Frequent restructuring and transfers of liabilities within the insurance industry can make it hard to discern where legal responsibility for payment protection insurance (PPI) mis-selling should lie. However, in one case, the High Court has ruled that the financial burden must fall on the company which originally sold the policies.
Company A had marketed the policies to thousands of members of the public through the agency of a high street retailer. Many of those who had taken out the policies had complained and were continuing to complain to the Financial Ombudsman Service (FOS) and compensation claims running into seven figures were expected to follow.
Sale of the policies ceased in 2004 and company A’s creditor insurance business was later transferred, for nil consideration, to another insurer, company B. In those circumstances, an issue arose as to whether the potential obligation to compensate mis-selling victims should fall on company A or B.
Ruling in favour company B on that issue, the Court noted that, from an economic perspective, it would have made no sense for it to take over potentially very large and open-ended liabilities arising out of alleged mis-selling by company A. The transfer agreement contained no such express provision.
The decision meant that company A was the correct target of the FSO complaints and any claims for compensation. Company A had earlier conceded that it would also be liable to pay any fine levied by the Financial Conduct Authority.