On 31 July 2024, the High Court delivered its judgment in the case of CBL Insurance Europe DAC (In Liquidation) v Insurance Act 1936 [2024] IEHC 484. The judgment deals with a number of important considerations in the winding up of an insurance undertaking, including the treatment of insurance claims and insurance policies during this process.
Background
CBL Insurance Europe DAC (In Liquidation) (the Company) was previously authorised by the Central Bank of Ireland (the Central Bank) to write certain classes of non-life insurance. It specialised in construction-related credit and financial surety insurance, professional indemnity insurance, property insurance and travel bonding. The Company began experiencing difficulties in meeting its regulatory solvency capital requirements, which are required to be maintained in accordance with the Solvency II Directive and the European Union (Insurance and Reinsurance) Regulations 2015 (Irish Solvency Regulations). Following a series of directions from the Central Bank (including the cessation of writing new business, having to refrain from renewal insurance contracts, not to dispose of any assets, and not to make any payments (including payments to policyholders)), the appointment of an administrator, and the lack of improvement in its financial position, the Central Bank presented a petition for the winding up of the Company on 20 February 2020. An order was made by the High Court on 12 March 2020 for the winding up of the Company and the appointment of joint liquidators (the Order). On the same day but subsequent to the making of the Order, the Central Bank revoked its previous directions and withdrew the authorisation of the Company save to the extent necessary for the winding up of the Company.
Issues Considered
The focus of the judgment was grounded on a consideration of the issues raised and directions sought by the joint liquidators. The main questions before the High Court related to the status of insurance policies in place at the time of the winding up of the Company (the Insurance Policies):
- the impact of the winding up on the Insurance Policies;
- the admissibility to proof of certain claims in the winding up of the Company under section 75 of the Bankruptcy Act 1988 (1988 Act);
- the treatment of contingent claims by the joint liquidators; and
- the status of claims for the return of underearned premiums under the Solvency II Directive and the Irish Solvency Regulations.
Judgment
Having considered the above questions in detail, the High Court ultimately determined the following:
- For the purposes of the Irish Solvency Regulations, winding up proceedings are initiated on the date the High Court determines to commence the winding-up proceedings of the insurance undertaking, as opposed to the date of the presentation of the petition (being the date on which such proceedings are deemed pursuant to the Companies Act 2014). As such, the winding up proceedings in this case commenced on in this case being 12 March 2020.
- The date in which the Insurance Policies were terminated as a result of the winding up was the date on which the winding up order was made by the Court (12 March 2020) as opposed to termination on the date of the commencement of the winding up or the date on which the Central Bank withdrew the Company's authorisation to write insurance business. As such, the Insurance Policies were terminated by virtue of a repudiatory breach as opposed to frustration arising from the withdrawal by the Central Bank of CBL's authorisation to write insurance.
- Section 75 of the 1988 Act applies to the winding-up through sections 619 and 620 of the Companies Act 2014 and that a claim under a policy of insurance that is terminated on the date of the winding-up order should be admitted to proof in the winding up of CBL as a liability arising on an 'obligation incurred' under section 75(1) of the 1988 Act.
- In relation to the term 'obligation incurred' (as referred to in Section 75(1) of the 1988 Act), the Court found that the relevant obligation is incurred by the insurance undertaking upon the entry into an insurance contract and, at that point, the Company is then subject to a contingent liability relating to the events insured under that contract.
- Contingent claims made under policies relating to insured events under the insurance policies which had not occurred prior to the date of the winding-up order but which may occur and be notified to the Company in the future are admissible to proof.
- Claims for unearned premiums arising from the termination of insurance contracts upon winding-up constitute 'insurance claims' under the Solvency II regime. This interpretation grants such claims priority over other unsecured claims with respect to assets representing technical provisions.
Conclusion
The judgment of the High Court offers important guidance on the treatment of insurance policies and claims as well as the intersection of corporate insolvency law, insurance law and EU regulation in the context of winding up of an insurance company, with potential implications for future cases in Ireland and across the EU.
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.
