Whiteley Insurance Consultants (a/k As Kingfisher Travel Insurance Services), Re v

Factual and Procedural Background

The liquidators of Company A, a partnership now in liquidation, brought an application concerning the treatment of claims arising from insurance policy documents unlawfully issued between December 2001 and 2005. Company A issued policies purportedly on behalf of named or unnamed underwriters without authority, or with non-existent underwriters. The liquidators sought directions under the Insolvency Act 1986 regarding claims from persons issued these policies.

Company A's sole partners were Mr. and Mrs. Partner. The business operated as an insurance intermediary, mainly offering travel insurance policies, both single trip and annual multi-trip, sold directly to consumers and through travel agents and financial advisers. The policy documents often indicated underwriting by a panel of insurers through Company A.

From November 2001, Company A issued policies on behalf of a panel of insurers via an underwriting agent, but its authority expired on various dates in 2004. Despite this, Company A continued issuing policies without authority, including some for age groups outside the authorized schemes. Between April 2004 and February 2005, Company A issued policies purportedly underwritten by a genuine insurer based abroad, but without concluded agency agreements. From early 2005, Company A issued policies stating they were underwritten by a panel arranged through Company A, although no insurers covered these policies, with claims paid by Company A itself.

The liquidators found Company A's records inadequate, with incomplete policyholder information. It is estimated that approximately 81,000 unauthorised policies were issued, affecting around 123,000 travellers. Following complaints, the Financial Services Authority (FSA) petitioned for winding up Company A in April 2005, and the liquidators were appointed. Company A was ordered to be wound up in June 2005.

The partners are liable for claims against Company A and have faced calls on their assets, some of which include pension plans. They did not participate in the proceedings. The FSA issued a prohibition notice against Mr. Partner and a disqualification order was made. The court found that Mr. Partner knowingly issued policies without insurers in place.

There are substantial claims from policyholders and other creditors including insurers, tax authorities, compensation schemes, employees, and trade creditors. Notices of possible claims have been received from thousands of policyholders, including claims for travel losses, return of premiums, and costs of alternative insurance.

The liquidators took extensive steps to notify interested parties, with only the FSA appearing at the hearing. The liquidation committee submitted written positions through solicitors but did not appear. The application raises questions of law or general principle without factual disputes.

Legal Issues Presented

1. Whether Company A was itself the insurer under the unauthorised policies it issued.
2. The legal effect of sections 20, 26, and 28 of the Financial Services and Markets Act 2000 (FSMA) on claims arising from policies issued before and after 14 January 2005.
3. The nature and extent of claims available to policyholders under FSMA and insolvency law.
4. Whether the Insurers (Winding-up) Rules 2001 apply to Company A for the valuation of claims.
5. The exercise of the court’s discretion under section 28(3) of FSMA regarding retention of premiums by Company A.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Re AA Mutual Insurance Co Ltd [2005] 2 BCLC 8	Definition of effecting and carrying out contracts of insurance as regulated activities under FSMA.	Used to clarify that effecting and carrying out insurance contracts as principal are regulated activities, not extending to duly authorised agents.
In re a Company (No 007816 of 1994) [1997] 2 BCLC 685	Clarification that regulated activities apply only when acting as principal, not agents authorised by insurers.	Supported the interpretation of FSMA’s scope regarding regulated activities.
R v Wilson [1997] 1 WLR 1247	Liability of a person carrying on insurance business without authorisation and personal liability when no principal exists or authority is absent.	Illustrated that Company A was liable as principal on contracts it issued without authority or with non-existent insurers.
Gorham v British Telecommunications plc [2000] 1 WLR 2129	Statutory remedies for consumers do not exclude other common law or statutory remedies.	Confirmed that statutory claims under FSMA coexist with other remedies available to consumers.
SIB v Pantell (No 2) [1993] Ch 256	Interpretation of section 5 of the Financial Services Act 1986 regarding restitutionary and compensatory remedies.	Informed the court’s understanding of compensation available under section 26(2)(b) FSMA.
Sempra Metals Ltd v Inland Revenue Commissioners [2008] 1 AC 678	Development of compensatory remedies and unjust enrichment principles.	Provided analogous reasoning for compensation claims under FSMA.
Glenister v Rowe	Non-provability of post-bankruptcy discretionary awards as debts in insolvency proceedings.	Considered in relation to claims for interest or compensation post-liquidation.
Transit Casualty Co v the Policyholder Protection Board [1992] Lloyds LR 358	Valuation of claims under insurance winding-up rules, especially for liabilities arising before liquidation but not yet due.	Guided the application of actuarial principles and valuation of claims under the Insurers Rules.
In re Continental Assurance Co of London plc (No 3) [1999] 1 BCLC 751	Interpretation of policy periods and valuation of claims for unexpired policy terms with possible extensions.	Distinguished from the present case to confirm definite policy periods for Company A’s travel insurance policies.
Wight v Eckhardt Marine Gmbh [2004] AC 147	Effect of subsequent events on creditor status and valuation of claims at winding-up date.	Supported the view that claims can be valued taking into account events after winding-up, including court discretions.

