AUTH App 6
Guidance on the Identification of Contracts
of Insurance
AUTH App 6.1
Application
- 01/12/2004
AUTH App 6.1.1
See Notes
- 01/08/2004
AUTH App 6.2
Purpose of guidance
- 01/12/2004
AUTH App 6.2.1
See Notes
The purpose of this guidance is to set out:
(1) at AUTH App 6.5 the
general principles; and
(2) at AUTH App 6.6 the
range of specific factors;
that the FSA regards as relevant
in deciding whether any arrangement is a contract of insurance.- 01/08/2004
AUTH App 6.2.2
See Notes
This guidance includes (at AUTH App 6.7) a number of examples, showing how the factors have been applied
to reach conclusions with respect to specific categories of business. Further
examples may be published from time-to-time.
- 01/08/2004
AUTH App 6.3
Background
- 01/12/2004
AUTH App 6.3.1
See Notes
The business of effecting or carrying
out contracts of insurance is subject to prior authorisation and regulation by the FSA. (There are some limited
exceptions to this requirement, for example, for breakdown insurance.)
- 01/08/2004
AUTH App 6.3.2
See Notes
The Regulated
Activities Order, which sets out the activities for which authorisation is required,
does not attempt an exhaustive definition of a 'contract of insurance'. Instead,
it makes some specific extensions and limitations to the general common law
meaning of the concept. For example, it expressly extends the concept to fidelity
bonds and similar contracts of guarantee, which are not contracts of insurance
at common law, and it excludes certain funeral
plan contracts, which would generally be contracts of insurance
at common law. Similarly, the Exemption
Order excludes certain trade union provident business, which
would also be insurance at common law. One consequence of this is that common
law judicial decisions about whether particular contracts amount to 'insurance'
or 'insurance business' are relevant in defining the scope of the FSA's
authorisation and regulatory activities, as they were under
predecessor legislation.
- 01/08/2004
AUTH App 6.3.3
See Notes
The Courts have not fully defined the
common law meaning of 'insurance' and 'insurance business', since they have,
on the whole, confined their decisions to the facts before them. They have,
however, given useful guidance in the form of descriptions of contracts of
insurance.
- 01/08/2004
AUTH App 6.3.4
See Notes
The best established of these descriptions
appears in the case of Prudential v. Commissioners of Inland Revenue [1904]
2 KB 658. This case, read with a number of later cases, treats as insurance
any enforceable contract under which a 'provider' undertakes:
(1) in consideration of one or more payments;
(2) to pay money or provide a corresponding
benefit (including in some cases services to be paid for by the provider)
to a 'recipient';
(3) in response to a defined event the occurrence
of which is uncertain (either as to when it will occur or as to whether it
will occur at all) and adverse to the interests of the recipient.
- 01/08/2004
AUTH App 6.4
Limitations of this guidance
- 01/12/2004
AUTH App 6.4.1
See Notes
- 01/08/2004
AUTH App 6.4.2
See Notes
The list of principles and factors is
not closed and this guidance by
no means covers all types of insurance-like business.
- 01/08/2004
AUTH App 6.4.3
See Notes
The FSA will
consider each case on its facts and on its merits.
- 01/08/2004
AUTH App 6.4.4
See Notes
In some cases transactions with the same
commercial purpose or economic effect may be classified differently, ie some
as insurance and some as non-insurance.
- 01/08/2004
AUTH App 6.5
General principles
- 01/12/2004
AUTH App 6.5.1
See Notes
The starting point for the identification
of a contract of insurance is the case of Prudential v. Commissioners of Inland
Revenue [1904] 2 KB 658, from which the description set out in AUTH
App 6.3.4 G is drawn. Any contracts that fall outside that description
are unlikely to be contracts of insurance.
- 01/08/2004
AUTH App 6.5.2
See Notes
The FSA will
interpret and apply the description in AUTH
App 6.3.4 G in
the light of applicable legislation and common law, including case law.
- 01/08/2004
AUTH App 6.5.3
See Notes
- 01/08/2004
AUTH App 6.5.4
See Notes
The FSA will
apply the following principles of construction to determine whether a contract
is a contract of insurance.
