In Hayward v Zurich Insurance Company plc, the United Kingdom Supreme Court considered the issue of setting aside a settlement agreement for fraudulent misrepresentation. The Supreme Court unanimously allowed the insurer's appeal and the settlement agreement was set aside.
Mr Hayward (Respondent) brought proceedings against his employer after suffering a workplace injury in June 1998. The employer admitted liability, but claimed the Respondent deliberately and dishonestly exaggerated the extent of the injury in order to obtain the highest settlement figure of £134,973.11 from the employer's insurer, Zurich Insurance Company (Appellant). By 2009 the Appellant had gathered further evidence showing that the Respondent had recovered a full year before the settlement of the claim. Subsequently, it sought to set aside the settlement and claimed damages for deceit and fraudulent misrepresentation.
The critical issue on appeal was whether the defrauded party (the insurer in this case) had to prove that it settled because it believed that the misrepresentations were true.
Lord Clarke accepted the Appellant's submission that it is not necessary to prove that the insurer believed that the representation was true. He held that it must be shown that the defendant made a materially false representation which was intended to, and did, induce the insurer to act to its detriment. While the Appellant had doubts about the extent of the injuries claimed as a result of its due diligence process, such qualified belief in the misrepresentation did not rule out the conclusion that the insurer was induced to settle on a false basis.
The appeal therefore succeeded. The Court ordered the settlement to be set aside, with a reduced sum paid to the Respondent as compensation for injuries.
See the Court's decision here.