The Court of Appeal has rejected an insurer’s attempt to dismiss an injury claim – despite evidence emerging that the victim had been dishonest.

Lord Justice Underhill said the claimant’s original out-of-court settlement of almost £135,000 should stand because of the ‘wider principle’ in the finality of settlements.

The claimant, named as Hayward, received the damages in 2003 after claiming for back injuries suffered following an accident at work five years earlier. The employer’s insurer Zurich obtained video surveillance of the victim, arguing it showed he was exaggerating the consequences of his injury.

Nevertheless, the parties reached an agreement in a full and final settlement.

In 2005, Zurich received information from Hayward’s neighbours that suggested he had recovered entirely from his injury a year before the settlement and in 2009 the firm started proceedings claiming damages for deceit, equivalent to the difference between the settlement and the amount that would have been awarded if Hayward had told the truth.

In 2013, Zurich received a judgment cutting Hayward’s damages to £14,720 and directing him to repay the rest of the settlement.

Hayward appealed that decision at a Court of Appeal hearing in December 2014. Underhill’s judgment, admitting the result was ‘unattractive’, grants the appeal. 

He said: ‘There is a wider principle at stake, that parties who settle claims with their eyes wide open should not be entitled to revive them only because better evidence comes along later.’

Hayward’s legal team argued that for the original settlement to be set aside Zurich needed to prove it had been deceived rather than simply influenced by the original statements.

Zurich contended that Hayward’s ‘misrepresentations’ about the effects of his injury had caused it to settle because the insurer feared he would be believed in court. Zurich said it was obliged to settle because its own expert was not fully persuaded Hayward was being deceitful and so the court might be disposed to believe him.

Underhill said the insurer had decided to settle and so taken the risk that original statements were untrue.

The judge added: ‘[Zurich] could have taken the case to trial in order to disprove the statements in question; but by settling [it] agrees to forgo that opportunity and he cannot reserve the right to come back later for another attempt. 

‘It may stick in the throat that the claimant can retain the reward of his dishonesty, but the defendant will have made the deal with his eyes open to the possibility of fraud, and there is an important public interest in the finality of statements.’