(1) In applying the description in AUTH
App 6.3.4 G, more weight attaches
to the substance of the contract, than to the form of the contract. The form
of the contract is relevant (see AUTH
App 6.6.8 G (3)
and (4)) but not decisive of whether a contract is a contract of insurance:
Fuji Finance Inc. v. Aetna Life Insurance Co. Ltd [1997] Ch. 173 (C.A.).
(2) In particular, the substance of the provider's
obligation determines the substance of the contract: In re Sentinel Securities
[1996] 1 WLR 316. Accordingly, the FSA is
unlikely to treat the provider's or the customer's intention or purpose in
entering into a contract as relevant to its classification.
(3) The contract must be characterised as
a whole and not according to its 'dominant purpose' or the relative weight
of its 'insurance content': Fuji Finance Inc. v. Aetna Life Insurance Co.
Ltd [1997] Ch. 173 (C.A.).
(4) Since only contracts of marine insurance
and certain contracts of insurance effected without consideration are required
to be in writing, a contract of insurance may be oral or may be expressed
in a number of documents.
- 01/08/2004
AUTH App 6.6
The factors
- 01/12/2004
AUTH App 6.6.1
See Notes
Contracts under which the provider has
an absolute discretion as to whether any benefit is provided on the occurrence
of the uncertain event, are not contracts of insurance. This may be the case
even if, in practice, the provider has never exercised its discretion so as
to deny a benefit: Medical Defence Union v. Department of Trade and Industry
[1979] 2 W.L.R. 686. The degree of discretion required and the matters to
which it must relate are illustrated in AUTH
App 6.7.1 G (Example
1: discretionary medical schemes).
- 01/08/2004
AUTH App 6.6.2
See Notes
The 'assumption of risk' by the provider
is an important descriptive feature of all contracts of insurance. The 'assumption
of risk' has the meaning in (1) and (3), derived from the case law in (2)
and (4) below. The application of the 'assumption of risk' concept is illustrated
in AUTH
App 6.7.2 G (Example 2: disaster
recovery business).
(1) Case law establishes that the provider's
obligation under a contract of insurance is an enforceable obligation to respond
(usually, by providing some benefit in the form of money or services) to the
occurrence of the uncertain event. This guidance describes
the assumption of that obligation as the 'assumption' by the provider of (all
or part of) the insured risk. 'Transfer of risk' has the same meaning in this guidance.
(2) The case law referred to in (1) is Prudential
v. Commissioners of Inland Revenue [1904] 2 KB 658, read with Hampton v. Toxteth
Co-operative Provident Society Ltd [1915] 1 Ch. 721 (C.A.), Department of
Trade and Industry v. St Christopher Motorists Assoc. Ltd [1974] 1 All E.R.
395, Medical Defence Union v. Department of Trade and Industry [1979] 2 W.L.R.
686 and Wooding v. Monmouthshire and South Wales Mutual Indemnity Soc. Ltd
[1939] 4 All E.R. 570 (H.L.).
(3) The FSA recognises
that there is a line of case law in relation to long-term insurance business that establishes
that a contract may be a contract of insurance even if, having effected that
contract, the provider 'trades without any risk'. The FSA accepts that the insurer's risk of profit
or loss from insurance business is not a relevant descriptive feature of a
contract of insurance. But in the FSA's view
that is distinct from and does not undermine the different proposition in
(1).
(4) The case law referred to in (3) is Flood
v. Irish Provident Assurance Co. Ltd [1912] 2 Ch. 597 (C.A.), Fuji Finance
Inc. v. Aetna Life Insurance Co. Ltd [1995] Ch. 122, Re Barrett; Ex parte
Young v. NM Superannuation Pty Ltd, (1992) 106 A.L.R. 549, Fuji Finance Inc.
v. Aetna Life Insurance Co. Ltd [1997] Ch. 173 (C.A.).
