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Articles | Fri 12th Aug, 2016
There is now Supreme Court authority that personal injury settlements can be set aside where it is later discovered that the settlement was made on the basis of fraud. This is the case even where fraud was originally suspected.
Lord Toulson remarks on the importance of this appeal at the start of his judgment in Hayward v Zurich Insurance Co Plc  UKSC 48 both as a matter of law and for its practical consequences for insurers and dishonest claimants. While bogus or fraudulently inflated personal injury claims are not new they present a serious problem.
Mr Hayward originally claimed £419,316.59 having suffered an injury at work. His employer, through its insurer Zurich, settled the claim for £134,973.11 (which included future earnings loss) despite suspecting that the claim was exaggerated and having served surveillance footage. After settlement the neighbours of Mr Hayward came forward to give evidence that in fact Mr Hayward had fully recovered a year before settlement was reached. The insurers brought a claim for misrepresentation against Mr Hayward.
After a 4 day trial, at which Mr Hayward maintained that he was a seriously disabled individual, HHJ Maloney QC found that Mr Hayward’s original claim had been grossly and dishonestly exaggerated. Mr Hayward’s injury and losses were assessed in the modest sum of £14,720, about 10% of the settlement figure. The settlement was set aside and Mr Hayward was ordered to repay it, less the assessed amount. Mr Hayward appealed against the decision that the settlement should be set aside but didn’t challenge the findings of fact or the assessment of quantum.
The Court of Appeal allowed the appeal because of the state of mind of the employer/insurer at the time of settlement. The equitable remedy of rescission was found to answer where the misrepresentation or fraud is discovered after the contract was entered into but it was not considered applicable where a party knows or perceives the truth but enters into the contract anyway. This was overturned by the Supreme Court who upheld the first instance decision.
The judgment of Lord Toulson (para. 58) set out that to establish the tort of deceit the Insurer had to establish that Mr Hayward had dishonestly made a material false representation which was intended to, and did induce it to act to its detriment. To establish this it needed to prove:
and where liability is established:
There were no issues as to (a), (b) or (d) which had not been challenged on appeal. The issue was with the causation element, more specifically whether there could be misrepresentation where the insurer did not believe the representations were true.
The issues for the Supreme Court in relation to (c) were:
Ultimately the Supreme Court answered ‘no’ to (A) and ‘yes’ to (B).
The primary judgment was given by Lord Clarke (with whom Lord Toulson, Lord Neuberger, Lady Hale and Lord Reed agreed) and specifically considered six arguments presented on behalf of the insurer:
The Supreme Court further considered ‘Under what circumstances, if any, does the suspicion by the defendant of exaggeration for financial gain on the part of the claimant preclude unravelling the settlement of that disputed claim when fraud is subsequently established?‘ Lord Clarke concluded that it is difficult to envisage any circumstances in which mere suspicious would preclude it.
One of the concerns of Underhill LJ in his Court of Appeal judgment was that it was contrary to the public interest in the settlement of disputes for them to be allowed to be set aside. It may be that the facts are so specific in this case that there are very few cases to which it will apply.
Whether or not you consider the extent of fraudulently exaggerated claims to be greatly overstated the corrosive impact of examples like that of Mr Hayward is clear. Will this judgment make claimants less likely to exaggerate? Or will it just undermine the incentive to settle and the certainty provided by settlement? Time will tell.
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