PA(GI) Ltd v GICL 2013 Ltd & Anor

Liability for historic mis-selling does not ordinarily fall within liabilities attaching to transferred insurance policies. That expression naturally refers to contractual liabilities directly connected with, or emanating from, the policy after it comes into existence. A liability for an actionable wrong which precedes or gives rise to the insurance contract requires clear words before it will transfer under a Part VII insurance business scheme. The court may consider the scheme’s commercial context, contemporaneous documents, regulatory materials and actuarial evidence. Where an open-ended mis-selling liability is neither mentioned nor quantified, business common sense strongly indicates that it remains with the original insurer.

PAGI had underwritten payment protection insurance sold through Next. Under a Part VII scheme sanctioned in 2006, the non-life component of PAGI’s insurance business was transferred to Groupama, now represented by the first defendant. Customers later complained to the Financial Ombudsman Service that their policies had been mis-sold. PAGI applied under the liberty to apply in the sanction order for a determination that responsibility for those liabilities had transferred to Groupama. The issue was whether the definition of Transferred Liabilities, particularly liabilities attaching to the transferred policies, included historic mis-selling liabilities.

1. Application granted in substance. The liabilities transferred to Groupama under the 2006 scheme did not include liability for alleged PPI mis-selling. PAGI remained responsible for complaints before the Financial Ombudsman Service.
2. The scheme was primarily concerned with transferring contractual rights and liabilities under insurance contracts. Non-contractual liabilities could in principle be transferred, but an intention to transfer historic mis-selling liabilities would be unusual, financially material and expected to be disclosed expressly to the regulator, the independent expert and the sanctioning court. The absence of any such reference, provision or quantification was significant.
3. Applying the ordinary language and commercial context of the scheme, a liability attaching to a policy meant a contractual liability directly connected with, or emanating from, the policy after it came into existence. It covered contractual insurance liabilities arising when individual risks attached to the Master Policy. It did not cover liability for an actionable wrong preceding or giving rise to the insurance contract.
4. The use of the wider expression liabilities relating to the excluded policies supported the conclusion that attaching to and relating to were not synonymous. The commercial consequences also pointed against PAGI’s construction. Groupama would otherwise assume an open-ended liability for historic wrongdoing, without receiving the relevant historic premiums, under a transfer for nil consideration.
5. Information directing policyholders where to complain did not create a contractual right of complaint or a contractual obligation to pay an Ombudsman award. The possible transfer of mis-selling liabilities under the earlier 2005 scheme and the indemnities obtained for the 2006 scheme were neutral in construing the present definition.