Hayward v Zurich Insurance Company - Supreme Court Rules Insurer Can Overturn Out of Court Settlement Agreement

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01 September, 2016

Following the unanimous Supreme Court ruling in Hayward v Zurich Insurance Company Plc [2016] UKSC 48, Zurich Insurance has been successful in overturning an out-of-court settlement agreement against a claimant who was subsequently found to have dishonestly exaggerated his personal injury claim. The claimant had originally claimed around £420,000 for special damages, stating that his injury in the course of his employment had impaired his ability to work. The Supreme Court reduced the claimant's damages from the negotiated settlement figure of £134,973 to £14,720 to reflect the true value of the claim.

The Supreme Court ruling overturns the Court of Appeal decision which stated that the insurer should not be able to set aside a settlement agreement, because they already had serious suspicions about the claimant following obtaining their own surveillance and it was considered that the insurer's suspicions will have been taken into account when the negotiations towards the settlement of the claim were taking place. However the Supreme Court took the view that Zurich were not aware of the extent of the claimant's deceit, as the evidence provided by the claimant's neighbour, which ultimately confirmed the gross exaggeration of the claimant's claim, would unlikely to have been uncovered by any investigations undertaken by the insurer.

Forbes comment

The landmark ruling will assist insurers who, through their own investigations, believe that a claimant is exaggerating their claim, but fear that if the matter proceeds to trial, the judge may believe the misrepresentations of the claimant. Going forward, even if an insurer pleads fraud against a claimant and settles the matter thereafter, they still have an option to recover any damages paid as a result of fraudulent exaggeration.

Misrepresentations do not necessarily have to be believed by the insurer as long as they were a material cause of settlement, and induced the insurer into settling the claimant's litigation claim at an amount higher than the true value. The fact that the insurers have carried out their own investigations does not preclude them from being induced by the claimant's misrepresentation, and unravelling the settlement when fraud was subsequently established.

Insurers no longer need to be wary of raising fraud in the first instance for fear that this may preclude any future settled claims being revisited, which subsequently turn out to include elements of fraudulent activity. Inducement will be a question of fact in each case in relation to causation.

In cases where fraud is not pleaded by the insurer in the first instance, but they are still induced by the claimant's misrepresentations and value the claim higher than its worth, will also be entitled to revisit the settlement amount if fraud is subsequently found.

For further information please contact Jennifer Galligan on 0161 918 0006 or email jennifer.galligan@forbessolicitors.co.uk.

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