HARRISON V BLACK HORSE LTD

[2010] EWHC 3152 (QB), Queen's Bench Division, Mercantile Court, His Honour Judge Waksman QC, 1 December 2010

Insurance (payment protection) - Sale by bank in conjunction with loan - Whether bank in breach of Insurance Conduct of Business Rules - Whether bank negligent - Whether unfair relationship existed - Financial Services and Markets Act 2000, section 150 - ICOB, rules 2.3 and 4.3 - Consumer Credit Act 1974, section 140A

In July 2003 the Harrisons borrowed £46,000 from the bank, and at the same time took out a single payment protection insurance policy costing £11,500. The premium was borrowed by means of a separate loan. In July 2006 the Harrisons borrowed a further £60,000 (to discharge the previous borrowing and the PPI policy), with the balance on household improvements and a holiday), and they took out a further PPI policy at a cost of £10,200. The loan was repayable over 23 years, and the PPI was to last for five years only but the premium was payable co-terminously with the loan repayments. The 2006 loan was discharged in March 2009 and the PPI policy was cancelled, by which time it had cost the Harrisons £10,529.70. The PPI policy was sold by the bank as agent of the insurers, Lloyds TSB General Insurance Ltd, and the bank's commission was £8,887.49 (87 per cent of the premium): the bank did not disclose either the fact or amount of this commission to the Harrisons. The Harrisons claimed damages from the bank. HHJ Waksman dismissed the claim. (1) Under section 150 of the Financial Services and Markets Act 2000 the bank was under a statutory duty to comply with Insurance Conduct of Business Rules, and rule 4.3 required the bank to take reasonable steps to ensure that any personal recommendation to buy an insurance contract was suitable for the customer's needs. On the facts the bank had complied with the requirements of the rule, in that it had sought all relevant information by a detailed questionnaire. Further, there was no breach of rule 2.3 which prohibits the acceptance of an inducement by an agent to the extent that it was likely to conflict with the agent's duty to the customer: although the commission was an inducement, the salesperson acting for the bank did not receive any part of the commission and was unaware of its extent - there was no causal link between the commission and the sale. (2) Insofar as there was a duty of care owed by the bank, there was no breach of that duty. (3) There was no unfair relationship between the parties within section 140A of the Consumer Credit Act 1974: the Harrisons had not been told that the PPI policy was compulsory, and they had been given an opportunity to consider it.