UK - Firms cannot use their indemnity cover to recover payouts to clients mis-sold pensions, the House of Lords has ruled.
The decision is seen as a devastating blow for firms caught up in the mis-selling scandal of the late 1980s as it means hundreds of thousands of compensation payments are irrecoverable.
Lloyds TSB was seeking to recoup £125m in compensation paid to customers who were mis-sold their pensions.
But the Lords ruled that the bank could not draw on its indemnity insurance to recoup compensation paid to some 22,000 people.
Norton Rose associate Helen Ashenden explained the policy stipulated that a claim must be in excess of £1m. But the maximum amount Lloyds TSB had repaid to any victim of pensions mis-selling was £35,000.
The bank argued that the thousands of small claims it had received should be treated as a single claim – a view supported by the Court of Appeal, which said the £125m claim was a series of related acts or omissions and should be aggregated.
This view was not shared by the House of Lords.
Ashenden said the ruling would have a knock-on effect across the industry.
“There will be other providers and consultants who are expecting to recoup compensation. Now, many will find they cannot,” she added.
CMS Cameron McKenna partner Michael Baker said the case would have a “profound effect” on the wording of insurers’ aggregation clauses and the handling of notifications of multiple small claims.
He said: “The case will be of most importance to insurers of financial service institutions who have had numerous mis-selling claims made against them in recent years.
“However, while the boundaries of construction of aggregation clauses have been narrowed by this decision, the case should not necessarily be reviewed as constituting a blanket rule that all aggregation clauses in policies will be similarly construed.”
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