INDEPENDENT INSURANCE ACTION MAY SET EQUITABLE PRECEDENT

The planned test case against the UK Financial Services Authority (FSA) that alleges negligence in the supervision of bankrupt insurer Independent might make possible a similar action by creditors of Equitable Life, according to the Creditors of Independent Insurance Group (CIIG). The group has said that it intends to use European law to sidestep the FSA’s statutory immunity from some damages claims relating to allegations that it failed to act when warned by its French counterpart — the Commission de Controle des Assurances — that Independent’s solvency was questionable. Stephen Alexander, a partner at the legal firm representing CIIG, said that counsel had examined possible action against the FSA over its handling of Equitable Life and found the potential for action identical in both cases. The FSA is covered by the UK Financial Services and Markets Act, which offers “protection from liability in damages for acts carried out in good faith in the discharge of its statutory functions”. However, CIIG claims that insurance is a product, not a service, and that the ruling contravenes European Union insurance law, which allows a regulator to be sued if it negligently fails to carry out its duties. “Failing to act on the French regulator's warning, we would say, is negligence”, Mr Alexander claimed. In the Equitable Life situation, the FSA has admitted that it received a letter in April 1999 that “raised questions” on Equitable Life’s financial position and questioned the true value of a reinsurance contract with Irish European Re.