Who: Andrew Wood v Sureterm Direct Limited and Capita Insurance Services Limited  EWHC 3240
Where: High Court
When: 2 September 2014
Law stated as at: 10 November 2014
This recent High Court decision provides a useful insight into the Court’s approach to, and interpretation of, indemnity clauses.
In April 2010 Capita Insurance Services Limited (“Capita”) acquired the entire shareholdings of Sureterm Direct Limited (“Sureterm”), an insurance broker which primarily offers bespoke policies to the classic car market. Mr Wood was a director of Sureterm and sold his 94% shareholding in Sureterm to Capita.
Post-acquisition, Sureterm employees raised concerns about Sureterm’s sales processes. In or around August 2008 Sureterm had begun to sell motor insurance through online aggregator sites like Confused.Com. Potential customers would obtain a quote on the aggregator site before Sureterm contacted them directly to sell the appropriate policy. Sureterm employees claimed that some customers were paying more than they had initially been quoted despite their risk profile not altering.
Sureterm subsequently reviewed its sales processes and the findings were reported to the FSA. In September 2012 the FSA informed Sureterm and its new owners Capita that Sureterm had taken unfair advantage of customers by misleading them. For instance Sureterm contact centre staff asked potential customers to hang on whilst they spoke to underwriters before confirming the quoted premium, whereas in reality no such conversation with underwriters was taking place.
The FSA took the view that redress was due and Sureterm and Capita agreed with the FSA to conduct a customer remediation exercise for customers affected by Sureterm’s mis-selling. The FSA had not received any customer complaints relating to this mis-selling.
Capita claimed that (a) it had incurred almost £2.5 million in costs relating to the remediation scheme, and (b) that Mr Wood was liable to pay 94% of these costs by virtue of an indemnity in the 2010 Share and Purchase Agreement (“SPA”). The indemnity provided for Sureterm to indemnify Capita:
“against all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred, and all fines, compensation or remedial action or payments imposed on or required to be made by the Company following and arising out of claims or complaints registered with the FSA, the Financial Services Ombudsman or any other Authority against the Company, the Sellers or any Relevant Person and which relate to the period prior to the Completion Date pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service”.
The Court considered the proper construction of this indemnity provision as a preliminary issue.
Mr Wood and Capita offered differing interpretations of the indemnity clause. The critical distinction between the two constructions presented by the parties was whether the words “following and arising out of claims or complaints registered with the FSA” (referred to in the judgment as “Part A”) governed and qualified both (i) “all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred,” and (ii) “all fines, compensation or remedial action imposed on or required to be made”.
Mr Wood contended that Part A qualified both (i) and (ii) and therefore given there were no claims or complaints registered with the FSA relating to Sureterm’s sales practices the indemnity did not apply. Capita argued that Part A applied only to (ii) and Capita was therefore entitled to recover all losses that fell within the scope of (i) from Mr Wood under the indemnity.
High Court Judgment
Mr Justice Poppelwell found in favour of Capita’s argument that Part A applied only to (ii), on the following basis:
1. Syntax: the use of a comma after the word “incurred” in (i) and the fact there was no comma after (ii) supported Capita’s construction of the indemnity clause.
2. Linguistic context: The types of losses set out in (ii) were relevant to a regulatory context which is what was covered in Part A, a link which did not exist between Part A and (i).
3. Commercial context: There was no good reason why the indemnity should apply if an FSA investigation was triggered by a customer complaint but not apply if it was triggered by whistleblowing or responsible management behaviors.
Why this matters:
The judgment provides a useful insight into how a Court is likely to interpret indemnity clauses. It indicates that a Court is likely to take into account (a) use of specific syntax and language, (b) the link between the types of losses or damages and the indemnity language and (c) the wider commercial context in analyzing whether an indemnity can be relied upon. The judgment serves a reminder that indemnity clauses need to be clear and unambiguous to avoid the risk of being liable for significant losses in the future.