CBL Insurance Europe Designated Activity Company v Insurance Act 1936

• Jurisdiction: Ireland
• Judge: Mr. Justice David Barniville
• Judgment Date: 31 July 2024
• Neutral Citation: [2024] IEHC 484
• Court: High Court
• Docket Number: [2020 No. 70 COS]

In the Matter of the CBL Insurance Europe Designated Activity Company

And in the Matter of the Insurance Act 1936

And in the Matter of the Companies Act 2014

[2024] IEHC 484

[2020 No. 70 COS]

THE HIGH COURT

[APPROVED]

JUDGMENT ofMr. Justice David Barniville, President of the High Court, delivered on the 31 ^st July, 2024

Index

1. Introduction	3
2. Factual and Procedural Background	4
3. Summary of Relevant Evidence	10
(a) The Joint Liquidators' Evidence	10
(b) The FSCS's Evidence	14
4. The Directions Sought by the Joint Liquidators	15
5. Relevant Statutory and Other Provisions	17
(1) The Companies Act 2014	17
(2) The Bankruptcy Act 1988	18
(3) The Solvency II Directive and Regulations	20
6. Consideration of and Answers to Directions Sought by the Joint Liquidators	26
(1) Question 1: Termination of Company's Insurance Contracts — Date and Basis for Termination	26
(a) Introductory Remarks	26
(b) Summary of positions of the parties on Question 1	28
(i) The Joint Liquidators	28
(ii) The FSCS	30
(c) Analysis	31
(i) Effect of Winding Up on Contracts	31
(ii) Relevant Event	32
(iii) Legal Basis	32
(d) Answer to Question 1	37
(2) Questions 2 and 3: Admissibility of Proof of Debts/ Liabilities in Liquidation of the Company	38
(a) Introductory Remarks	38
(b) Summary of the Positions of the Parties on Questions 2 and 3	39
(i) The Joint Liquidators	39
(ii) The FSCS	39
(c) Threshold Issue	40
(d) Contingent Claims and Liabilities	42
(e) Paras. 15 and 18 of the First Schedule to the 1988 Act	44
(f) Analysis	45
(i) First Limb of Section 75(1) of the 1988 Act	45
(ii) Second Limb of Section 75(1) of 1988 Act	62
(g) Answers to Question 2	70
(h) Answer to Question 3	71
(i) Answers to supplemental questions raised by the Joint Liquidators at para. 77 of the affidavit of Cormac O'Connor	71
(3) Question 4: “Insurance Claims” under the Solvency II Regime	72
(a) Introductory Remarks	72
(b) Summary of position of parties on Questions 4	73
(i) The Joint Liquidators	73
(ii) The FSCS	74
(c) Analysis and Answer to Question 4	76
(i) Proper interpretation of Article 268(1)(g) (and Regulation 270(1))	76
(ii) Proper Interpretation of second subparagraph of Article 268(1)(g) (and Regulation 270(2))	78
(iii) Judgment of EFTA Court in Gable	80
(iv) Further points	84
6. Conclusion	85
(a) Answers to Questions 1–4	85
(b) Miscellaneous Matters: Final Orders	87

1. Introduction

1 . This is my judgment on an application made pursuant to s. 631(1) of the Companies Act 2014 (the “2014 Act”) by the Joint Liquidators of CBL Insurance Europe Designated Activity Company (In Liquidation) (the “Company”) for directions and for the determination of a number of complex questions which have arisen in the course of the winding up of the Company, many of which have not previously been considered by the Irish courts.

2 . The Company was a registered insurance undertaking and, prior to running into financial difficulties, provided a range of non-life insurance products in Ireland and in a number of other countries in the European Union and the wider European Economic Area. The Joint Liquidators have asked the court to provide answers to a series of complex questions concerning the status of insurance contracts or policies (those terms are used interchangeably in this judgment) which were in existence at the time of the commencement of the winding-up proceedings in relation to the Company. Those questions concern the impact of the winding up on those contracts or policies, the admissibility to proof in the winding up of certain types of claims under insurance contracts issued by the Company and the treatment of those claims by the Joint Liquidators, as well as the status of claims for the return of unearned premiums under Directive 2009/138/EC of the European Parliament of the Council of 25 ^th November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (recast) (the “Solvency II Directive” or the “Directive”) and the implementing regulations in Ireland.

