In Excess Insurance Company Limited & others, the Court was asked to sanction the transfer of an insurance business from three different insurers to a fourth. The Prudential Regulation Authority and Financial Conduct Authority had no objections; and the Independent Expert (IE) had concluded that, “the security provided to policyholders would be equivalent or improved after the Transfer, [and] no group of policyholders would be adversely affected to a material extent by the Transfer…”

Two policyholders objected to the transfers arguing that, if they went ahead, some policyholders (including the two objectors) would lose the benefit of a guarantee that had been given to their insurer by its unregulated parent, and that would leave them materially worse off than if the transfers were stopped.

In his report, the IE said that,

“… not all policyholders … will be covered by the guarantees, and … it would be difficult for a policyholder to make a claim under the[m] … I have discussed [this] with the [insurers] and their advisors. [They] have also commissioned an independent review, performed by [a] QC … I have received and reviewed a copy of that legal advice …

From my review of the legal advice [and other matters,] my conclusions … are … 

… policyholders [that have the benefit of the guarantee] … are able to make a claim against [the guarantor] in circumstances where [their insurer] does not pay.

After the Transfer the … guarantee would be cancelled, but … Reinsurance will be in place … the … Reinsurance will provide slightly better protection for the policyholders than the … Guarantee…”

The IE did not attach a copy of the QC’s advice to his Report. In Royal & Sun Alliance v British Engine [2006] EWHC 2947, the Court had found that,”[i]t is not … acceptable that material of … significance to an important aspect of the [IE’s] consideration of the scheme, should not be put before the court and be readily available to interested parties[, although] different considerations may apply to legal advice and I say nothing as to that … “ 

In Excess Insurance Company Limited & others, the Court relied on, and developed these principles: “With regard to legal advice, I can well understand that if, for example, the [IE] were himself to seek legal advice in relation to some aspect of his task, such advice might well be privileged unless he chose to disclose it. But that is not the position [here]. The advice was obtained by [the insurers] in contemplation of the Scheme, and provided to the [IE] in order to assist him in his work. In view of the principle of disclosure identified [in the RSA decision] and the fact that the Scheme would have to be approved by the court at a public hearing, when the court would be concerned to review the [IE’s] reports, it seems to me that any privilege or confidentiality that may have attached to [the QC’s] advice in the hands of [the insurers] must have been waived when the advice was provided to the [IE] at least for the purposes of the Scheme and the sanctions hearing. That being so, the simple and straightforward course would have been for [the IE] to annex the advice to his report … I accept that different considerations may well apply to the disclosure of material which is commercially sensitive, including regulatory information of a sensitive nature whether provided to, or produced by, the regulators…

This decision is a useful reminder that, when an IE takes a document into account, he also needs to consider whether to annex a copy of the document to his report. In many cases, the IE will need to annex the document, unless there’s a good reason not to.  In Excess Insurance Company Limited & others, and Royal & Sun Alliance v British Engine, the Court said quite clearly that it wasn’t criticizing the relevant IEs for not annexing the relevant documents. The position might be different on other facts / in other cases.

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