The English High Court provided directions to the liquidators of Whiteley Insurance Consultants (WIC), an insurance intermediary, on how to deal with claims in the liquidation made by creditors to whom insurance policies had been sold by WIC in circumstances where either WIC had no authority from the insurers to place the policies or the insurers did not exist.
Mr Justice Richards ruled that since WIC effectively acted as the insurer – receiving premiums and paying claims - it was effecting and carrying out the insurance policies as principal and was itself liable to policyholders. By doing so it was in breach of provisions in the Financial Services and Markets Act 2000 (FSMA). However, different provisions were breached depending on the date that the policies were issued and, as a result, different remedies were available to the affected policyholders. Before January 2005, the date from which insurance intermediaries began to require authorisation under FSMA, WIC was in breach of s 19 of FSMA which provides that only authorised (or exempt) persons can issue insurance policies. Section 26 of FSMA provides that those policies issued in those circumstances are unenforceable against the policyholder, entitling them to a return of premium and compensation for any loss sustained as a result of having previously parted with their premium. Issuing polices after January 2005, from which date it became authorised to act as an insurance intermediary, meant that WIC was in breach of s 20 of FSMA, but that such breach did not mean that the polices were unenforceable or void and so there could be no claim for return of premium. This determined what amounts policyholders were permitted to prove for in WIC's liquidation.
Mr Justice Richards also ruled that The Insurers (Winding-up) Rules 2001, which provides a framework for the valuation of insurance policies and claims in a liquidation, were not restricted to authorised insurers and would apply to WIC.