Harrison v Black Horse Ltd

An insurance intermediary advising on a single payment-protection product must investigate the customer’s demands and needs and assess suitability under the applicable ICOB rules. The customer’s desired duration of cover forms part of those demands and needs, and the intermediary must consider whether the available level of cover is sufficient. Clear disclosure of an unsuitable feature does not itself avoid a breach.

Where the intermediary advises only on one product, the cost-comparison duty is confined by the applicable comparison rule and does not require a non-comparative opinion that the product is expensive. A breach does not establish damages without proof that it caused the purchase and loss. An undisclosed commission creates an ICOB inducement breach only where it is likely to cause a material conflict in the particular case.

Andrew and Elaine Harrison appealed against the dismissal by District Judge Marston of claims arising from the sale by Black Horse Ltd of single-premium payment protection insurance connected with a 2006 loan. The claims alleged breach of statutory duty under Financial Services and Markets Act 2000 section 150 and ICOB rules 4.3 and 2.3, negligence, and an unfair relationship under sections 140A and 140B of the Consumer Credit Act 1974.

The policy lasted five years although the loan was repayable over 23 years. The Bank received an undisclosed commission equal to 87% of the premium. The central issues were whether the Bank had properly assessed suitability, whether the commission created a material conflict, whether negligence added anything, and whether the relationship was unfair.

1. Suitability and cost. The District Judge had erred by treating disclosure of the policy’s key terms and the customers’ choice to purchase as answering the ICOB suitability issues. The rules concerned the investigation of demands and needs and the assessment preceding a recommendation. However, cost was not shown to be relevant to these customers’ demands and needs under rule 4.3.6(2). Rule 4.3.7(1) exhaustively defined the cost duty where engaged, and required comparison with other policies on which the intermediary could advise. The Bank advised only on one product and had no such comparative duty.
2. Duration of cover. The desired length of protection formed part of the customer’s demands and needs. The questionnaire did not specifically obtain that information. “Level of cover” under rule 4.3.6(1) included duration, so the Bank breached the ICOB requirements by recommending five-year cover without a proper basis for concluding that it was sufficient. Nevertheless, causation was not proved: there was no evidence that the Harrisons would have rejected the policy had they been asked about duration.
3. Commission and inducement. The undisclosed commission was an inducement, but rule 2.3 required a likelihood of material conflict between the inducement and the Bank’s customer duty. The scripted sales process, the salesperson’s lack of commission attribution, absence of pressure or misrepresentation, and lack of a causal link between the particular commission and the process meant that no breach was established. The size of the commission alone did not compel a different conclusion.
4. Negligence. Any common-law duty accompanying the detailed ICOB regime was co-terminous with it. It did not impose a wider obligation to advise on non-comparative cost where the Bank could not compare products. Any duty concerning duration failed on the same causation evidence.
5. Unfair relationship. The assessment under sections 140A and 140B was fact-sensitive and primarily for the first-instance judge. The Bank bore the burden of showing that the relationship was not unfair. The known and freely accepted terms, the absence of pressure or misleading conduct, the limited single-product advisory role, and the lack of evidence concerning the effect of non-disclosure meant that the relationship was not unfair. The appeal was dismissed.

1. High Court (Queen’s Bench Division), Mercantile Court: appeal from the decision of District Judge Marston dated 19 July 2010. The appeal was dismissed.
2. Worcester County Court: District Judge Marston dismissed the Harrisons’ claims.