3 . In their affidavit evidence, and in written and oral submissions, the Joint Liquidators set out their views, on the basis of advice received by them, on the various questions which they have raised for the court's determination.

4 . Financial Services Compensation Scheme Limited (the “FSCS”) is the Scheme Manager of the Financial Services Compensation Scheme in the United Kingdom, which is the UK's statutory fund of last resort where customers have claims against failed financial services firms. The FSCS actively participated in the Joint Liquidators' application for directions, provided evidence, and, in written and oral submissions, offered a different view on a number of the questions raised by the Joint Liquidators for the court's determination.

5 . The Arbejdsmarkedets Erhvervssikring (the “AES”), an independent statutory body in Denmark with statutory powers for the determination of workers' compensation claims related to occupational injuries, also provided affidavit evidence in respect of the Joint Liquidators' application. The AES did not, however, actively participate in the application and did not raise any distinct issues for determination by the court apart from those raised by the Joint Liquidators.

6 . In this judgment I will first provide a detailed factual and procedural background to the Joint Liquidators' application. I will then identify the particular questions raised by the Joint Liquidators for the court's determination. After this I will outline the statutory provisions relevant to the questions raised, before proceeding to consider the submissions made on behalf of the Joint Liquidators and on behalf of the FSCS on those questions. Finally, I will provide my conclusions and answers to those questions. The Conclusion section of this judgment, at pp. 139–143 contains the answers to each of the questions.

2. Factual and Procedural Background

7 . The Company was a registered insurance undertaking which was supervised, regulated, and authorised by the Central Bank of Ireland (the “CBI”) to conduct non-life insurance business pursuant to the European Union (Insurance and Reinsurance) Regulations 2015 (S.I. No. 485 of 2015) (the “Solvency II Regulations” or the “Regulations”). The Regulations transposed into Irish law the provisions of the Directive.

8 . Prior to the Company's financial difficulties which led to the appointment of an administrator to the Company by the CBI in early 2018 and, ultimately, to the appointment of the Joint Liquidators in early 2020, the Company provided a range of non-life insurance products in Ireland and in a number of other countries in the European Union and the wider European Economic Area, including France, Belgium, Denmark, Italy, Luxembourg, Norway, Romania, Spain, Sweden and the United Kingdom (including Northern Ireland).

9 . The Company specialised in construction-related credit and financial surety insurance, professional indemnity insurance, property insurance and travel bonding. Those insurance products were distributed through various third parties, including managing general agents and insurance brokers. Among the risks insured by the Company were medical expense insurance, income protection insurance, fire and other damage to property insurance, general liability insurance, credit and suretyship insurance, legal expenses insurance and miscellaneous financial loss insurance. The majority of the Company's insurance business concerned French construction insurance policies, many of which provided for claims notification periods of up to ten years. Those policies are referred to as “long-tail policies”. I will provide some further detail in relation to the nature of the Company's business a little later.

10 . The CBI, which supervised, regulated, and authorised the Company to carry on its insurance business, developed concerns about the solvency of the Company and, in particular, about its ability to meet its regulatory solvency capital requirements. An insurer is obliged to establish and maintain technical provisions with respect to its insurance obligations towards its policy holders and beneficiaries of insurance contracts. The value and extent of those technical provisions are determined in accordance with the requirements of the Solvency II Directive and, in the case of Irish-registered insurers, the Solvency II Regulations. An insurer is required to keep a register showing the assets representing the technical provisions required to be maintained by it under those Regulations. In addition, an insurer is required to hold its own funds (essentially a capital buffer) covering its solvency capital requirement (which must also be determined in accordance with the requirements of the Solvency II Regulations). These regulatory requirements are designed to ensure that an insurer is adequately funded and capitalised in order to be able to pay out on claims validly made by policy holders and to otherwise comply with its obligations owed to those policy holders. The assets held by an insurer in order to meet its technical provision requirements are afforded special treatment when winding-up proceedings are opened in respect of the insurer.

11 . In February 2018, owing to concerns which the CBI had in relation to the solvency of the Company and its ability to meet its regulatory solvency capital requirements, the CBI issued a number of directions to the Company pursuant to s. 45(1) of the Central Bank (Supervision and Enforcement) Act 2013 (as amended) and Regulation 145 of the Solvency II Regulations. In those directions the...