently used in the London insurance market is as follows (split into its constituent parts):

– if a claim is fraudulent in any respect or if fraudulent means are used by the insured;

– or by anyone acting on his behalf to obtain any benefit under this policy;

– damage to the property insured or to property used by the insured at the premises for the purpose of the business is caused by the wilful act or with the connivance of the insured;

– all benefit under this policy shall be forfeited. (Alternative clauses refer to the policy being voidable at the option of the insurer.)

There are many variations upon the same theme, but the above elements are usually present. The clause attempts to remove the uncertainty surrounding the remedy available to insurers in the event of fraud by confirming that the assured must “forfeit all benefit” which would include prior paid claims. This apparent advantage may be of limited importance with the extension of the duty of utmost good faith and the recent Court of Appeal decisions referred to above.

The first part of the condition is concerned with the assured or its agent fraudulently making the claim, whereas the second half deals with fraud being related to self-induced loss. As both of these elements are covered by the requirements of common law, perhaps the only advantage of the condition is to point out that the assured is responsible for the fraud of his representative. However, an assured, in any event, could not take advantage of the fraud of his representative or agent. The condition does not satisfactorily deal with the typical situation where the fraud may have been committed by a director or other officer of the assured company. The condition is apparently drafted to cater for the individual rather than the company. It is surprising that the clause has not been extended and re-drafted so as realistically to encompass the possible fraudulent actions of directors, shareholders and employees or, indeed, contractors of the assured company such as security firms, carriers and auditors.