Case Comment: Hayward v Zurich Insurance plc  UKSC 48
09 Tuesday Aug 2016
Among a slew of important commercial cases this week is the Supreme Court’s decision in Hayward v Zurich Insurance plc  UKSC 48, which will we suspect gladden the hearts of underwriters everywhere.
A work accident victim, CH, took the opportunity grossly to overstate his disability and claimed some £400,000 from Zurich, the employer’s insurers. Zurich thought the claim might well be a wrong ‘un, and indeed pleaded that it was. But they settled it for about £135,000. Tipped off later that CH had indeed been lying all along, they sued to undo the settlement for fraud. The judge obliged, substituted an award of about £15,000 and ordered CH to repay the rest. The Court of Appeal reversed. Having themselves had suspicions about the claim, the insurers (it was held) couldn’t put their hand on their heart and say that they thought CH had been telling the truth: it followed that they couldn’t show the necessary reliance for the purpose of invoking CH’s fraud.
This holding was, to say the least, worrying for underwriters, and not only in injury cases brought against liability insurers. Theoretically, it seemed to mean that if any insurer thought a claim by a commercial policyholder was fraudulent and said so in the course of negotiation or litigation, the claimant was nevertheless safe in possession of his loot once he had extracted an agreement to settle.
The Supreme Court were understandably unhappy with this prospect. It accordingly restored the first instance judgment. To succeed in a claim of fraud, a person did not have to show that he had believed in the truth of what the defendant had said; he merely had to show that the untruths he had been told had acted as an influence on him. Since Zurich had clearly been influenced into settling by what CH had said, the necessary reliance was present; CH retained only the damages he was actually entitled to and had to return the rest.
This result is, it is suggested, welcome. It will add to the armoury available to insurers against fraud (already augmented, in the case of fraudulently exaggerated personal injury claims, by s.57 of the Criminal Justice and Courts Act 2015 allowing their dismissal in toto), and do something to make up for their loss last week in Versloot Dredging BV & Anor v HDI Gerling Industrie Versicherung AG & Ors  UKSC 45 of the ability to decline payment on the basis of collateral lies told by the assured.
Note: the Supreme Court left open the question whether a court settlement could only be reopened for fraud on the basis of evidence not reasonably detectable at the time. It is to be hoped that the answer to this is No, as already suggested in Australia. Why, one might ask, should a settling underwriter owe any duty whatever to a fraudster to check for possible evidence of the latter’s dishonesty at the time of settlement?
This post first appeared on MariCom Law-Official ISSTL Blog. Reproduced here with kind permission.