The Supreme Court yesterday handed down a landmark decision in relation to fraud in personal injury litigation, and the wider principle of finality of settlements, in its judgment on Hayward (Respondent) v Zurich Insurance (Appellant) [2016] UKSC 48.

This matter stems back to a claim for personal injuries which arose from an accident which occurred in 1998 during the Respondent (H's) employment, for which his Employer's Liability Insurers (Z) took over conduct of the Defence and admitted liability, subject to arguments in relation to quantum and causation of injuries.

H claimed that his injury continued to cause him serious lumbar pain which restricted his mobility, and his ability to work was seriously impaired. Z relied on video evidence which showed H undertaking heavy work at home. They contended that he had exaggerated the consequences of his injury.

In 2003 they reached an agreement, embodied in a Tomlin order, under which the insurers agreed to pay £134,973 in full and final settlement of H's claim.

In 2005 – 2 years after the claim had settled - H's neighbours (Mr & Mrs Cox) approached the employers to say that, from their observation of his conduct and activities, they believed that H had entirely recovered from his injury at least a year before the settlement was reached. Z then claimed damages for the tort of deceit, asserting that the statements which H had made about the extent of his injury in his particulars of claim and witness statements constituted fraudulent misrepresentation.

First instance decision

At first instance, whilst H denied any suggestion that his condition was anything other than genuine or that there was any element of exaggeration. Following a 4-day trial, HHJ Moloney QC found Mr. Hayward had deliberately and dishonestly exaggerated the effects of his injury throughout the court process. Z's Insurance Handler and the personal injury solicitor instructed to defend the claim on behalf of Z were called to give evidence and the Judge stated: "Neither can be said to have believed the representations complained of (by H) to be true…but they did believe that they would be put before the Court as true, and that there was a real risk that the Court would accept them in whole or part and consequently make a larger award than Zurich would otherwise have considered appropriate”.

HHJ Moloney QC found that although Zurich was aware at the time of the settlement of the real possibility of fraud, Mr Hayward had continued his deliberate misrepresentations even after the disclosure of the 1999 surveillance evidence, and those continuing misrepresentations did influence Zurich into agreeing a higher level of settlement than it would otherwise have made. HHJ Moloney QC awarded Mr Hayward damages in the sum of £14,720 (roughly 10% of the settlement figure), having found that Mr Hayward had made a full recovery from any continuing physical disability associated with the accident by October 1999. H was ordered to repay the £134,973 settlement sum, less that amount.

The Court of Appeal decision

H sought leave to Appeal where it was held unanimously by the Court of Appeal that the Judge at first instance had been wrong to set aside the original 2003 settlement agreement.

The rationale was that the contract which the insurers sought to rescind was a contract to compromise a disputed claim. The claim for rescission was based on the very averments of fact which the claimant (H) made in advancing that claim. As such, the insurers would not be entitled to have the agreement set aside at some later date only on the basis that they could not show that the claimant's factual statements of the case being advanced were wrong.

In the lead judgment from Underhill LJ, he states that "It may stick in the throat that the Claimant can retain the reward of his dishonesty, but the Defendant will have made the deal with his eyes open to the possibility of fraud, and there is an important public interest in the finality of settlements".

The Court of Appeal restated the finality of settlements and supported this with reasoning that the Insurers should, or ought reasonably to have known at the time of settlement that there was an element of exaggeration.

The Supreme Court ruling

The recent Supreme Court ruling unanimously allowed Z's appeal and essentially reasserted what they considered to be an "admirable" first instance decision by HHJ Maloney QC.

The Supreme Court considered that, had the neighbours not subsequently come forward, evidence to realise this misrepresentation would not reasonably have been discovered prior to the original settlement. As Lord Clarke stated: "Qualified belief or disbelief [of a Claimant's representations of his symptoms] does not rule out inducement, particularly where those investigations were never going to find out the evidence that subsequently came to light".

This undermined H's arguments that Z essentially "knew the truth" so could not say that they had been misrepresented or falsely induced into the original settlement.

Lord Clarke stated that it was difficult to envisage any circumstances in which mere suspicion that a claim was fraudulent would preclude unravelling a settlement when fraud is subsequently established.

Lord Toulson also restated that Mr. Hayward’s deceitful conduct was" intended to influence the mind of the insurers, not necessarily by causing them to believe him, but by causing them to value his litigation claim more highly than it was worth".

A common sense approach regarding the public policy issue concerning the finality of settlements was achieved, and put simply Lord Toulson stated " it would not accord with justice or public policy for the law to put the insurers in a worse position as regards setting aside the settlement than they would have been in, if the case had proceeded to trial and had been decided in accordance with the corrupted medical evidence as it then was.”


This is clearly an important victory for Insurers. At first blush, it paves the way to enable them to pursue recovery of damages from a fraudulent Claimant if evidence can be found after the date of settlement which establishes that they were induced into settlement due to dishonest means or misrepresentation.

However, it should be noted that much of the legal argument in this case hinged upon establishing that Insurers carried out all reasonable investigations as to the Claimant's veracity at the time the claim was originally investigated. The Supreme Court restated that, in this case, Z had not and could not have known at the date of settlement that H had deliberately exaggerated his injuries to the extent that was later discovered. Z had also done everything it could to investigate at the time, and the fact that the insurer was aware that there may have been some misrepresentation did not prevent the finding that H's fraud had induced them to enter into the settlement.

It therefore follows that, if Insurers settle without (for example) having undertaken surveillance evidence which would otherwise have identified the extent of misrepresentation or fraud, that they will very likely be precluded from seeking recovery of damages in the tort of deceit if such evidence later comes to light.

Nonetheless, placing a Claimant under surveillance or pleading conscious exaggeration in the original claim does not, in law, defeat a subsequent claim for deceit. However, it is only likely that such arguments will succeed where Insurers could not have known at the date of original settlement of the extent of the Fraud.