Hayward v Zurich – keeping an eye on the neighbours

Background

Mr Hayward sued his employers following an accident at work. He claimed damages of £420,000. His employers’ insurers, Zurich, were suspicious. The obtained surveillance evidence that Mr Hayward was exaggerating his injuries. But they could not persuade their expert medical witness to change his earlier conclusions so they settled the claim for £135,000.

Later, Mr Hayward’s neighbours contacted the employer saying that Mr Hayward’s injuries had been exaggerated. Zurich applied to set aside the award because it had been induced by Mr Hayward’s deceit. They succeeded at first instance: the judge concluded the proper award was only £14,720 and ordered Mr Hayward to repay the balance of the earlier settlement plus interest.

The Court of Appeal reversed the decision. It was impressed by previous decisions in misrepresentation claims (mostly sale of goods cases) where it had been said the claimant had to have believed the fraudulent misrepresentation. Here, Zurich and its solicitors had suspected that Mr Hayward had exaggerated his symptoms but feared they would not be able to prove that in court. But that was not adequate to prove inducement so Zurich failed to set aside the settlement. Zurich appealed to the Supreme Court.

The Supreme Court’s decision

The Supreme Court held that, in the context of negotiations to settle litigation, it was not necessary for Zurich to establish that it actually believed Mr Hayward’s fraudulent misrepresentations about the extent and impact of his injuries. It was sufficient that they induced Zurich to settle for fear that Mr Hayward might be able to persuade a judge that his misrepresentations were true.

The implications for solicitors, their insurers (and others)

The decision concerned a personal injury claim but it has wider application to any sort of litigation including professional negligence claims. The circumstances in which evidence of a claimant’s fraud comes to light after a settlement will be rare and unusual. However, there may be occasions where this happens and the decision is a useful disincentive to claimants trying to bolster their claims with fraudulent or deceitful representations. Even if the defendant or its insurers suspect fraud but settle because they may not win the litigation, it may still be possible for them to set aside the settlement if better evidence of fraud comes to light later.

It is not unusual to come across claims – loss of profit claims, for example – which arouse suspicion but may still be settled to dispose of a claim where there is no defence on liability. If definite evidence of fraud comes to light after settlement it may still be possible to rescind the settlement.

There may also be claims arising from failed litigation – most obviously personal injury claims – where part of the claim is fraudulent. An obvious example is a claim for loss of amenity such as gardening where investigation reveals that the claimant does not own a house with a garden! In these cases that head of the claim in the underlying litigation would have failed so, unsurprisingly, the professional negligence claim for that head of claim will also fail.

However, as always with fraud, constant vigilance is the best preventative measure. One important point about the law in this area is that whilst it will defeat the fraudulent part of an otherwise genuine claim, the remainder of the claim will remain valid even if the credibility of the claimant takes a knock. Contrast the situation with claims by an insured against an insurer for indemnity under an insurance policy where even a very small fraudulent element of a genuine claim will invalidate the entire claim.