The recent High Court decision in Untoy v GE Capital Woodchester Finance Limited (trading as GE Money) ruled that not only is an insurance intermediary owed a duty of disclosure by a consumer, but an intermediary also owes such a duty of disclosure to a consumer. The court held that this duty includes disclosure as to the nature of the intermediary’s relationship with the insurer in addition to disclosing that they earned commission on the sale. The dispute pre-dated the application of the Central Bank’s Consumer Protection Code 2012; even so, the issues raised are relevant to intermediaries today. 

Background

The dispute arose in the context of loans taken out by the Plaintiff with the Defendant, GE Money, in 2007 and 2008. The Plaintiff applied to avail of payment protection insurance (PPI) for the loans.  By offering PPI cover for each loan, it was held that GE Money was in effect acting as an intermediary for an insurer called Lighthouse General Insurance Company Limited (Lighthouse).  As Lighthouse was owned by the same parent company as GE Money, the Plaintiff claimed that GE Money had mislead him by failing to disclose its relationship with Lighthouse and by failing to disclose the fact that it was earning commission on the sale of the PPI policies.

Under Regulation 19 of the European Communities (Insurance Mediation) Regulations 2005, there is an obligation that a customer must be told of the nature of the relationship between an insurance intermediary and an insurer. Although the Regulation 19 disclosure obligation applies to all types of relationships between an intermediary and a customer, the court focused on status of the Plaintiff as a consumer. The court held that this obligation was not “mere window-dressing”, but a mandatory part of the information structure.

The court also stated that the Plaintiff’s belief that the intermediary and insurer were the same entity was material to the issue of the commission. Where a consumer believes that one entity is selling both the loan and the insurance policy, they are unlikely to think that commission arises.  The judge concluded that where entities are related and one is paying commission to the other, this information should be given to the consumer as they may not realise that they are essentially paying commission “on the double” to related entities. Significantly, the court went on to state that such conduct was capable of amounting to a “misleading commercial practice” under the Consumer Protection Act 2007.

Impact 

Although this case related to the mis-selling of PPI, it has wider implications for the duty of disclosure which insurance intermediaries owe to their customers, particularly when they are dealing with consumers. It is important for all insurance intermediaries to be aware of the scope of their duty of disclosure to their clients in light of this ruling. Of particular note is the court’s finding that non-disclosure of commission, particularly when combined with a failure to give adequate information as to nature of its relationship, is something that is likely to cause a consumer to be misled.

Conclusion

This case will serve as a timely reminder to insurance intermediaries of the scope of their duty of disclosure towards their customers, particularly when they are dealing with consumers. Intermediaries should protect their position by conducting a review of their business arrangements and product offerings with a view to ensuring compliance with this duty of disclosure. 

Contributed by:  Paul Fisher