Court's Reasoning and Analysis

The court first addressed whether Company A was itself the insurer under the unauthorised policies. It found that by issuing policies without authority and paying claims, Company A was effecting and carrying out contracts of insurance as principal, thus carrying on a regulated activity under FSMA and liable as insurer.

The court distinguished two periods: the Earlier Period (before 14 January 2005) when Company A was not authorised and breached the general prohibition under section 19 FSMA, and the Later Period (from 14 January 2005) when Company A was authorised but contravened FSA requirements.

For the Earlier Period, section 26 FSMA renders agreements unenforceable against the policyholder but entitles them to recover premiums and compensation for losses. The court held that policyholders are entitled to return of premiums but not to compensation for loss of interest, as they would have paid similar premiums elsewhere, sustaining no actual loss. The court rejected the exercise of discretion under section 28(3) to allow Company A to retain premiums, emphasizing that insolvency and cost considerations are not relevant to this discretion, which focuses on the circumstances of the agreement and whether Company A reasonably believed it was not contravening the prohibition (which it did not).

For the Later Period, section 20 FSMA applies. Policies are enforceable despite contraventions, but no statutory right exists to recover premiums. Policyholders who received enforceable policies and paid premiums are not deemed to have suffered loss equal to the premium. Claims under section 20(3) require loss, which in these circumstances does not arise. Other common law claims such as rescission or breach of warranty of authority are unavailable because the policies were enforceable and provided cover.

The court then considered valuation of claims under the Insurers (Winding-up) Rules 2001, which apply to Company A as an insurer carrying on regulated activities regardless of authorisation. The Rules govern valuation of claims arising before liquidation and unexpired policy periods.

The court interpreted the policy terms as expressing definite cover periods, with possible free extensions for unavoidable delays, which do not affect the essential definiteness. Accordingly, claims for unexpired policy periods should be valued proportionally under paragraph 3(2)(a)(ii) of schedule 1 to the Insurers Rules.

The court concluded that the liquidators should proceed on the basis that policyholders with claims arising before liquidation would pursue their claims, while others would claim return of premiums without interest or compensation. The discretion under section 28(3) FSMA would not be exercised to allow Company A to retain premiums.

The court noted it would hear further submissions on the form of order and notice to policyholders.

Holding and Implications

The court held that Company A was itself the insurer on unauthorised policies and liable as principal under FSMA.

For policies issued before 14 January 2005 (Earlier Period), policyholders are entitled to recover premiums paid and compensation only for actual loss sustained, which excludes loss of interest. The policies are unenforceable against policyholders but enforceable by them. The court will not exercise discretion to allow Company A to retain premiums.

For policies issued on or after 14 January 2005 (Later Period), policies are enforceable despite contraventions, and policyholders have no statutory claim to return of premiums absent actual loss. Claims under section 20(3) FSMA require demonstrable loss, which does not exist where policyholders received enforceable cover and would have purchased similar insurance elsewhere.

The Insurers (Winding-up) Rules 2001 apply to Company A for valuation of claims, including those arising out of unexpired policy periods, which should be valued proportionally according to the policy terms.

The decision directly affects the treatment of claims in the liquidation of Company A, establishing the legal framework for policyholder entitlements and liquidators' approach to claims. No new precedent beyond the application of existing statutory provisions and principles was set.