Supreme Court overturns Court of Appeal judgement in fraudulent personal injury claim

Should insurers be able to overturn a settled case and take action to reclaim money, if they are made aware of evidence that the original settlement agreement was based on flawed or dishonest evidence? That’s the question that was raised before the Supreme Court in the case of Hayward v Zurich recently, and unanimously the court ruled that they should.

In what could prove to be a landmark ruling for both personal injury lawyers and insurance companies, the Supreme Court set a precedent which could see personal injury settlements successfully challenged if evidence comes to light suggesting the claimant had lied or misrepresented themselves in the process of securing their settlement.

In Hayward v Zurich the court ruled that a 2003 settlement for almost £135,000 should be set aside, and that the claimant should instead only be paid an award of £14,720. The reason for the decision was that the court heard evidence that the claimant, who maintained they suffered an injury at work which led to a serious long-term back injury, had in fact ‘grossly and dishonestly exaggerated’

The court heard that the claimant Mr Hayward – who had suffered an injury at work leading to what he said was a serious back injury – had ‘grossly and dishonestly exaggerated’ his condition prior to the 2003 settlement. The employer’s insurers Zurich were contacted by the claimant’s neighbours two years after the settlement with information that the claimant’s long-term injury was actually fictitious as he had in fact fully recovered from his injury at least a year before the settlement. As this new evidence casted doubt on the claim, Zurich claimed damages for deceit.

In August, 2015, the Court of Appeal ruled that that the original settlement should stand, arguing that the insurer went in with ‘eyes open’ and citing the ‘wider principle’ of finality of settlements.

The Supreme Court, however, unanimously overturned that judgement, ruling that Mr Hayward should be paid the reduced sum of £14,720, rather than the original figure of £135,000.

In judgement Lord Clarke said it would be wrong to say that Zurich had full knowledge of the facts prior to the settlement; he also added that in some cases the insurer could know a representation is false, but nevertheless be held to rely upon the misrepresentation as a matter of fact:

“It is difficult to envisage any circumstances in which mere suspicion that a claim was fraudulent would preclude unravelling a settlement when fraud is subsequently established,’ he said.

Agreeing with Lord Clarke, Lord Toulson said the claimant had achieved his ‘dishonest purpose’ and thereby induced Zurich to act to its detriment by paying almost ten times more.

Speaking after the judgment, Catherine Burt, a spokesperson for the Forum of Insurance Lawyers and head of counter-fraud at national firm DAC Beachcroft, said the ruling sends a strong and significant message to anyone who ha, or is thinking of, exaggerating a personal injury claim:

“This decision confirms that fraud does unravel all,” she said.”

“Insurance companies will be free to revisit settlements made before hard evidence of fraud comes to light and will be able to pursue those who thought they had got away with it.”

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