Hayward v Zurich Insurance Company Plc [2016]

Hayward v Zurich Insurance Company Plc [2016] UKSC 48 is a Supreme Court case that addressed a legal dispute stemming from an injury suffered by Mr Hayward at work in June 1998.

Despite admitting liability, Mr Hayward deliberately and dishonestly exaggerated the extent of his injury to secure a higher settlement figure of £134,973.11 from Zurich Insurance Company plc, the employer's liability insurer. At the time of the settlement in October 2003, the insurer had video evidence of the exaggeration. Subsequently, by February 2009, the insurer gathered additional evidence demonstrating that Mr Hayward had fully recovered a year before the settlement. Seeking to set aside the settlement and claiming damages for deceit, the insurer faced legal challenges as Mr Hayward contended that the claim had been compromised in previous proceedings.

Initially, the County Court ruled in favour of Mr Hayward, granting summary judgment to dismiss the insurer's claim. However, the Court of Appeal overturned this decision, allowing the insurer's claim to proceed. The trial judge, on the merits of the claim, found that Mr Hayward had intentionally exaggerated his injury, leading to the setting aside of the settlement agreement and the awarding of a reduced sum of £14,720. A second Court of Appeal, however, sided with Mr Hayward, asserting that the insurer should not be allowed to set aside the settlement since it was aware of the fraud at that time.

The Supreme Court unanimously allowed the insurer's appeal, restoring the judge's conclusion to set aside the settlement agreement and awarding Mr Hayward the reduced sum. Lord Clarke provided the lead judgment, with Lord Toulson delivering a concurring judgment. The critical issue under consideration was whether the insurer needed to prove a belief in the truth of Mr Hayward's misrepresentations to set aside the compromise based on fraudulent misrepresentation. The Court concluded that such a belief was not a freestanding requirement and that the representee's state of mind was relevant but not necessarily decisive in determining inducement and causation.

Lord Toulson, in his concurring judgment, emphasised that the central issue was whether a suspicious insurer, settling a claim with the expectation of success but later discovering fraud, could set aside the settlement and seek damages for deceit. He highlighted the need to demonstrate that the false representation caused the insurer to act to its detriment, with inducement being a factual question pertaining to causation. The Court did not explicitly decide whether knowledge of the falsity of a representation would always preclude a representee from proving inducement.

In summary, the case clarified the requirements for setting aside a settlement based on fraudulent misrepresentation and emphasised the significance of inducement and causation in such cases, while also addressing the role of the representee's state of mind.
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