Whether liabilities for possible PPI mis-selling were transferred under a Part VII scheme/the meaning of "attaching to" a policy


The claimant sold PPI policies up to 2004. In 2003 its creditor insurance business was sold to the claimant. That business was then transferred to Groupama in 2006 by means of a Part VII scheme. The issue in this case was whether the claimant's potential liabilities in respect of the alleged mis-selling of its PPI policies were transferred to Groupama. (Because liability to pay compensation might arise because of a complaint made under the FOS scheme (and therefore independently of any legal liability), the mis-selling claims would not be time-barred).

This issue turned on the meaning of "Transferred Liabilities", which were defined under the scheme as "liabilities of the transferor…under or attaching to the Transferred Policies" (emphasis added). The Transferred Policies included the non-life component of the PPI policies. Andrews DBE J noted that the scheme had not referred expressly to the PPI policies, which she thought was significant since an intention to make provision for the transfer of mis-selling liabilities would have qualified as an "unusual feature" which might have a material financial impact on the scheme.

The judge went on to find that liability for mis-selling plainly did not arise "under" a PPI policy, the insurer's primary liability being its liability to pay claims in the event of an insured loss (see Sprung v Royal Insurance [1997]).

The phrase "attaching to" was held to be understood "as a reference to a liability that is directly connected with, or emanates from, the contract itself, arising after that contract has come into existence. It would not readily be understood as referring to a liability for an actionable wrong which preceded or gave rise to the contract". It did not matter that that interpretation added little or nothing to "liability under" a policy. Furthermore, the interpretation argued for by the claimant would have the effect of treating "attaching to" as meaning the same as "relating to", which is a wider expression.

Furthermore, the conclusion that the mis-selling liabilities would remain with the client also made sense commercially, since Groupama would receive no premium income in respect of this business (the liabilities in question having arisen long before the scheme, since the claimant had ceased writing PPI insurance two years earlier).

COMMENT: One minor reference by the judge in this case is of wider interest. He confirmed the correctness of Sprung v Royal Insurance [1997] which is cited as the basis for the principle that an insured cannot claim damages for late/non-payment of an insurance claim under English law. Although the Law Commissions have criticised Sprung during their project to reform insurance contract law, this case confirms it is still supported by the judiciary (albeit only a passing reference was made to the case here (and this was not in relation to late payment damages)).