Supreme Court Motor Finance Decision: What Does It Mean for (Re)Insurance?

The hotly anticipated decision is about consumer motor finance, and the headlines will naturally focus on that, but the decision is also important for the wider financial services sector, including the (re)insurance industry’s multiple layers of intermediation.

The Supreme Court has clarified important aspects of agency law and broking relationships, but declined to offer wider legal clarity beyond the strict bounds of the motor finance cases. 

Fiduciary relationships are the key focus. The Court has recapped well-established law; a fiduciary has a duty of “single-minded loyalty” to their principal. They must not profit from their fiduciary position or have a conflict of interest.

Overturning earlier case law, the Supreme Court confirmed that the tort of bribery (civil bribery) requires that the person to whom the alleged bribe is paid owes fiduciary duties. It was not enough that the dealers owed a duty to carry out their obligations in a disinterested manner. On the facts, the Court held that the car dealers and buyers were not in a fiduciary relationship, meaning that there could be no action for a secret profit and that the finance companies could not have bribed the dealers by the payment of commission.

However, that contrasts to the quite different factual position of a typical (re)insurance broker’s relationship with a policyholder or cedant, which generally does import fiduciary duties. The Supreme Court has therefore left open the possibility that commission paid by a (re)insurer to a broker might, in some circumstances, constitute a bribe, with the result that the (re)insurer could be liable to compensate the broker’s customer.

In addition, a fiduciary’s liability to account for profits made in breach of its duties can be avoided if full disclosure of all material facts is made and the principal gives fully informed consent. What amounts to full disclosure will depend on the circumstances. Partial disclosure is not enough, and it is also not enough simply to place the principal on enquiry. For a typical insurance broker, although normal brokerage is permissible because of long-standing market practice, additional remuneration would need to clear the Supreme Court hurdle. This remains the case notwithstanding any regulatory rule requiring a lesser standard of disclosure.

Unfortunately, the Supreme Court did not clarify other important legal points because they were not strictly necessary to decide the motor finance cases. For example, it did not take the opportunity to provide more guidance on what constitutes adequate disclosure or the availability of restitution or rescission.

The ruling deals with civil bribery but does not discuss the Bribery Act 2010. The Bribery Act’s exacting obligations therefore continue to apply to the (re)insurance sector as well. The full Supreme Court decision is here, press summary here, and video summary here.