Suspicion Of Fraud Does Not Prevent Unravelling A Settlement

Suspecting that an opponent is lying and not just exaggerating a bit is one thing, proving it is another thing entirely. Insurers (and other defendants) will often agree to settle a claim despite suspicions that an opponent is lying rather than incur the risk (in terms of damages payable and legal costs incurred) that the court may believe the opponent at trial.

The Supreme Court in Hayward v Zurich Insurance Company Plc has confirmed that in such circumstances, a settlement can be set aside if evidence later comes to light to prove a fraud has been perpetrated. Suspicion of fraud, without hard evidence to prove it at the time of settlement, will not preclude a defendant from subsequently seeking to set aside a settlement and claim damages for deceit.

The facts

The claimant, Mr Hayward, was injured at work and made a claim for £420,000. His employer's insurers, Zurich, admitted liability, subject to a deduction for contributory negligence, but contended that Hayward was exaggerating the extent of his injuries. Indeed, it obtained undercover surveillance evidence which suggested the same. Nevertheless, Zurich settled the claim for circa £135,000 prior to the trial on quantum. A full and final settlement agreement was entered into.

Two years after the settlement, compelling evidence came to light from Hayward's neighbours that Hayward had been dishonest in his claim and had fully recovered from his injuries a year before the settlement.

Zurich brought a claim to set aside or rescind the settlement agreement, recover the sums paid and seek damages for fraudulent misrepresentation or deceit. It argued Hayward's claim and witness statements referring to the extent of his injury had contained fraudulent misrepresentations.

The elements of fraudulent misrepresentation

For a claim of fraudulent misrepresentation to succeed, four elements need to be established:

The defendant made a false representation The defendant knew the representation was false or was reckless as to whether it was true or false The defendant intended that the claimant should rely on that representation The claimant did rely on it and suffered loss as a consequence. The issue

Throughout this case the issue was whether Zurich's suspicions from the outset that Hayward's case was exaggerated, meant it had not relied upon his representations as to the extent of his injuries when entering into the settlement agreement.

First instance decision

At first instance, the County Court...

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