7.6 PREVENTION OF INSURANCE FRAUD Fraud is of course ‘dishonesty’ or ‘cheating’. Since insurance is a process involving a high element of trust, there is ample scope for the dishonest person to take advantage. Insurance fraud may take any of a large number of forms. Usually, we tend to associate the term with dishonest claims, from relatively ‘small’ matters, such as having a cheap watch stolen and saying that it was an expensive one, to elaborate swindles involving arson or faked death certificates. There have even been examples of large life insurance being arranged and then having the person concerned murdered for the insurance money. Fraud, however, may arise at other than the claims level. Obtaining insurance by the deliberate falsification of material information, or knowingly hiding bad features, is equally fraud. Of course, this is a form of breach of utmost good faith (see 3.2 above), but often it is difficult to prove such things later. Although fraud may be committed by anyone involved with insurance (policyholder, insurance intermediary or even the insurer), we shall concentrate on the customary understanding of the proposer or insured seeking an illegal advantage against the insurer. The comments below refer specifically to the role of the insurance intermediary in this subject area. 7.6.1 Beware of Becoming Partners in Crimes Undoubtedly all of us know that we must refrain from carrying out criminal activities, or we may face criminal prosecution and even civil action. For instance, an insurance intermediary who misappropriates premiums that have been collected on behalf of his principal is liable to prosecution for theft, and to civil action by the principal to recover the stolen money and for damages such as loss of interests. It is also common knowledge that, apart from the actual perpetrator(s), a secondary party to the crime (see the next paragraph for its definition) is also punishable by law. However, a general knowledge cannot be assumed that the secondary party and the principal perpetrator (or just ‘principal’) can be equally responsible for the same crime. This 7.6.1 introduces the criminal law of secondary parties so as to enhance the ability of insurance intermediaries to identify potential criminal activities and to prompt them to take extra care in distancing themselves from such activities. It will be seen that the discussions here are not restricted to the offence of fraud and offences involving fraud, in view of the fact that the law of secondary participation is generally applicable to all offences. Depending on the nature of participation, a participant in crime can either be in the capacity of a principal or a secondary party (alternatively known as ‘secondary participant’ and ‘accessory’). Where there are more than one principal and they should be jointly responsible, they are also known as joint principals. A secondary party to an offence is one who aids, abets, counsels or procures the commission of that offence. Without going into details about these four legal terms, it is sufficient for the purposes of these Study Notes to mention 7/28 .