UK: National Bus: High Court Sanctions The Purchase Of Trustee Insurance Cover

Last Updated: 26 June 2008
Article by Mark Howard

As described by Mr Justice Floyd, NBPF Pension Trustees Limited v Warnock-Smith (2008) was "all about the last knockings" of the two former occupational pension schemes of the National Bus Company. The application, made by the scheme trustees, sought the sanction of the High Court to the distribution of the schemes' remaining surplus funds. The trustees also sought approval to purchase run-off and missing beneficiary insurance to avoid the need to retain further reserves.

Background

When National Bus was privatised in the late 1980s its two occupational pension schemes were to be wound up, the benefits bought out and the surplus funds, totalling around £200m, returned to National Bus. However, in 1999 these amounts were recovered by the trustees after actions brought against the Secretary of State (the successor in title to National Bus) following a complaint to the Ombudsman by a former scheme member.

In exercising their discretion to distribute the recovered surplus funds, the trustees decided who was eligible for a share in the funds in accordance with an Eligibility Compromise sanctioned by the Court. The Eligibility Compromise also provided for a reserve fund to cover any unexpected issues that could not be dealt with when distributing the bulk of the fund.

This distribution of the reserve fund, standing at around £21.5m, was the subject of this application.

Reserve fund distribution and trustee insurance

The Court was prepared to sanction the distribution of the reserve fund on the basis that the trustees' proposals for distribution were practical and a proper exercise of their powers.

However, the issue of insurance to protect the trustees against claims that they had not correctly implemented the Eligibility Compromise or from missing beneficiaries gave rise to more debate. It was recognised that there were three classes of potential beneficiaries to consider:

  • Beneficiaries known to them but whom they had not been able to trace, despite their efforts - the "Untraced Beneficiaries";

  • Beneficiaries known to them who were refusing or failing to accept benefits - the "Refusing Beneficiaries"; and

  • Beneficiaries or potential beneficiaries about whom they did not know - the "Unknown Beneficiaries".

The trustees' proposal was to include in the reserve fund to be distributed the assets relating to the Untraced Beneficiaries and Refusing Beneficiaries - this would mean that their right to claim under the Eligibility Compromise would be extinguished entirely. Also, they wished to take out "missing beneficiary" insurance to provide for beneficiaries who might have been overlooked in error, i.e. the Unknown Beneficiaries. Finally, the trustees wished to purchase run-off insurance to protect them against claims for breach of duty in respect of any mistakenly unpaid or underpaid beneficiaries.

The Court was satisfied that substantial efforts had been made to trace the Untraced Beneficiaries and that it would be an appropriate use of the trustees' powers to place the shares of this group in the reserve fund to be distributed, the effect being that the Untraced Beneficiaries would not have a claim. The same applied to the Refusing Beneficiaries.

The question of what to do with the Unknown Beneficiaries caused more of a problem. The Court noted that they had been subject to the same advertising and had been afforded similar time and opportunity to come forward as the Untraced Beneficiaries. On that basis, the Court saw no reason to treat the Unknown Beneficiaries any differently to the Untraced Beneficiaries and believed it proper to add their shares to the reserve too.

Although recognising that run-off insurance was of fairly limited potential application, Floyd J held that, in a fund of this size, it was unreasonable to expect trustees to shoulder the risk of claims against them for innocent mistakes made during the administration of the fund. The insurance was expensive but needed to be considered in the light of the total distributions under the schemes: a one per cent error in distribution could give rise to a claim for several million pounds. Therefore, it was an expense that the trustees could justify.

In Kemble v Hicks (1999), Rimer J had refused to grant the purchase of insurance on the basis that its principal benefit was for the trustees and not any scheme beneficiaries. The facts of the case in hand were different because there were no effective exoneration clauses protecting the trustees from innocent mistakes and the distributions (around £386m over both schemes) and the numbers of claimants involved were substantial, making the prospect of a claim a very real one. Floyd J held that run-off insurance would not just be for the benefit of the trustees, but also the claimants who may have been wrongly paid or underpaid.

The final question which remained unanswered was whether missing beneficiary insurance was necessary now that the Unknown Beneficiaries' right to claim would fall away. The part of missing beneficiary insurance relating to claims from beneficiaries known to the trustees, but mistakenly overlooked, was sanctioned. However, the Court could not agree to the missing beneficiary insurance for claims from Unknown Beneficiaries because, as the Court had directed, these beneficiaries should be excluded from making a claim - to provide insurance in case they did make a claim would be providing insurance for claims that are barred in any event and could not be justified (although the Court then went on to say that it would be acceptable for the insurance to cover Unknown Beneficiaries if there was no increase in the premium!).

Comment

This case highlights the Court's willingness to sanction the purchase of trustee run-off insurance, even where its application is thought to be fairly limited, on the basis that trustees should not have to carry the risk of claims that arise on the back of their innocent mistakes. It seems that the cost of insurance, even if considered to be excessive, will not stop the Court from sanctioning its purchase if it is considered in the light of the size of the fund and the related risk of claims arising. What cannot be justified however, is the sanction of insurance where its need has been obviated given that beneficiaries' rights to claim from the fund have been extinguished.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.