Australia: Cheater caught: Court of Appeal sets aside settlement where claimant hid previous claim and exaggerated injuries

Curwoods Case Note
Last Updated: 19 May 2011
Article by Gerry Tzortzatos

Judgment date: 28 April 2011

Insurance Australia Limited t/as NRMA Insurance v John Checchia [2011] NSWCA 101

New South Wales Court of Appeal1

In Brief

  • An insurer is relieved from paying part of a settlement where a claimant has made a false or misleading action or omission for the purpose of obtaining a financial benefit.
  • The purpose of the claimant's conduct must be determined from a subjective point of view but, absent a confession, it can be inferred from the available evidence.
  • The amount of the settlement from which the insurer is relieved is determined in relation to what settlement the parties might have come to if there was no false or misleading conduct.


The claimant alleged he sustained an injury to his lower back when his bicycle was struck by a motor vehicle on 21 January 2003. He made a claim for compensation and, in his claim form, denied having any previous injury to his lower back or making any prior claims for compensation in relation to his lower back. In 2006, the claimant negotiated a settlement with the insurer in the sum of $1,225,000. However, before the settlement moneys were paid, the insurer ascertained the claimant had made a workers compensation claim under a different name in relation to a lower back injury in 1993. The insurer refused to pay the settlement moneys, alleging the claim was fraudulent within the meaning of s 118 of the Motor Accidents Compensation Act 1999 (the Act).

The claimant commenced proceedings in the Supreme Court alleging the insurer breached the settlement agreement. The Court held that the claimant did not make the representation that he had had no previous back injury for the purpose of obtaining a financial benefit within the meaning of s 118 of the Act and ordered the insurer to pay the settlement. The insurer appealed.

Court of Appeal

The Court of Appeal held that the test of the claimant's 'purpose' under s 118 was subjective and, absent an admission from the claimant, the Court could infer the claimant's purpose from the whole of the evidence. The Court further held that where a person engages in false or misleading conduct for the purpose of obtaining greater compensation than that to which he or she is entitled, an inference may be drawn that the conduct was engaged in for the purpose of obtaining a financial benefit.

In relation to the quantification of the 'financial benefit' in respect of which the insurer was entitled to relief, the Court held:

"40. Although an insurer may have established the factual matters necessary to satisfy s 118(1), it will not be known whether an insurer will be relieved of liability under s 118(2)(a) in respect of a payment, settlement, compromise or judgment until it is known whether the financial benefit in fact obtained by the claimant was one to which he or she was not entitled. That requires a determination of the financial benefit to which the claimant was entitled on the premise that no misleading statement was made. The quantitative difference between the two, if any, is the extent to which the insurer is relieved from liability pursuant to s 118(2)(a)."

The trial judge had determined that the quantum of the financial benefit must be determined in light of the hypothetical damages the claimant would have received if they had not engaged in false and misleading conduct. The Court held that this was incorrect and found that the quantum of the financial benefit must be assessed from the perspective of what settlement would have been likely had the claimant not engaged in such conduct.

In relation to the trial judge's assessment of the financial benefit, the Court of Appeal found that it was infected by errors involving the acceptance of false evidence regarding the claimant's pre-accident earnings and the rejection of surveillance evidence which demonstrated the claimant was exaggerating his symptoms.

The Court found that the trial judge had erred in his approach to interpreting s 118. The Court was unable to substitute its own finding in relation to the financial benefit as the trial judge's assessment was infected by error. Therefore the Court allowed the appeal and referred the matter for a new trial on all issues.


This is a very important case for insurers. It emphasis that, where a settlement or judgment is infected by false or misleading conduct of the claimant, an insurer may seek relief in relation to the compensation they might have not paid but for that conduct.

The extent of the relief is the difference between what the actual settlement (or judgment) and the hypothetical settlement (or judgment) where all the relevant facts were known. As such, it seems unlikely that a court would allow this relief in cases where there is a minor exaggeration of symptoms or concealment of a pre-existing injury which would have little bearing upon the settlement or judgment or where the insurer is aware of these issues at the time of settlement of judgment. In the above case the insurer became aware of a significant, relevant pre-accident injury, gross exaggeration of symptoms and falsification of economic loss evidence.

Insurers may wish to consider continuing their investigations for finalised major claims which involve injuries that rely largely on the claimant's presentation, such as mild traumatic brain injuries where the complaint of symptoms exceeds the medically verified abnormalities or severe psychiatric injuries.

1       Beazley, McColl and Handley JJ

Ranked No 1 - Australia's fastest growing law firm' (Legal Partnership Survey, The Australian July 2010)

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