An insurer cannot use the law of misrepresentation to unpick a personal injury settlement made with its “eyes wide open”, the Court of Appeal has ruled.
Zurich Insurance argued that a claimant’s statements on the extent of his back injury and accounts given to medical experts constituted fraudulent misrepresentation. The insurer had, almost six years earlier, settled the case.
However, delivering the leading judgment in Hayward v Zurich Insurance Company  EWCA Civ 327, Lord Justice Underhill said: “It cannot be right that a defendant who has made an allegation of fraud against the claimant but decided in the end not to have it tested in the court should be allowed, whenever he chooses, to revive that allegation as a basis for setting aside the settlement.
“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 heard that Mr.Hayward injured his back at work in 1998, and in 2001 started proceedings against his employers, claiming damages of just under £420,000, excluding losses for pain and suffering.
Zurich admitted liability, but contested quantum on the basis that Mr Hayward had exaggerated the consequences of his injury. The insurer relied on video surveillance, which “appeared to show” Mr Hayward doing heavy work at home. But shortly before the trial on quantum in 2003, the case settled for just under £135,000.
Underhill LJ said that about two years later Mr Hayward’s neighbours approached his employers to say they believed his claim to have a serious back injury was dishonest.
“From their observation of his conduct and activities, they believed that he had entirely recovered from his injury at least a year before the settlement. They were referred to Zurich and gave full witness statements.”
Underhill LJ said Zurich began the present proceedings in the county court in 2009, claiming damages for deceit.
“It was pleaded that the statements as to the extent of the appellant’s injury in the particulars of claim and schedule of loss, and his accounts given to the medical experts, constituted fraudulent misrepresentations.”
The claimant applied to strike out the proceedings or for summary judgment – an application dismissed by a district judge, reversed on appeal and then restored by the Court of Appeal in 2011, which ruled that the settlement did not give rise to estoppel of any kind and Zurich’s action was not an abuse of process.
When the action came for trial before Judge Moloney QC the following year, he ruled that the settlement should be set aside on the grounds of “deliberate misrepresentations” by the claimant, which influenced the insurer’s decision on quantum.
Setting aside this judgment, Underhill LJ ruled that “parties who settle claims with their eyes wide open should not be entitled to revive them only because better evidence comes along later”.
He said the insurance company had not only made an issue of the misrepresentations before the settlement, but “positively asserted that they were dishonestly made”.
Lord Justice Underhill allowed the claimant’s appeal and set aside Judge Moloney’s ruling, with the result that the settlement remained binding. Lord Justice Briggs agreed, for his own reasons, and Lady Justice King agreed with both.