No Limits to Defending Insurance Fraud

03 Oct 2011

Whilst the majority of Claimants will believe that a final settlement means exactly that, there has been a trend of recent cases seeing Defendants pursuing fresh actions for damages against Claimants who make false representations regarding the value and extent of their claim.   

In Zurich Insurance Co PLC v Colin Hayward [2011], the courts allowed the Defendant to bring a separate action against the Claimant for misrepresentation, two years after the final settlement of the claim had been agreed.


In this case, the Claimant had been injured in an accident at work and had claimed compensation in the sum of £420,000. The Defendant insurer had harboured suspicions that the Claimant was exaggerating his symptoms and obtained video surveillance.


Damages were agreed in the region of £135,000; however new evidence later came to light showing that the Claimant had in fact recovered from his injuries over a year before the settlement was agreed. The Defendant subsequently commenced a new action against the Claimant alleging that it had suffered loss due to the Claimant’s false representations, having paid out £72,000 more in settlement than it otherwise would have done and incurring substantial unnecessary costs.


An application was made to strike out the claim on the basis of estoppel by ‘res judicata’, meaning that the matter had already been determined by the Court and could not be revisited. The Court of Appeal stated that two conflicting principles had to be considered: the need for there to be finality in litigation and the need to protect the Courts from fraudulent claims. It was held that the Defendant should not be prevented from pursuing the matter as parties must be able to rely on Statements of Truth, otherwise there would be a disincentive to negotiate a settlement.


The similar case of Singh v Habib [2011] concerned an application by a Defendant insurer to admit fresh evidence showing that a Road Traffic Accident, allegedly causing injury to three Claimants, had been entirely fabricated.


The Claimants alleged that the Defendant had collided with their stationary car, causing personal injury and loss. Damages were agreed for each Claimant and the matter was considered settled. The Defendant later informed his insurance company that the accident had never occurred at all, and an enquiry agent revealed that the Claimants had promised the Defendant a proportion of the damages if he endorsed their version of events.


The Defendant sought leave to adduce this new information and, on appeal, the Court determined that the evidence was credible and had an important influence on the outcome of the proceedings. A new trial was therefore ordered and the fresh evidence was produced before the Court.


These cases have highlighted how the public interest of pursuing allegations of fraud often outweighs the public interest of finality of litigation.  This is a welcome approach for Defendant insurers – and it shows that deceitful Claimants who “miraculously” recover from symptoms following settlement can still be pursued through the Court process.