Insurers have lost a Supreme Court appeal to overturn a damages payout to a man who fraudulently exaggerated his personal injuries claim.
Zurich argued that the entire claim for compensation made by Shaun Summers after an accident at work should be "struck out" because it was "substantially fraudulent".
Mr Summers, who worked as an assistant site supervisor for Fairclough Homes at the time of the 2003 accident, originally launched a case against his former employers for damages of £838,000.
But in April 2010 a judge at Manchester County Court assessed the sum to be paid at £88,716 for the genuine part of his claim - after undercover video surveillance evidence showed he was grossly exaggerating the effect of his injuries and his incapacity to work.
Fairclough Homes' insurers Zurich argued that the courts should have the power to throw out an entire claim on the grounds that it was tainted by fraud and an abuse of process.
Although five Supreme Court justices unanimously held today that courts do have the power to strike out a claim "for abuse of process", they declined to exercise it in Mr Summers' case.
They said it was a power which should only be exercised in "very exceptional circumstances".
Announcing the decision of the court, Lord Clarke said: "The court rejects the submission that unless exaggerated claims are struck out, dishonest claimants will not be deterred.
"There are many other ways in which deterrence can be achieved. These include ensuring that the dishonesty does not increase the award of damages, making orders for costs (including indemnity costs), reducing interest, proceedings for contempt and criminal proceedings."
Mr Summers "accepts that in making statements of truth which he knew to be false and in presenting a dishonest case as to the effect of his injuries and on quantum, he was guilty of a serious abuse of process", he said.
Lord Clarke added that nevertheless Mr Summers "did suffer significant injury" as a result of breach of duty by Fairclough Homes.
He said: "In all the circumstances it would not be proportionate or just to strike the claim out. The appeal is therefore dismissed."
The insurers took their case to the highest court in the land after judges at the Court of Appeal in October 2010 dismissed their challenge against the decision of the county court judge not to strike out the claim.
Lord Justice Ward, when dismissing the Court of Appeal move, said the claimant in the case was "an out-and-out liar, who quite fraudulently exaggerated his claim to a vast extent", but his "deception had been discovered by the insurers who had kept some surveillance of him".
Mr Summers was injured when he slipped from the step of a forklift truck, fracturing his ankle and wrist.
Tony Emms, the insurance company's UK chief claims officer, said after the ruling: "Zurich is disappointed by the decision of the Supreme Court, but pleased to have won the argument on the legal principles involved in this case, if not the application of those principles.
"We will continue to lead the fight against insurance fraud, and the court's support for jail sentences for people convicted should be a warning for anyone attempting to defraud an insurer.
"We had hoped that the Supreme Court would offer guidance as to what would constitute a massive attempt to deceive, having determined that the deceit in this claim was not substantial enough."
Zurich said it would "continue to work closely with its legal panel to ensure that cheats are exposed at the earliest opportunity".
Lord Clarke pointed out that "substantial sums fall to be deducted from the sum of £88,716.76 before any money is paid to the claimant".
An interim payment of £10,000 must be deducted and "so must the value of the various state benefits which the claimant received".
That value is not agreed "but we were given a figure of over £63,000".
He added: "Whatever the true figures turn out to be, it seems unlikely that the claimant will receive much, if anything, out of the award of £88,716.76".
The issue the Supreme Court justices had to decide was whether a civil court has the power to strike out a claim as an abuse of process even after a trial where a defendant is held liable in damages to a claimant in an ascertained sum - and "if so, in what circumstances that power should be exercised".
Zurich told them that fraudulent claims were "rife".
The county court judge found that Mr Summers, who is now 35, had suffered serious fractures which required at least two operations.
But he also found that the evidence established beyond reasonable doubt that he had "fraudulently misstated the extent of his injuries and had deliberately lied to the medical experts and to the Department of Work and Pensions".
He also found that he had been fit for work and able to get work since the end of June 2007.
Before that date he had been unable to work, but was not as housebound and incapable of activity as he claimed.
Lord Clarke said the court accepted that "all reasonable steps" should be taken to deter fraudulent claims, but that there was a "balance to be struck".
A party who fraudulently or dishonestly invents or exaggerates a claim will have considerable difficulty in persuading a trial judge that any of his evidence should be accepted - which may affect either liability or the amount of damages awarded.
He said: "It is likely that, if the claimant (Mr Summers) had told the truth throughout, his damages would have been assessed at a somewhat larger figure than they were in fact. This is often likely to be the case."
The judge added: "As to costs, in the ordinary way one would expect the judge to penalise the dishonest and fraudulent claimant in costs."
Such costs orders may often be in "substantial sums perhaps leaving the claimant out of pocket".
Lord Clarke said: "It seems to the court that the prospect of such orders is likely to be a real deterrent."
The justices said they did not accept the submission that contempt of court action could not be an "effective sanction for the kind of behaviour evidenced in this case".
Lord Clarke said there was also the possibility of criminal proceedings being brought in such cases.
"It would be open to the judge to refer the matter to the CPS or the DPP in an appropriate case," he said.
The justices were informed "that the CPS considered whether to prosecute the claimant but concluded that it was not in the public interest to do so".
Lord Clarke said that although a court does have power to strike out a statement of case at any stage of the proceedings, "even when it has already determined that the claimant is in principle entitled to damages in an ascertained sum", the Supreme Court had concluded "that that power should in principle only be exercised where it is just and proportionate to do so, which is likely to be only in very exceptional circumstances".
He added: "We have further concluded that this is not such a case."