HAYWARD V ZURICH INSURANCE COMPANY PLC

[2016] UKSC 48, Supreme Court, Lord Neuberger, Lady Hale, Lord Clarke, Lord Reed and Lord Toulson, 27 July 2016

Insurance (employers' liability) - Settlement - Insurers suspicious of fraud - Whether settlement could be overturned when evidence of fraud came to light - Elements of fraudulent misrepresentation

H was employed by DSP. In June 1998 H injured his back in an accident at work, and in May 2001 he commenced proceedings against them. H alleged that he was suffering from severe lumbar pain, restricted mobility and also a depressive illness. The claim for special damages, of just under £420,000, was supported by medical evidence. DSP were insured by Zurich under an employers' liability policy, and Zurich conducted the defence. Liability was admitted, subject to a 20 per cent deduction for contributory negligence, but quantum was contested in reliance on video surveillance which showed H doing heavy work at home in 1999. The defence referred to "lack of candour" and of H having "exaggerated his difficulties ... for financial gain". On 3 October 2003, shortly before the scheduled trial on quantum, the parties reached an agreement as embodied in a Tomlin Order. DSP (in reality, Zurich) agreed to pay £134,973.11 in full and final settlement of the claim. The order provided that all further proceedings were stayed, except for the purpose of carrying the terms of the order into effect. However, about two years later H's neighbours approached DSP and stated their belief, based on H's conduct and activities, that H's allegation that he had suffered a serious back injury was dishonest and that he had fully recovered. That led to the current proceedings, commenced in February 2009, in which Zurich sought to avoid the settlement and to recover damages for deceit. The Court of Appeal held that the settlement could not be overturned. Even in the case of fraud, there was a distinction between an insurer who settled and later discovered fraud, and an insurer who was aware of fraud but settled and then discovered further evidence of fraud. In the former case the settlement could be overturned, but not in the latter.