Whiteley Insurance Consultants (a/k As Kingfisher Travel Insurance Services), Re v

A person who issues insurance documents as agent for an unauthorised or non-existent insurer may nevertheless be the insurer if, in substance, that person effects and carries out the policies as principal. Under Financial Services and Markets Act 2000, the remedies differ according to whether the conduct contravened the general prohibition or an authorisation requirement. Section 26 gives restitution and compensation for actual loss, not an automatic award of interest or a return of premium where the policyholder would have bought equivalent cover elsewhere. The discretion under section 28 must focus on the circumstances of the individual agreement and the actor’s reasonable belief about compliance, rather than the costs of administering numerous small claims or the effect on other creditors. The Insurers (Winding-up) Rules 2001 apply to an unauthorised person carrying on insurance business in fact, and govern valuation of policy claims in the winding-up.

Whiteley Insurance Consultants, a partnership in liquidation, issued travel insurance documents between 2001 and 2005, sometimes naming genuine insurers without authority and sometimes referring to non-existent insurers. The liquidators sought directions under section 168(3) of the Insolvency Act 1986 concerning policyholders’ claims.

The court had to determine whether WIC was itself liable as principal; the consequences under sections 26 and 28 of the Financial Services and Markets Act 2000 for policies issued before 14 January 2005; the consequences under section 20 for later policies; and the applicable insolvency rules for valuing claims under current or expired policies.

1. Principal liability and regulated activity. WIC received and retained premiums, dealt with claims and paid claims. In those circumstances it was effecting and carrying out the policies as principal, notwithstanding the documents’ description of WIC as agent. The policies were enforceable against WIC. WIC was therefore carrying on regulated insurance activity for FSMA purposes.
2. Earlier Period. Policies issued before 14 January 2005 contravened the general prohibition in section 19. Under section 26, they were unenforceable against policyholders, who could elect to enforce them or recover premiums and compensation for actual loss. A policyholder who would have paid a comparable premium to another insurer suffered no loss merely by paying WIC. Section 26(2)(b) therefore did not confer an automatic claim for interest. Any claim was subject to the insolvency rules governing provability.
3. The section 28(3) discretion to allow premiums to be retained had to be assessed by reference to the circumstances of the individual agreement. WIC’s lack of a reasonable belief that it was complying with the general prohibition was a weighty factor against relief. Administrative costs, the number of small claims and the effect on other creditors were not relevant considerations. The discretion could be exercised after the winding-up began, because it operated on an existing potentially reducible debt rather than creating a new debt.
4. Later Period. Policies issued after 14 January 2005 contravened requirements imposed on WIC as an authorised person, but remained enforceable under section 20(2)(b). Section 20(3) did not give policyholders a claim for repayment of premiums where they received enforceable cover and would otherwise have bought equivalent insurance. Unpaid claims under the policies were provable. Rescission and total failure of consideration did not provide a different route to repayment.
5. Valuation. The Insurers (Winding-up) Rules 2001 applied because WIC was in fact carrying on the regulated activity of effecting and carrying out contracts of insurance. Claims arising from pre-liquidation events were valued under rule 6 and schedule 1, paragraph 2. Claims for unexpired policies expressed to run between definite dates were valued under paragraph 3(2)(a)(ii) by reference to the proportion of premium attributable to the unexpired period.