Fuji Finance Inc. v Aetna Life Insurance Company Ltd

On 24th October 1986 Tyndall Insurance Ltd ("Tyndall") issued to the plaintiff, Fuji Finance Inc. ("Fuji") a company incorporated under the laws of Panama, what it described variously as a Life Assurance Policy or a Capital Investment Bond in consideration of a single premium of £50,000 ("the Policy"); the life assured was stated to be Gary Robert Tait. The liabilities thereunder of Tyndall were transferred to Aetna Life Assurance Company Ltd on 27th April 1987 and to Windsor Life Assurance Company Ltd ("Aetna") on 1st January 1994 pursuant to ss.49 and 50 Insurance Companies Act 1982. On 7th July 1994 Sir Donald Nicholls, Vice-Chancellor, declared in answer to two preliminary issues directed to be tried by an order of Master Barratt made on 25th March 1994, that the Policy was not a policy of insurance within the meaning of s.1 Life Assurance Act 1774 and was not rendered unenforceable by s.16 Insurance Companies Act 1982. This is an appeal brought with the leave of the Vice-Chancellor, as Sir Donald Nicholls then was, by the two Life Assurance companies from those declarations. The Secretary of State for Trade and Industry was given leave to intervene by an order of this Court made on 12th March 1996. He supports the Life Assurance Companies on the first issue and Fuji on the second.

The Policy required Tyndall to maintain certain funds as sub-divisions of its long term business fund. Each of the nine funds represented a broad category of investment as indicated by its name, such as the UK Equity Fund or the Property Fund, and was divided into units of equal value. The Policy, which was typical of many such policies issued by Tyndall at the relevant time, linked the benefits payable under it to the value at maturity of the units in the funds to which it was linked. By the terms of the Policy the policy-holder might switch from one fund to another by giving notice to Tyndall to that effect. Nevertheless the allocation of units was notional only for the purpose of determining benefits and the assets of the funds remained the property of Tyndall.

The funds were valued periodically on prescribed Valuation Days so as to determine bid and offer prices for the units therein; the former being the asset value of the unit after certain specified deductions were treated as having been made and the latter being 100/95ths of the bid price. If notice to switch was given then the bid price of the units to be disposed of (less a small amount to cover the administration expenses involved) was treated as invested at the bid price in the units to be acquired on the next following Valuation Day at the bid prices then ascertained. Such prices were published in The Financial Times on the day following the Valuation Day.

Mr Tait established in correspondence with Tyndall before the Policy was taken out by Fuji a number of relevant matters which he contends became the terms of the policy or of a contract collateral to it. Those claims have still to be determined at the trial of the action now fixed to commence in March 1997. So far as material for present purposes such matters relate to the timing of the valuation of the investments in the fund and the time by which switching instructions had to be received. The procedure adopted by Tyndall was to fix the bid and offer prices of the units at between 9 am and 10 am on the Valuation Day on the basis of data taken from the Stock Exchange Data Stream at 4 pm the previous day. The prices so ascertained were published in the Financial Times for the following day but switch instructions would be accepted for that Valuation Day if they were given in writing or by fax before 2.30 pm on the Valuation Day.

One consequence of this timing, which Mr Tait evidently appreciated, was that the well-informed investor could himself estimate on the morning of the Valuation Day the approximate bid price which Tyndall would have fixed though it would not be published until the following day. Armed with this information and with knowledge of how the market had moved on the morning of the Valuation Day the policy-holder could give instructions by fax before 2.30 pm on the Valuation Day for a switch in the certain knowledge that he would thereby make a profit or avoid a loss. Between 24th March 1986 and 24th April 1991 Mr Tait exercised the switch option on behalf of Fuji so as to increase the value of the benefits payable under the policy from £54,089.70 to £1,058,375, an annual average return of 90%.

From and after 24th April 1991 Aetna, then entitled to the business and liable for the obligations of Tyndall, changed the time on each valuation date at which it fixed the prices for the units from 10 am to 4pm. The later time meant that the publication deadline for the Financial Times to be published on the following day could not be met so that the prices so fixed were not publicised until the next day but one. One result of the change was that thereafter it was necessary for Mr Tait to give instructions to switch by 2.30 pm before the time for fixing the unit prices. In this action, commenced by Fuji by a writ indorsed with a statement of claim issued on 21st April 1993, Fuji claims that such a change of procedure constituted a repudiation of the policy or the collateral contract. The reason, as claimed in paragraph 13, is that the additional 24 hours delay in the prices at which Aetna had insisted on carrying out switches since 24th April 1991 removed the advantage previously enjoyed so that the average return achieved thereafter was a paltry 8%. Accordingly on 26th May 1992 Fuji accepted such repudiation, surrendered the policy and received £1,110,758–50 from Aetna. However in the action Fuji sues for damages for breach of contract the suggested measure of which is put at a sum equal to the average return of 90% per annum on the Policy moneys compounded annually for the rest of the lifetime of Mr Tait. It has been calculated by Aetna that such a sum would be equivalent to the gross national product of the United Kingdom for 460,000 years; though in fact any damage claim established would be limited to the assets of the relevant funds.

Ss.1 and 3 Life Assurance Act 1774 provide so far as material that

1. …..no insurance shall be made by any person or persons…. on the life or lives of any person or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering; and that every assurance made contrary to the true intent and meaning hereof shall be null and void to all intents and purposes whatsoever.

3. And … in all cases where the insured hath interest in such life, or lives, event or events, no greater sum shall be recovered or received from the insurer or insurers that the amount of value of the interest of the insured in such life or lives, or other event or events.

Fuji accepts that it does not have an insurable interest on the life of Mr Tait in excess of the sum already paid on the surrender of the policy. Thus the policy is void under s.1 Life Assurance Act 1774 to the extent that Fuji does not have an insurable interest if it is an insurance on the life of any person; hence the first preliminary issue.

S.16(1)Insurance Companies Act 1982 provides that

(1) An insurance company to which this Part of this Act applies shall not carry on any activities, in the United Kingdom or elsewhere, otherwise than in connection with or for the purposes of its insurance business.

If the policy was not an insurance on the life of any person then, Aetna claims, it was not insurance at all and, being prohibited by s. 16(1), was and is illegal and void; hence the second preliminary issue.

Before turning to these issues it is necessary to set out in greater detail the material terms of the policy. As I have already indicated it is described as a Life Assurance Policy and as a Capital Investment Bond. The initial and only premium was £50,000. As no intermediary was involved Fuji was credited with having paid a premium of £52,770–44 being the sum which less the usual commission of 5.25% results in the sum of £50,000. As the premium paid was of an amount which entitled the policy holder to a bonus of 2.5% of the premium paid the value of the units allocated to the policy was £54,089–70. Early surrender was discouraged by a discontinuance charge designed to recoup the bonus starting at 2.5% in the first year and reducing by half a percent a year so as to cease altogether at the end of year 4. By condition (10)(g) such charge also applied in the case of the life assured committing suicide within the first year of the policy. The date of birth of Mr Tait, which was not admitted, was given as 21st February 1945. Mr Tait was not required to undergo any medical examination. The conditions endorsed on the policy...