Tue | Oct 17, 2017

Privy Council dismisses appeal by CLICO policyholders

Published:Wednesday | June 29, 2016 | 12:00 AM

The UK Privy Council Tuesday dismissed an application by CLICO policyholders seeking higher compensation from the Trinidad & Tobago government, based on assurances given to them in 2010 after the rescue of the insurance company and its parent, CL Financial.

The group, United Policyholders, argues that they had a legitimate expectation, based on discussions with the former Persad-Bissessar administration, but the government "failed to honour that expectation".

The policyholders had successfully argued their case in the Trinidad High Court, but that decision was overturned by the local Court of Appeal.

The appellants all held versions of a CLICO policy called the Executive Flexible Premium Annuity, offered relatively high interest rates paid out on the premium for a fixed initial period and an annuity over the rest of the policyholder's life.

The Privy Council said it was "unimpressed" with the policyholders' argument that it would have been cheaper for the government to pay out only to policyholders protected by a statutory fund as opposed to paying all policyholders.

"Ignoring the fact that this is an oversimplification of the government's 2010/2011 policy when put forward in 2010, and when crystallised in 2011, it overlooks the fact that those proposals involve payments being made over a much longer period than would have been involved if the assurances had been complied with.

"In any event, a very significant reason for abandoning the assurances and adopting the 2010/2011 policy was to ensure IMF approval and the confidence of the international financial community, and that is by no means necessarily consistent with opting for the cheapest scheme," the Law Lords ruled.

The Privy Council also noted that both Prime Minister Kamla Bissessar and Finance Minister Winston Dookeran denied, right after winning the election, that there had been "guarantees" to any policyholders and, on one occasion, Mr Dookeran referred to the assurances as "empty, hollow statement(s)".

The Privy Council said a judge has to be careful about treating a statement made in a political context as if it were intended to have the same meaning had it been given under oath in court or in a legal document.

"Furthermore, it is technically right to say that, even if they gave rise to a legitimate expectation, the assurances would have fallen short of being what a lawyer, or even someone engaged in commerce, would regard as a 'guarantee'."

In June 2010, the Trinidad government appointed a select committee to make recommendations on "a preferred solution, from a menu of options, for the repayment of CLICO's traditional and non-traditional/EFPA insurance liability products", and a financial reorganisation plan for CL Financial.

At the end of July, the committee reported on three options:

• Provide no further funding and liquidate CLICO and British American;

• Fully fund the entire asset shortfall of CLICO and British American and repay all creditors, based on contractual terms, not just policyholders protected by the statutory fund; and

• Provide TT$75,000 to all EFPA and mutual-fund policyholders, including non-residents not protected by the fund, and pay remaining liabilities by government bonds spread over a 20-year period.

On August 12, Cabinet considered the report and chose the third option.

The appellants argued the 2010/2011 policy was unlawful in that it required the fund to pay out monies at a time when it was in deficit contrary to Section 37 of the Insurance Act, and required the trustees of the fund to pay out monies without exercising their own discretion.

But the Privy Council ruled that the first was a fair point that failure to make up a deficit in the fund represents a breach of duty, even while holding that the argument overstates the effect of Section 37, saying the breach could not invalidate the policy.

Regarding the second point, they ruled that: "A problem could possibly arise if the trustees refused to pay out in accordance with the 2010/2011 policy, (assuming they would be entitled to do so), but it is hard to see how that possibility could render the policy unlawful. At worst, it represents a risk for the implementation of the policy, but, particularly as there has been no suggestion of the trustees taking such a course, it would appear to be a risk which the government could reasonably consider was one which was worth taking."

EFPA policyholders had also argued they were being discriminated against, as their compensation amounted to 75 per cent - the government said it was 92 per cent - while traditional policyholders were to be paid in full.

"There is a difference between these two classes of policyholders, and therefore the board has some doubt as to whether the discrimination argument is well based in any event," the Privy Council ruled."