Trading banks commonly sell insurance products under their own brand underwritten by an insurance company. The ownership of that book of business when the relationship ends was the subject of a recent decision of the Auckland High Court in ANZ National Bank Ltd and another v TOWER Insurance Ltd and another, CIV 2005-404-007271, 11 March 2009 (Wylie J).
For a number of years, TOWER underwrote general insurance policies sold by the former ANZ and National Banks and now the amalgamated ANZ National Bank (Bank). After completing a tender process, ANZ National Bank decided to terminate its relationship with TOWER and allow another underwriter, Vero, to sell its Bank-branded policies.
The relationship between the parties was governed by two agency agreements entered into with the former ANZ and National Banks about nine years ago. Both agreements contained clauses that contemplated the termination of the contract, and governed the rights of the parties posttermination. It was the interpretation of these clauses in the context of other clauses in the agreements that were in dispute.
Central to the dispute was the Bank's claim that the insurance book was its property and it was entitled to transfer it to Vero. It sought an order prohibiting TOWER to sell, renew or offer to renew any Bank-branded policies underwritten by it without the Bank's consent from the termination date.
Before dealing with this issue, the Court addressed a number of preliminary issues. The first was whether the contracts had been validly terminated. This was resolved in the Bank's favour. The second was the nature of the relationship between the parties. The Bank argued the relationship was an alliance. TOWER argued it was a principal and the Bank was its agent for the purpose of selling TOWER's policies. The contacts referred expressly to a principal and agent relationship and the Court had no difficulty finding this to be so.
One of the central issues was the effect of a clause that said:
20.2 Notwithstanding that [the Bank] is the agent of TOWER, TOWER acknowledges that [the Bank] has provided access to Clients to TOWER for the purposes of conducting the business contemplated by this Agreement and accordingly TOWER further acknowledges that the primary goodwill of the business remains with [the Bank].
The Bank relied on it owning the primary goodwill to enable it to transfer the insurance book to Vero. However in light of other explicit clauses in the contract addressing the rights and obligations of the parties post-termination, the Court held that the words 'primary goodwill' referred to the reputation attaching to the Bank-branded policies. This did not however mean the insurance book belonged to the Bank. The Court said:
'It follows that in my view the Bank cannot rely on clause 20.2 to appropriate the insurance book by giving notice of termination. The Bank's argument overlooks the fact that when it sold TOWER policies to its customers, those customers entered into a contractual relationship with TOWER and became TOWER customers as well. In my view it is somewhat arrogant for the Bank to now seek to interfere with that contractual relationship simply because it allowed the policies to be sold with its brands on them. If it was intended that the insurance book belonged to the Bank from the outset, something very much clearer would have been required, e.g. an express acknowledgement of that by TOWER coupled with a positive obligation on TOWER requiring it to assign the policies to a new underwriter on termination.'
Flowing from this, the Court held that the terms of the agreements allowing TOWER to renew Bank-branded policies following termination of the agreements, were valid. The Bank was also entitled to market to its customers policies offered by another underwriter, so long as it didn't infringe other provisions of the agreements.
The Bank faced two difficulties in doing that. Firstly, obtaining the relevant customer data from TOWER and secondly, being able to pass the personal information on to Vero.
The first issue was more a practical one than a legal one. Much of the data was held on TOWER's proprietary software that the Bank was not entitled to under the terms of the agreements. Also, some of the data sought by the Bank was outside the terms of the agreements. The Court ordered that TOWER must deliver the data that came within the agreements in some transferable form, but TOWER was not required to provide proprietary database languages or proprietary software. The agreements gave no time frame for doing this and so the Court held TOWER must do so within a reasonable time frame. Importantly, TOWER was able to keep a copy itself to enable it to carry out its post-termination obligations under the agreements.
The second issue was critical to the Bank's case. The Court looked at the authorisations TOWER obtained when it collected personal information from customers governed by the Privacy Act 1993. Unsurprisingly, the authorisations were all limited to information provided to TOWER alone. Therefore, the Court held that the Bank could not pass on this personal information to Vero otherwise it would breach the Privacy Act 1993.
This case is an important one because it is the first time the issue of 'ownership' of the insurance book of business has been before the courts in New Zealand in a bancassurance situation. We imagine a number of insurers and banks are now reviewing their current agreements in light of this decision.
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