Saville v Central Capital Ltd

An insurance intermediary recommending a non-investment insurance contract must first take reasonable steps to identify the customer’s genuine demands and needs. It must then assess whether the available cover is suitable. Where the available policy fails to meet those demands and needs, it may be recommended only within the limited circumstances and with the express warning required by the ICOB rules.

Causation asks whether the loss would have occurred without the breach. A customer’s knowledge of the policy’s terms, and purchase of it after being told that its limited term reduced cost, do not by themselves prove that the customer wanted those terms. The enquiry must be open and fair. Suitability remains the intermediary’s responsibility and cannot be shifted to the customer.

The Savilles borrowed money through Central Capital Ltd, a credit broker, and purchased five-year payment protection insurance alongside a 25-year loan. Central accepted that it had breached the applicable ICOB rules by failing to ask about the period for which the Savilles wanted cover and by failing properly to assess suitability.

The Manchester County Court, District Judge Harrison, dismissed the claims. It held that the Savilles had understood the policy and had not shown causation, including because they purchased the policy with knowledge of its five-year term. The appeal concerned whether loss was causally attributable to Central’s admitted breaches. The central issue was what the Savilles would have said, and what Central would have done, had an open and fair enquiry been made about the level and duration of cover.

1. Appeal allowed. The ICOB rules required Central to elicit the Savilles’ genuine demands as to the duration of cover by an open and fair question. A question designed to secure acceptance of the only policy available would not satisfy that duty.
2. The rules imposed an enquiry phase and an assessment phase. Central had to take reasonable steps to discover both the customer’s demands and needs, then actively compare the available policy with them. If no available policy met all the demands and needs, recommendation was permitted only in the circumstances prescribed by rule 4.3.1(3), including express identification of the unmet demands and needs.
3. Causation required asking whether the damage would have occurred if the duty had not been breached. The Savilles’ evidence that, if they wanted PPI, they would have wanted it for the loan’s full term should not have been rejected as irrational. Knowledge of the five-year term and purchase of the policy after assurances about lower cost did not establish that five years was the term they would have selected freely.
4. On the evidence of Central’s witness, a fair enquiry would have led to the five-year policy not being sold. The breach was therefore causative of loss. The court did not need to decide whether the burden of proving compliance or unsuitability lay on the intermediary or the customer, although Sir Stanley Burnton inclined to the view that the intermediary bore the burden.
5. The alternative suitability issue was not determined. The County Court had made no adequate findings on whether the policy was suitable, and the issue would have required remission and a proper evidential foundation. Remission was unnecessary because the appeal succeeded on causation.

• Court of Appeal (Civil Division): appeal allowed for the reasons given by Lord Justice Floyd, with Lord Justice Christopher Clarke and Sir Stanley Burnton agreeing.
• Manchester County Court, District Judge Harrison: the Savilles’ claims were dismissed by order dated 26 February 2013.