Supreme Court Rules Settlements Can Be Re-opened If New Evidence of Fraud Later Comes to Light
Published 27 July 2016
The Supreme Court has ruled today (27 July), in Zurich Insurance Company plc v Hayward, that a claim which is fraudulently exaggerated can be reopened if new evidence of fraud subsequently comes to light after the settlement.
In its unanimous judgment, described by Lord Toulson as "important both as a matter of law and for its practical consequences for insurers and dishonest Claimants", the Court has allowed Zurich, advised by international law firm DAC Beachcroft, to recover the damages it paid to Colin Hayward after it was proved he had lied to exaggerate a genuine personal injury claim.
"Today's ruling is a huge boost for counter-fraud initiatives, as it confirms that new evidence obtained after a settlement can now be used to recover the proceeds of fraud," explains David Williams, Partner at DAC Beachcroft Claims Solutions Group, which represented Zurich in the case.
"This judgment is crucially important for insurers and defendants faced with a claim they view as suspicious but on which they cannot obtain cogent evidence of fraud," he said. "Settlement of the claim pre-trial will not prevent the settlement from being reopened when evidence of the fraud later comes to light.
"Along with the new duty of the Courts to strike out the whole of an injury claim where the claimant is fundamentally dishonest (s.57 Criminal Justice and Courts Act 2015), this is another important step in facing down those who are prepared to exaggerate their claim for personal gain. The risk that lying about a claim may bring down the whole claim is one which no genuine claimant should want (or need) to take."
Zurich had strongly suspected that Hayward, who sought damages of over £400,000 after injuring his back at work, was not as badly disabled as he alleged, but had been unable to secure conclusive evidence to prove this. Hayward also persuaded the medical experts on both sides that his injuries were significant. Zurich settled Hayward's claim at £135,000.
Following the settlement, Hayward's neighbours came forward with clear evidence that proved his injuries were not as serious as he claimed; Zurich obtained a judgment that the true value of the claim was just £14,720.
The Supreme Court was asked to consider whether it was enough for Zurich to show that the lies were a material cause of Zurich entering into the settlement, which it now sought to set aside, or whether Zurich had to go much further (as Hayward had argued) and prove that it believed that the lies were, in fact, true.
The Court's unanimous decision was that Zurich did not need to prove it believed Hayward's lies to be true. The risk of those lies being accepted by the judge assessing his damages was a material factor that led Zurich to pay the amount it did, with subsequent evidence showing that was more than the claim was worth. The lies, therefore, were a material cause of Zurich paying the higher settlement.
Catherine Burt, Head of Counter Fraud at DAC Beachcroft Claims Solutions Group, said: "We are delighted that the Supreme Court has reinstated the decision of HHJ Moloney QC. That original decision was patently fair on the facts of this case but also makes clear to fraudsters that insurers will be able to tackle fraud where it is material, regardless of when the evidence is discovered. It is very encouraging to see the common law being interpreted in such a way as to support the recent changes in legislation intended to strengthen the fight against personal injury fraud."