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

Hearing dates: 25 – 27 April and 02 May 2023

Approved Judgment

I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

This is the reserved judgment following a four-day trial on the construction of two contractual indemnities given by the Defendant, Cigna Insurance Services (Europe) Limited (“Cigna”) in a Business Transfer Agreement dated 3 April 2003 (the “BTA”) and a Deed of Warranty and Indemnity dated 31 May 2006 (the “DWI”).

The claim by the Claimant, PA (GI) Limited (“PAGI”) is in respect of amounts paid out by it to customers by way of redress in respect of the mis-selling of payment protection insurance policies (also known as “Creditor insurance policies” but commonly referred to as “PPI”) as well as costs associated with this redress. The PPI policies were sold to customers between 1991 and 2004 by Next plc (“Next”) acting as agent for PAGI as the insurer. It should be noted that the Claimant has accepted responsibility for handling complaints and offering redress to customers including where customers had not made complaints to the Financial Ombudsman Service (“FOS”) as discussed below. In this judgment the term “PPI Liabilities” is used to refer to the amounts claimed by the Claimant in these proceedings and since it extends to amounts which were paid out where PAGI assumed responsibility for the payments, is not intended to connote legal liability.

Cigna resists the claim in full.

This judgment deals only with questions of principle and contractual interpretation (Issues 28–44 in the List of Common Ground and Issues). The remaining issues (Issues 45–52) including quantum and relief will be determined subsequently (if not agreed). This judgment addresses the principal submissions and authorities which were raised at the hearing and which in my view were material to explain the Court's decision. It is neither proportionate nor necessary for the Court to address expressly in the judgment each and every submission made, or authority referred to. The Court had the benefit of daily transcripts of the hearing as well as the written submissions and has reviewed these in the course of preparing this judgment. Accordingly, a failure to refer to a particular authority or submission does not mean that it has not been considered by the Court.

Background

The background is taken largely from the agreed list of issues.

At all material times, PAGI was an insurer.

In 1996, as a result of the merger between the Sun Alliance and Royal insurance groups, PAGI became an indirect subsidiary of Royal & Sun Alliance Insurance plc (“R&SA”).

In September 2004, PAGI (along with the principal UK life insurance operating companies within R&SA's corporate group) was sold to the Resolution Life Group (a then new insurance business, created to run off closed books of life insurance) by an agreement (the “2004 Agreement”). PAGI's immediate parent became Resolution Life Limited (“Resolution Life”).

Cigna was established as part of a management buy-out from R&SA in 2003. Cigna was previously known as Oxfordspring Limited (“Oxfordspring”) and subsequently FirstAssist Insurance Services Limited (“FirstAssist”).

Since 1991, PAGI was the insurer under relevant master insurance policies with Next, the retailer. Next sold individual PPI policies to certain of its customers as the agent for PAGI. The last sale of PPI by Next to its customers was in 2004.

Under an agreement for the sale and purchase of healthcare insurance operations of R&SA dated 3 April 2003 (the “BTA”), between R&SA (as Seller), Cigna (then Oxfordspring, as Buyer) and FirstAssist Group Limited, R&SA sold certain insurance operations (including marketing, underwriting and servicing Creditor Insurance products, in addition to several other business lines including private medical and travel insurance) to Oxfordspring as part of a management buy-out from R&SA.

It is common ground that at the time of the BTA, Cigna was not an authorised insurer and so could not itself immediately either (a) be an insurer of any master policies which might transfer or be replaced or (b) renew any existing individual policies. R&SA and Cigna entered into a Risk Carrying and Underwriting Agreement dated 22 April 2003 (the “RCUA”).

Pursuant to a Treaty Quota Share Reinsurance Agreement dated 22 April 2003 made between R&SA (as Reinsured), Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft (“Munich Re”) (as Reinsurer), and Cigna (as Buyer) (the “Reinsurance Agreement”), the Reinsurer agreed to reinsure and indemnify R&SA and any other insurance company member of the Seller's Group who had issued any of the Existing Products and Interim Products in respect of 100% of all Reinsured Losses (all as defined in the Reinsurance Agreement).

In 2005, PAGI's life insurance business was transferred to a company within the Resolution Life Group which was then called Royal & Sun Alliance Linked Insurances Limited (“RSALI”) and became known as Phoenix Life Limited (“Phoenix Life”), pursuant to a scheme (the “2005 Scheme”) under Part VII of the Financial Services and Markets Act 2002 (“ FSMA”), sanctioned by the order of Evans-Lombe J dated 31 October 2005 (the “2005 Order”).

In May 2006, PAGI's creditor insurance business (comprising only the non-life components of such business) was transferred to Groupama Insurance Company Limited (“Groupama”), pursuant to a Part VII transfer (the “2006 Scheme”). The 2006 Scheme transferred to Groupama various insurance policies and liabilities “ under or attaching to the Transferred Policies”. There was also a further Part VII transfer scheme in 2006, pursuant to which R&SA transferred to Groupama its creditor insurance business (the “R&SA 2006 Scheme”).

In connection with the 2006 Scheme, R&SA, Cigna (then FirstAssist) and First Assist Group Limited entered into a Deed of Warranty and Indemnity dated 31 May 2006 (the “DWI”).

In 2011, PAGI obtained High Court approval for another insurance business transfer to R&SA, pursuant to Part VII of FSMA (the “2011 Scheme”).

Complaints of mis-selling by Next customers in respect of PPI were first made to the FOS after the DWI. In relation to at least one complaint, the FOS made a decision designating PAGI as the respondent to the complaint.

PAGI contended to the FOS that, by the 2006 Scheme, it had transferred mis-selling liabilities to Groupama, and that the FOS should treat Groupama as the responsible insurer and correct respondent to the complaints. In a provisional decision dated 16 December 2013, the FOS stated that Groupama was the correct respondent. However, in a provisional decision dated 17 September 2014, the FOS stated that (subject to any further submissions being received) it was minded to conclude that PAGI was the correct respondent to the complaints.

In January 2015, PAGI issued an application (the “2015 Application”) in the High Court seeking the Court's determination of the question whether liabilities for PPI mis-selling were liabilities “ under or attaching to the Transferred Policies” for the purposes of the 2006 Scheme. Cigna was joined as a party to the 2015 Application. Andrews J (as she was) held that liability for PPI mis-selling in respect of policies underwritten by PAGI was not a liability “ under or attaching to the Transferred Policies” and thus had not transferred to Groupama under the terms of the 2006 Scheme.

In a decision dated 27 August 2015, the FOS noted that PAGI had, in light of the decision of the High Court, accepted responsibility for handling the complaint, and as a formality stated that PAGI was the correct respondent to the complaint.

Legal principles of contractual construction

There are two issues to be addressed. The first is the general principles of contractual construction as to which there was little difference between the parties other than a matter of emphasis from the various leading authorities. The second issue is the more contentious issue of the line of authority from Canada Steamship Lines Ltd v The King [1952] AC 192 and its significance to the issue of contractual construction in the light of recent authority.

General principles of contractual construction

The principles of contractual construction can be taken from the judgment of the Supreme Court in Wood v Capita Insurance [2017] UKSC 24. They were summarised by Popplewell J in Lukoil Asia Pacific Pte Ltd v Ocean Tankers (Pte) Ltd [2018] EWHC 163 (Comm) but I see no reason not to take the test directly from the key passages of the judgment of Lord Hodge in Wood. Counsel for PAGI also referred me to the cases on construction which preceded the decision in Wood but given the judgment of Lord Hodge reviews the key authorities I see no need to consider those separately.

“ 10 The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the...