William John Smith & Lindsey Margaret Smith v Black Horse Ltd

Facts

The claimants (S) sought the return of sums paid under a policy of payment protection insurance as a result of alleged misselling of the policy by the defendant finance company (B).

S were husband and wife who had various debts totalling around £22,000 and were having difficulty meeting the repayments. They contacted B, discussed a loan with them and agreed to take out a loan together with a payment protection insurance policy (PPI).

S maintained that there were breaches of the Insurance Conduct of Business (ICOB) Rules because B had never made it clear that the PPI was optional. Further, the PPI was unsuitable because it was too expensive and it failed to provide for the possibility that the loan would be repaid early. B maintained that a script should have been followed by the adviser which included a statement that the PPI was optional.

Held

It was clear that the script was not properly followed and even if it had been it would have been capable of giving a misleading impression. B's failure to give figures separately for the loan and the insurance could give the impression that there was no ability to access the loan without the PPI. The expression that the PPI policy was optional was never used. S were given the impression that the PPI was automatically included or compulsory and that the loan was not available without it. B could not realistically rely on the wording of the documentation to correct the misleading impression that had already been created. There was a breach of the ICOB Rules because there had been a failure to take steps to communicate in a way that was clear, fair and not misleading. Further, the policy was totally unsuitable. Its total cost, inclusive of interest on the loan necessary to enable the premium to be paid in one lump sum in advance, was almost as much as the interest on the loan itself. The common law duty of care, if it arose, added nothing to the case. The appropriate remedy under the ICOB rules was the return of all sums actually paid under the PPI policy net of any rebate allowed (see paras 4-5 of judgment).

Judgment for claimants.

Comment

A finance company had breached the Insurance Conduct of Business Rules because it had failed to take reasonable steps to communicate to a customer about its payment protection insurance in a way that was clear, fair and not misleading.