Insurance settlements: effect of fraud

The decision of the Supreme Court in Hayward v Zurich Insurance Company plc [2016] UKSC 48 will be welcomed by all insurers. It is not concerned with an exaggerated claim by a policyholder, but rather an exaggerated claim by a third party against a policyholder covered by liability insurance. The law as regards fraudulently exaggerated insurance claims is straightforward: the entire claim is lost.

The law as regards fraudulently exaggerated tort claims is more complex, but again the outcome will be that the claimant will walk away with nothing. The issue in Hayward is whether, where a fraudulent claim has proceeded to a settlement, the insurers are entitled to reopen the settlement once they have discovered proof of fraud. The Court of Appeal had thrown some doubt on that possibility. The Supreme Court has provided welcome clarification.