PA (GI) Limited v Cigna Insurance Services (Europe) Limited

A broadly worded contractual indemnity may cover liabilities arising from negligent mis-selling, regulatory complaints and reasonable settlements even without express reference to negligence. The court must ascertain objective contractual meaning by balancing language, context, commercial purpose and drafting quality. Clear words are generally required before a party is taken to surrender valuable rights, but no rigid formula is required.

An indemnity may extend to a reasonable acceptance of liability and redress paid under regulatory complaint-handling rules. The court distinguished fraud or dishonesty: general words did not indemnify against liabilities caused by an agent’s fraud, deceit or dishonesty.

PAGI claimed indemnities from Cigna under a 2003 Business Transfer Agreement and a 2006 Deed of Warranty and Indemnity for payments and costs arising from the mis-selling of payment protection insurance by Next as PAGI’s agent.

The court determined contractual interpretation issues concerning the scope of the indemnities, the effect of insurance business transfer schemes, PAGI’s continuing ability to enforce the indemnities, the treatment of life and non-life components of composite policies, and redress paid following complaints or regulatory obligations.

1. Contractual construction. The court applied the approach in Wood v Capita Insurance. Contractual interpretation is a unitary exercise directed to objective meaning. Language, the contract as a whole, the factual matrix, commercial common sense and drafting quality must be balanced. Commercial common sense cannot be applied retrospectively merely because a bargain later proves disadvantageous.
2. BTA indemnity. The phrase “Liabilities” covered all liabilities of the transferred business, including liabilities arising from negligent mis-selling and breach of regulatory or statutory duties. The sale was of a business as a going concern. The contractual structure, warranties, references to Next’s distribution contract and the absence of an express mis-selling exclusion supported that construction.
3. The indemnity extended to actual liability, reasonable and bona fide settlements of claims or complaints, reasonable acceptance of liability, and redress paid under the DISP sourcebook, including payments made before a formal complaint where reasonably incurred in relation to the relevant liabilities. The reasonableness of particular settlements remained for later determination.
4. General words did not extend to liabilities caused by the fraud, deceit or dishonesty of PAGI’s agent. Such an interpretation would involve an extraordinary bargain unsupported by the language or context.
5. PAGI remained entitled to enforce the BTA indemnity although it had ceased to be a member of the Seller’s Group. The definition referred to subsidiaries at the date of the BTA, and the contract used express “from time to time” wording where a continuing group relationship was intended. PAGI could enforce the benefit under section 1(1)(a) of the Contracts (Rights of Third Parties) Act 1999.
6. The 2005 Scheme transferred mis-selling liabilities relating to the life business, including the life component of composite policies, to Phoenix Life. The corresponding BTA indemnity rights were also transferred. The 2011 Scheme transferred neither PAGI’s BTA indemnity rights nor the PPI liabilities in issue to R&SA.
7. The FOS was correct to treat PAGI as the respondent for complaints concerning the general business, but not necessarily for complaints concerning life policies or the life component of composite policies. PAGI should have raised the 2005 Scheme with the FCA and FOS before paying redress in respect of those elements. In any event, PAGI could not recover those payments under the BTA indemnity because the relevant liabilities and indemnity rights had transferred to Phoenix Life.
8. DWI indemnity. The DWI covered non-life PPI mis-selling liabilities arising out of or connected with the Creditor Business, including reasonable settlements and DISP redress. It did not cover life business, underwriting of general insurance contracts, or liabilities caused by fraud, deceit or dishonesty.