Litigation in Bermuda, culminating in the Privy Council’s decision in Credit Suisse Life (Bermuda) Ltd v Ivanishvili,1 provides a valuable examination of the use of insurance policies as vehicles of wealth management and the scope of the insurer’s liability where assets are mismanaged. This case is related to the Singapore proceedings against Credit Suisse Trust Ltd, where it was held liable for losses exceeding US$400 million for failing to safeguard trust assets.2

Both proceedings were based on a common set of facts. The claimant, Mr Bidzina Ivanishvili, was the settlor of a Singapore trust structure which wholly owned several offshore corporate vehicles which had substantial assets. These assets were managed by Credit Suisse Bank (“the Bank”) in Switzerland. The Bank’s relationship manager was Mr Lescaudron. Through Mr Lescaudron, Mr Ivanishvili applied for two life insurance policies provided by Credit Suisse Life (Bermuda) Ltd (“CS Life”), which is the defendant. The policyholders were two trust-owned companies.

The defining characteristic of these policies lies in the payment of a single exceptionally large premium funded through a transfer of assets to CS Life. The premiums of these policies were US$480 million and US$275 million. The assets representing the premium held with the Bank thereby became CS Life’s property. The insurance policies in question are a form of private placement life insurance (“PPLI”), sometimes described as an “insurance wrapper”,3 functioning as an insurance policy which “wraps” around an investment portfolio. The mechanics are straightforward. The policyholder transfers assets to the insurer as a premium. Policyholders were, however, entitled to elect between two investment alternatives in relation to the premium. Under the “with discretionary mandate” alternative, the selection of investments was delegated to the Bank. Under the “without discretionary mandate” alternative, the choice of investments remained with the policyholders. Upon death, the payout corresponds to the value of the internal fund. The practical consequence is that the policyholders are able, in substance, to continue directing the investment of the assets. The claim arose because Mr Lescaudron perpetrated large-scale fraud by using the assets for unauthorised purposes.