Fraudulent Misrepresentation will void a Settlement Agreement

The Supreme Court has recently handed down a landmark decision in respect of the effect of fraudulent misrepresentation on previously agreed terms of settlement. Previously, Settlement Agreements could not be "re-opened" even in the event of new evidence of fraud coming to light at a later date. However, the decision in Zurich Insurance Company Plc v Colin Hayward reverses that position and will have important consequences for insurers.

Mr Hayward had an accident at work, as a result of which he suffered injuries to his back which he said restricted his ability to work. Zurich relied on evidence that Mr Hayward was exaggerating his symptoms, and in particular on video evidence of Mr Hayward carrying out heavy work at home. Nonetheless, the parties proceeded to agree terms of settlement in a 6 figure sum.

Two years later, new evidence came to light from Mr Hayward's neighbour which showed that he had recovered from his injuries in full more than a year before the settlement was reached. Zurich therefore argued that the Settlement Agreement should be set aside, as they had settled for a much greater sum than they would have done but for Mr Hayward's fraudulent misrepresentation of the severity of his symptoms.

On appeal to the Supreme Court, the Settlement Agreement was set aside and Mr Hayward was awarded significantly reduced damages, as well as being directed to pay back the balance of the original settlement sum.

This is a key decision for insurers as it means that where evidence of fraud comes to light at a later date, insurers now have the ability to unravel Settlement Agreements and disprove fraudulent claims. Clearly the decision will also have an impact on dishonest Claimants, who will hopefully be dissuaded from pursuing fraudulent claims given the risk of them being directed to repay their settlement monies in the event of their fraud coming to light at later date.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.