UK: English Law's Response To An Insured's Fraudulent Representations – Part 2

In our last article, we reviewed the current English law position and pending future reform in respect of fraudulent claims and devices. In this article we consider the effect of an insured's fraudulent statement in litigation which ultimately results in settlement.

1. Introduction

The duty of utmost good faith applies throughout the insured's/insurers' relationship but only up and until the commencement of litigation.1 Once litigation has commenced, the parties' relationship and any settlement of a disputed claim is governed by the relevant Civil Procedure Rules, the court's own procedures and common law.2

The test approved in Versloot Dredging, and as discussed in our last article, does not however apply in respect of fraudulent misrepresentations made by an insured in the course of or compromise of litigation.

2. Settlements Induced By False Statements

The general position is that following the compromise of a disputed claim, defendant insurers are not entitled to seek to have the settlement agreement set aside at some later date only on the basis that they can now prove that the insured's factual statements in its pleadings and/or witness statements were false. In deciding to settle, insurers take the risk that the insured's statements may not be proved at trial, and pay a sum commensurate with the assessment of that risk. Insurers could have taken the case to trial to disprove the statements in question but, by settling, relinquished that opportunity and cannot reserve the right to come back later to reopen the settlement. Otherwise, no settlement would ever be final.

However, the position is different where the claimant's statements are fraudulent, not merely false, and insurers had not pleaded or were otherwise unaware of the possibility of such fraud when entering into the settlement agreement. That position was considered in the recent English Court of Appeal case of Hayward v. Zurich Insurance Company Plc.3

3. Hayward v. Zurich: The Facts

In June 1998, the insured's employee sustained injuries whilst at work. In May 2001, the employee sued his employer (the insured) for £420,000 and liability, subject to a 20% deduction for contributory negligence, was admitted with quantum to be determined. The defence was conducted by insurers. Insurers disputed the level of claimed quantum on the basis of a 1999 surveillance video which appeared to show the claimant undertaking heavy lifting at home, whereas he asserted in his claim that his injuries were such that he would have been unable to have undertaken heavy lifting. In the Statement of Defence, insurers pleaded. "[t]he Claimant has exaggerated his difficulties in recovery and current physical condition for financial gain."  On 3 October 2003, shortly before trial, the parties entered into a settlement agreement in the sum of £134,973 in full and final settlement of the claim. About two years later, the employee's neighbours provided a statement to insurers alleging that the employee's statements in his claim about his injuries were dishonest. In February 2009, insurers commenced proceedings against the employee claiming damages for deceit or in the alternative a rescission of the settlement agreement and the repayment of the sums paid under it.

Following the trial of insurers' claim, the judge found that the employee had dishonestly exaggerated the effects of his injury (which was not challenged on appeal) and proceeded to set aside the settlement agreement on the basis that "...although Zurich was aware at the time of the settlement of the real possibility of fraud here, [the employee] had continued his deliberate misrepresentations even after the disclosure of the [surveillance video] and those continuing misrepresentations did influence Zurich into agreeing a higher level of settlement than it would otherwise have made." The Judge reassessed quantum and held that the amount to which the employee was entitled was £14,720, not the £134,973 at which insurers had compromised. The employee was ordered to repay the difference.

4. Hayward v. Zurich: Court of Appeal

The employee successfully appealed to the Court of Appeal which dismissed the trial judge's orders, holding that a defendant aware of the possibility of fraud, but knowingly enters into a settlement agreement, cannot later seek to rescind that agreement if and when the fraud is established.

One of the judges observed that "whilst it may be fair to treat a defendant as having taken the risk of the claimant's statements in support of his claim being wrong, it would not – absent any indication to the contrary – be fair to treat him as having taken the risk of them being dishonest". In respect of wrong, but not dishonest statements, the judge undertook the analysis we set out in Section 2 above. The rationale for treating fraudulent statements differently from merely wrong statements is that the courts will not normally accept that a defendant has taken the risk that the claimant's case is dishonest. But what risk the defendant is to be treated as having accepted must depend on the circumstances of each case. The judge commented that "f it is in any case sufficiently apparent that the defendant intended to settle notwithstanding the possibility that the claim was fraudulently advanced, either generally or in some particular respect – the paradigm being where he has previously so asserted – there can be no reason in principle why he should not be held to his agreement even if the fraud subsequently becomes demonstrable...It cannot be right that a defendant who has made an allegation of fraud against the claimant but decided in the end not to have it tested in the court should be allowed, whenever he chooses to revive that allegation as a basis for setting aside the settlement."

In this instance, insurers had pleaded that the claimant had exaggerated his physical condition for financial gain, which was tantamount to an allegation of fraud. The Court concluded that against that background it was necessarily implicit in the full and final settlement agreement that the insured employer and insurers gave up the right to set aside that agreement if they were subsequently in a position to provide the identical dishonesty alleged in the Statement of Defence.

5. Observations

Had the insured/insurers not investigated and discovered a suspected fraud, and pleaded such, prior to the settlement, the later discovery of fraud could have allowed them to seek to rescind the settlement agreement. However, as a general principle, if fraud is suspected, insurers should be cautious of entering into a standard settlement agreement without reserving their rights should fraud be later proved. 


1 See Versloot Dredging per Mance LJ at paragraph 76

2 The Star Sea[2003] 1 AC 469

3 [2015] EWCA Civ 327

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions