Case Number: UD1673/2013. Employment Appeals Tribunal

• Judgment Date: 01 July 2015
• Year: 2015
• Docket Number: UD1673/2013
• Court: Employment Appeal Tribunal (Ireland)

EMPLOYMENT APPEALS TRIBUNAL

CASE NO.

UD1673/2013

CLAIM OF:

Philip Smith

- Claimant

against

RSA Insurance Ireland Limited

- Respondent

under

UNFAIR DISMISSALS ACTS 1977 TO 2007

I certify that the Tribunal

(Division of Tribunal)

Chairman: Ms N. O'Carroll-Kelly BL

Members: Mr R. Murphy

Mr M. O'Reilly

heard this claim at Dublin on 21st January 2015

and 9th March 2015

and 10th March 2015

and 11th March 2015

and 12th March 2015

and 13th March 2015

and 11th May 2015

Representation:

Claimant: Mr. Ciaran O'Mara, O'Mara Geraghty McCourt, Solicitors, 51 Northumberland Road, Dublin 4

Respondent: A & L Goodbody, Solicitors, IFSC, North Wall Quay, Dublin 1

Determination

i. Introduction

The claimant alleges he was constructively dismissed from his employment with the respondent on the 27th November, 2013. He bases the constructive dismissal primarily, but not exclusively, on the three events. First the public way in which he was suspended, second the content of the draft report sent to the Central Bank/ Regulator which said content, he alleges, was outside the terms of reference of the investigation and a personal character assassination and third the coupling of the motor claims, difficulty with the large claims reserves issue. It is his case, that those events lead him to form the view that his fate was pre-decided and furthermore, the consequences were so personally catastrophic that they not only sealed his fate with the respondent but with the insurance industry in general.

The Respondent alleges that the Applicant was the author of his own demise and resigned his position to avoid engaging in the investigation process in relation to serious concerns the respondent had about the process of setting and the actual setting of the large claims reserves. It is further alleged that those serious concerns went unreported for a prolonged period of time due to the regime of fear, bullying and aggression visited on the claimant’s fellow employees by the claimant.

ii) Factual Background Summary

(The Tribunal relies on the transcripts for the purpose of the determination but summaries the evidence as follows:)

a. The claimant.

The claimant commenced his employment with the respondent on the 1st January, 2006. He was known to many in the respondent company and in particular LB, Chairman of the Board, with whom he had worked for a third party in the past. He came to the respondent as a well-liked and respected individual with an excellent track record. He joined the company as operations director, was promoted to the CEO position of the Irish Group in June 2007 having turned down the CEO position for Asia/ Middle East in March, 2007. In September, 2008 he was asked if he would consider the position of Chief Operations Officer for the UK Company which would have elevated him to no. 2 in the UK Company. He declined this for family reasons. In September, 2011 he was asked to consider the CEO position of the Scandinavian section and in May 2013 was asked to consider moving to the Group Executive of the Group underwriting and claims department. He declined that position on two grounds, family and his non desire to move to the technical area of the business. His past background and preferred future role was in general management. In 2013 his role as CEO was expanded to give him accountability for the business in Northern Ireland and in September, 2013 it was announced he was to join the Group Executive. The Respondent during the claimant’s tenure acquired six different businesses in Ireland which served to almost double the company’s market share from 9% to 17% in 2013. That had the result of elevating it from fifth to the largest general insurer in the Country. Profits were strong. In 2008 the Irish branch was domesticated and the Irish company then became a regulated entity. From 2009 onwards prudential regulation of the company came under the control of the Central Bank (the financial services regulatory authority). A local Board of Management was established and appointed to that board were three independent non- executives.

The company was subjected to group internal audits regularly and all (save for the 123.ie) were rated as satisfactory. All audit recommendations were adhered to and there were never any overdue audit actions during the claimant’s tenure.

The company was subjected to external audits also. All of those audits were satisfactory. No material issues were ever identified either by internal or external audit.

The Irish regulatory risk and compliance team enjoyed strong oversight and direction from the Group regulatory risk and compliance team and periodic reviews were undertaken and those reviews were favourable.

There was a strong link between all sections of the Group. Ireland was no different. Ireland enjoyed strong governance and oversight and direction from Group. Ireland replicated Group policy, Group direction and Group controls. The company had a matrix reporting system in place. The claimant reported to the International CEO, SL until 2011 and thereafter to AB. They, SL and AB reported to their matrix superiors. Most matrix superiors held positions at Group, UK or international level. Everyone was subject to the matrix reporting system. Annually, all CEO’s from each Country were obliged to attend a performance review.

The reserving practise in Ireland very much mirrored those within the industry generally. There were also funds set aside to cover any shortfall in the reserves which were known as the IBRN. Then there was a category called “risk or reserve margin”. That margin was the difference between the reserves held by the business over and above the actuarial best estimate. Essentially it was an aggregate of all potential losses both current and future. Between 2007 and 2011 under Group direction Ireland released over €250,000,000.00 in prior year reserves to support group results and to offset underperformance in other jurisdictions. As a result of this practise the Irish reserves were depleted and there were ‘no acorns left for the rainy day”.

In October, 2013 an issue was identified by an internal audit. Up to 2011 there was an informal process in place to review a small number of large claims and their reserves. That process involved the CEO, CFO, CD and a number of other directors in the business. Meetings were informal, no agendas set, no scheduled times and no minutes were taken. At the end of 2011 a more formal process was put in place, “Gateway 50”. The claimant was not involved in this process. He did still hear about cases from discussions with his colleagues from time to time. The regional CEO, SL had cases referred to him from time to time. There were times when reserves less than the amount recommended were posted and this was usually done when some additional information on the file was pending. It was never an issue within the company and in any event the CRO (responsible for regulatory risk and compliance attended the meetings periodically and the CA (chief actuary) attended the meetings periodically and no “red flag” was ever raised. Any concerns could have been raised with any of their matrix bosses or brought to the attention of the CEO at Group level. The Gateway 50 team had a meeting on the 14th November, 2011. In attendance were, Claims Director, Personal Underwriting Director, CRO, CF Commercial Underwriting Director and two claims managers. There are three sets of minutes for this meeting and they are all different.

The claims function, finance function and actuarial function were all subjected to group internal audits. All received a satisfactory rating save for the last audit prior to the claimant’s resignation. Annual external audits were carried out by Deloittes. Those audit results were also rated satisfactory. Between 2011 and 2013 over 30 audits were carried out and no material issues arose. In the spring of 2013 the board engaged Ernst & Young to complete a review of the adequacy of the claims reserves, including IBNR. A “deep dive” into specific large claims was done. The report concluded that for all the traded classes RSA were operating in (motor, home, liability) the best estimate of outstanding claims was out by €1,000,000.00 of an approximate figure of € 400,000,000.00 /€500,000,000.00. a 0.3% difference only.

Professional indemnity was a growing area of concern at that time. A high degree of uncertainty existed in this area and the report suggested a strengthening in the area of approximately €9,000,000.00. The board agreed on €6,000,000.00 only. The Central Bank carried out a review in October, 2013. “Overall this review found that the claims case reserving evidenced in the selective claims data was satisfactory”. There were a number of remedial actions required as set out in the report.

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