Deceit: Personal injury claim settlement

Can a settlement be rescinded for deceit, in circumstances where one party (the insurer) did not fully believe the claimant’s representations?

The UK Supreme Court yesterday delivered judgment in the matter of Hayward v Zurich Insurance [2016] UKSC 48. The court permitted the settlement (of a personal injury claim for a back injury at work) to be rescinded, indicating that  was sufficient for the misrepresentation to be an inducing cause of the settlement – not necessarily the sole cause.

Lord Toulson explained at [58]:

To establish the tort of deceit it must be shown that the defendant dishonestly made a material false representation which was intended to, and did, induce the representee to act to its detriment. The elements essential for liability can be broken down under three headings: (a) the making of a materially false representation (the defendant’s conduct element); (b) the defendant’s accompanying state of mind (the fault element); and (c) the impact on the representee (the causation element). Where liability is established, it remains for the claimant to establish (d) the amount of any resulting loss (the quantum element).

Lord Clarke wrote the lead judgment, saying at [40]:

…. the questions whether Zurich was induced to enter into the settlement agreement and whether doing so caused it loss are questions of fact, which were correctly decided in its favour by the judge. I accept the submission that the fact that the representee (Zurich) does not wholly credit the fraudster (Mr Hayward) and carries out its own investigations does not preclude it from having been induced by those representations. Qualified belief or disbelief does not rule out inducement, particularly where those investigations were never going to find out the evidence that subsequently came to light. That depended only on the fact that Mr and Mrs Cox subsequently came forward. Only then did Zurich find out the true position. As Mr Hayward knew, Zurich was settling on a false basis.

A number of Australian authorities are referred to in the judgments.

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