Appeal Court overturned previous ruling that Capita could recover compensation bill from ex-Sureterm Direct boss
Capita has failed in its bid to recover nearly £2.4m in alleged mis-selling compensation it paid out to customers from the former owner of a broker, according to a ruling by the Court of Appeal.
The court overturned a lower court ruling that Capita Insurance Services could reclaim from ex-Sureterm Direct owner Andrew Wood the money it paid to customers after allegedly uncovering mis-selling at the broking firm.
Legal arguments centred on whether a clause in the 2010 agreement under which Capita bought the classic car insurance broker, meant Wood had to reimburse Capita 94% of the total £2.4m compensation payout, reflecting the level of Wood’s ownership in Sureterm.
Last October the High Court found in favour of Capita.
But this month in the Appeal Court, Lord Justice Clarke ruled that he preferred Wood’s interpretation of the clause.
Capita had argued that the clause meant it could recover the compensation for the mis-selling on the basis that the compensation constituted a loss, cost, charge, expense or liability suffered as a result of the mis-selling.
By contrast, Wood’s interpretation meant that Capita was not entitled to recover any money. He argued no claim had been made against the company, sellers, or staff to the FCA, Financial Ombudsman Services or any other authority.
Lord Justice Clarke said: ”As is apparent, the requirement to pay compensation is said to have arisen not from a legal claim raised by clients; nor from a complaint made by clients to the FSA or any other regulatory authority, but as a result of the referral by Capita and the company of the findings of the review to the FSA, the requirement by the FSA that compensation should be paid for what it regarded as the company’s mis-selling and the agreement with the FSA to put into effect the Remediation Scheme.”
Sureterm’s sale process and FSA involvement
Prior to the sale, the shares were held by managing director Wood and directors Christopher Kightley and Howard Collinge in proportions of 94%, 1% and 5%, respectively.
The background to the dispute began shortly after the Sureterm sale to Capita. Various employees raised concerns about the company’s sales processes, Capita alleged.
Customers typically obtained a quote from the company on an aggregator site and the company would contact the customer to confirm their risk details before selling them a policy.
Staff were concerned that some customers had paid substantially more than initially quoted in circumstances where neither their risk profile nor the underwriting premium had changed significantly, the court heard.
This triggered a review by Capita in early 2011.
Capita claimed it found that between January 2009 and January 2011 the company had increased its own arrangement fee between quotation and sale in 28,575 out of 81,002 sales made, using online aggregator sites.
In more than 5,000 instances the arrangement fee had increased by more than £100 and in 158 instances the increase had been by more than £450, Capita argued.
The crux of the problem, Capita argued, was that in most cases sampled telephone operators consistently misrepresented the price.
Staff misrepresented the underwriting premium and the company’s own arrangement fee, as being solely the underwriting premium, Capita alleged.
After Capita informed the FSA of its findings, the regulator agreed with the broker that it needed to conduct a customer remediation exercise.
Capita claims that it suffered loss and damage as a result of paying the compensation and other related costs.
But Wood’s barrister Andrew Trigger QC argued that there were valid reasons for an increase in the fee.
He added that in 17,000 of the 28,575 cases the increase was less than £50.
Trigger also argued the small number of 75 cases that were sampled were only drawn from those where the increase was over £ 450.
A report in October 2011 by Sureterm’s head of compliance also concluded that many of the polices were sold at lower than market average prices and concluded that any detriment to clients was immaterial with no further action required, the court heard.
There was no suggestion that Wood had any knowledge of the mis-selling.