Direct Line Insurance Plc v Churchill Insurance Company Ltd

J U D G M E N T

MR. JUSTICE FLOYD:

3 The regulations require that such a transfer be notified to the policyholders, and also require advertisement. Those are, as the FSA has pointed out this morning, quite separate requirements, but it is also fair to say that one impacts on the other in this sense, that the notice, which is required to appear in the Official Gazette and two national newspapers under the regulations, is the same notice which has to be sent in the usual case to the individual policyholders. It is therefore fair to infer that the wider the degree of advertisement that can be given to a scheme, the less important it is that individual policyholders be notified.

4 The application now comes before me seeking an order that I grant a waiver in respect of individual notification of the existing policyholders of the transferee, the company UKI. That waiver is sought on very specific grounds which are applicable to this case. As I indicated on the last occasion when the matter was before me, the business being transferred is all short tail business. This is therefore not a case where the policyholders can be expected to have been in a long term relationship with the transferee company, which will be more likely to give rise to the sort of legitimate concerns which a transferee policyholder might have when the nature of the company with which he is insured is changed. Short tail business is just that.

5 A further factor which I am asked to bear in mind is the nature of the way in which the particular insurance here is sold. A very large proportion of the policies are packaged products, that is to say that the insurance which is provided is provided as an add-on to other contractual arrangements which the insured has with the party that is providing it. It is also the case that the identity of the underwriter is not something which is likely to have been high amongst the factors which influenced the policyholder in taking out the insurance.

6 The evidence shows that something in excess of 60% of the policies fall into that category, making it extremely unlikely that the identity of the underwriter, or indeed the existence of insurance at all, played a very large part in the decision to enter into the relationship.

7 Another factor which I am asked to bear in mind is the very significant cost in notifying each of the policyholders individually. It is not difficult to see that if one were to attempt to notify 11 million policyholders individually, the cost would be in the millions of pounds.

8 What the applicants say is that, in the very specific circumstances of this case, that would be an enormous expenditure which would be disproportionate in relation to the likely benefit to be obtained by it. It is of course right to say that notification of policyholders plays an extremely important part in any insurance transfer scheme, and it is not for the court or the FSA or the applicants to take the decision as to whether to object to the scheme on behalf of individual policyholders; that should be a decision which they are able to take for themselves. That particular principle is not called into question before me however, on this application. What is before me is, what should be a reasonable and proportionate approach to ensuring that policyholders who have an objection to the scheme have the opportunity of raising it.

9 It seems to me that in the present case and having regard to the factors which I have identified, it is appropriate to grant a waiver of the notification requirement, subject to steps being taken to advertise in a way which would be greater than the bare minimum required by the regulations to bring the transfer to the attention of policyholders. On the last occasion I was not in possession of the nature of the advertisements which were proposed and I was concerned, given that the policyholders would be unlikely to be aware of the identity of the underwriter, that an advertisement simply identifying UKI would not be adequate to draw the transfer to the attention of any of the policyholders.

10 That particular concern has now been addressed by the form of the advertisement which is proposed, which identifies the policyholders’ principal contact in each case and would therefore be sufficient to alert a potential objecting policyholder to the fact that the transfer concerned his or her policy. Before I would be happy to say that advertisement in those forms was adequate, I needed to be satisfied as to the ability of those advertisements to reach the intended target groups.

11 Evidence is now before me that the applicants have commissioned some market research into the most effective ways of targeting the particular policy groups concerned and, on the basis of that, a schedule has been drawn up of the relevant publications and the dates of publication which indicates how that can best be carried out. I should say that I am satisfied that by so doing the existence of the transfer is likely to be drawn to the attention of a significant proportion of the relevant policyholders.

12 The only other matter which concerned me was the potential size and impact of the relevant advertisements and their placing in the publications concerned. It is, in my view, unrealistic to expect policyholders to scan the small advertisements which appear from time to time in newspapers such as The Times, giving notice of legal proceedings and other events. It seems to me that it is entirely proportionate in the present case for the applicants, to take in each case, quarter page advertisements, which appear on pages other than the legal announcement pages in the relevant publications. That again seems to me to be a factor which increases the likelihood that the notice of the scheme will come to the attention of a significant proportion of policyholders.

13 Once those additional advertising steps are taken, the question which remains is, “What would be gained by individual notification?”. Both the process of advertisement and individual notification are imperfect processes. The approach which I think is appropriate here is, by enhancing the quality of the notification which occurs by advertisement, it is possible to take a more relaxed view as to the requirement for notification. I should add that this is a case where there is some evidence that there will be commercial objections if each of the corporate partners is required to notify individually. That is a factor which the FSA itself takes into consideration, along with cost.

14 Bearing all those factors in mind and making it clear that I am not setting any form of precedent for future cases where the waiver of notification of an entire class is sought, it seems to me that this is an appropriate case in which to grant a waiver.

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