In a landmark ruling the High Court in London has ordered a fraudster to repay more than £19,000 to Cirencester Friendly after falsely obtaining an income protection policy from the company and involving the Financial Ombudsman Service (FOS) for compensation.
High Court Judge Richard Seymour decided that Christopher Parkin a former member of Cirencester Friendly Society acted fraudulently when applying for individual income protection in 2007.
Parkin had then submitted a claim within two months of becoming a member of the friendly society and had involved the FOS when the claim was declined.
At the outset, it was found that Mr Parkin's application involved inadequate disclosure. If complete and accurate information had been disclosed the application would not have been accepted and Mr Parkin would not have been offered membership, Cirencester said.
Cirencester had asked the Court to set aside the two awards arising from Mr Parkin's complaints to the FOS and declare that the awards were not enforceable.
The FOS instead required the Society to consider the claim (which led to a £19,000 payment which included penalty interest at 8%.)
Later in connection with a second complaint regarding an on-going claim the FOS wanted the Society to pay a further significant sum of money.
Believing there to have been fraud against the Society and the FOS, the Society wanted the Court to consider the evidence.
The ruling in Cirencester Friendly Society Limited v Christopher Parkin on 12 May 2015 held that Mr Parkin had defrauded the Society and the FOS.
It was ruled that the £19,000 already paid must be returned to the Society and that no payment should be made regarding the second FOS award.
Parkin was also ordered to pay back interest to Cirencester Friendly plus an interim payment of £200,000 towards a £350,000 costs bill.
The Society was right to say that due to fraud at the application, the contract should in accordance with legal principles be treated as if it had never existed, it was found.
Law firm Kennedys' partner, Helen Tilley, who acted on behalf of the Society, said: "Fraud is a serious allegation and is not made lightly. Cogent evidence impressed the Court Judge, and Court proceedings was the appropriate forum through which to consider allegations of this nature.
"The judgment may see renewed confidence in insurers highlighting that the Court is an alternative and appropriate forum to deal with serious fraud allegations."
Paul Hudson, CEO of Cirencester, said: "I am very pleased that the Judge, in arriving at his considered decision, helped the Society to protect the interests of over 34,000 current Members and to send a clear message that fraud will not be tolerated as it potentially impacts upon all.
"The Society is committed to supporting its Members and the actions of Mr Parkin undermine genuine claimants who rely on the Society when they need our help. For a number of years now we have been very transparent about our claims payment record.
"In 2014, 94% of claims were paid to the value of £3.3 million in sick pay benefit. As a mutual, the Society is owned by its Members and we exist to serve them. We did not enter this action lightly and it has been a long and stressful process but thankfully the truth came out and justice was served".