Law Report: Overseas insured can be protected: Ackman and others v Policyholders' Protection Board and others; Scher and others v Same. House of Lords (Lord Templeman, Lord Griffiths, Lord Ackner, Lord Goff of Chieveley and Lord Mustill), 15 July 1993

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An insurance policy is a United Kingdom policy within the meaning of section 4(2) of the Policyholders Protection Act 1975 if, had any of the obligations under the contract evidenced by the policy been performed at the relevant time, such performance would have formed part of an insurance business which the insurer was authorised to carry on in the UK, whether or not such obligations would have been performed in the UK.

The House of Lords so declared when unanimously dismissing appeals from the Court of Appeal's declaration (The Independent, 15 September 1992) on the definition of UK policy in section 4(2).

The Ackman group of plaintiffs are lawyers in partnership in the United States and a partnership of accountants in Canada. The Scher group consists of physicians in private practices in New York. The plaintiffs insured against professional liabilities under policies subscribed by four UK insurance companies, which had become insolvent.

The board was established under the 1975 Act to assist policyholders prejudiced by the inability of UK insurance companies to meet their liabilities. The board, in order to meet its liabilities under the Act, raised a levy on authorised insurance companies carrying on business in the UK.

Following the insolvency of the four companies, the appellants sought declarations as to the board's liability to indemnify them in respect of claims made against them in the US and Canada.

Sir Patrick Neill QC, and Alan Griffiths (Herbert Smith) for Royal Insurance (UK) Ltd; Gordon Pollock QC and Mark Phillips (Freshfields) for the Ackman plaintiffs; Anthony Grabiner QC, and Geoffrey Vos (Wilde Sapte) for the Scher plaintiffs; Rory Phillips (Herbert Smith) for the board; Nicholas Legh-Jones QC, (Kennedys) for the New Hampshire Insurance Co Ltd.

LORD GOFF said it was plain that the definition of a UK policy in section 4(2) was directed not to the effecting of the relevant policy, but to carrying it out. The Court of Appeal considered that the test was whether the authorised insurer had been carrying on insurance business in the UK, and whether, if he were to perform his unperformed obligations under the contract in question, that performance would form part of that business.

In particular, therefore, payment of claims under a policy of insurance effected in the UK would constitute the carrying on of insurance business in the UK, wherever the claim was paid.

The effect of that construction was that, provided that a policy was effected in the UK, protection had to be provided by the board at the expense of insurance companies subject to the levy, in the case of home/overseas business as well as home business.

His Lordship agreed with the Court of Appeal's conclusion.