- 01/08/2004
AUTH App 6.6.3
See Notes
Contracts, under which the amount and
timing of the payments made by the recipient make it reasonable to conclude
that there is a genuine pre-payment for services to be rendered in response
to a future contingency, are unlikely to be regarded as insurance. In general,
the FSA expects
that this requirement will be satisfied where there is a commercially reasonable
and objectively justifiable relationship between the amount of the payment
and the cost of providing the contract benefit.
- 01/08/2004
AUTH App 6.6.4
See Notes
Contracts under which the provider undertakes
to provide periodic maintenance of goods or facilities, whether or not any
uncertain or adverse event (in the form of, for example, a breakdown or failure)
has occurred, are unlikely to be contracts of insurance.
- 01/08/2004
AUTH App 6.6.5
See Notes
Contracts under which, in consideration
for an initial payment, the provider stands ready to provide services on the
occurrence of a future contingency, on condition that the services actually
provided are paid for by the recipient at a commercial rate, are unlikely
to be regarded as insurance. Contrast AUTH
App 6.7.21 G (Example
7: solicitors' retainers) with AUTH
App 6.7.22 G (Example
8: time and distance cover).
- 01/08/2004
AUTH App 6.6.6
See Notes
The recipient's payment for a contract
of insurance need not take the form of a discrete or distinct premium. Consideration
may be part of some other payment, for example the purchase price of goods
(Nelson v. Board of Trade (1901) 17 T.L.R. 456). Consideration may also be
provided in a non-monetary form, for example as part of the service that an
employee is contractually required to provide under a contract of employment
(Australian Health Insurance Assoc. Ltd v. Esso Australia Pty Ltd (1993) 116
A.L.R. 253).
- 01/08/2004
AUTH App 6.6.7
See Notes
Under most commercial contracts with
a customer,
a provider will assume more than one obligation. Some of these may be insurance
obligations, others may not. The FSA will
apply the principles in AUTH
App 6.5.4 G,
in the way described in (1) to (3) to determine whether the contract is a
contract of insurance.
(1) If a provider undertakes an identifiable
and distinct obligation that is, in substance an insurance obligation as described
in AUTH
App 6.5.4 G, then, other things
being equal, the FSA is
likely to find that by undertaking that obligation the provider has effected
a contract of insurance.
(2) The presence of an insurance obligation
will mean that the contract is a contract of insurance, whether or not that
obligation is 'substantial' in comparison with the other obligations in the
contract.
(3) The presence of an insurance obligation
will mean that the contract is a contract of insurance, whether or not entering
into that obligation forms a significant part of the provider's business.
The FSA generally
regards a provider as undertaking an obligation 'by way of business' if he
takes on an obligation in connection with or for the purposes of his core
business, to realise a commercial advantage or benefit.
- 01/08/2004
AUTH App 6.6.8
See Notes
The following factors are also relevant.
(1) A contract is more likely to be regarded
as a contract of insurance if the amount payable by the recipient under the
contract is calculated by reference to either or both of the probability of
occurrence or likely severity of the uncertain event.
(2) A contract is less likely to be regarded
as a contract of insurance if it requires the provider to assume a speculative
risk (ie a risk carrying the possibility of either profit or loss) rather
than a pure risk (ie a risk of loss only).
(3) A contract is more likely to be regarded
as a contract of insurance if the contract is described as insurance and contains
terms that are consistent with its classification as a contract of insurance,
for example, obligations of the utmost good faith.
(4) A contract that contains terms that are
inconsistent with obligations of good faith may, therefore, be less likely
to be classified as a contract of insurance; however, since it is the substance
of the provider's rights and obligations under the contract that is more significant,
a contract does not cease to be a contract of insurance simply because the
terms included are not usual insurance terms.
- 01/08/2004
AUTH App 6.7
Examples
- 01/12/2004
Example 1: discretionary medical schemes
AUTH App 6.7.1
See Notes
Medical schemes under which an employer
operates or contributes to a fund, from which the employee has a right to
a benefit (for example, a payment) on the occurrence of a specified illness
or injury, are likely to be insurance schemes. This will be the case whether
the employee makes any contribution to the fund, or the scheme is funded by
the employer as an emolument. The scheme would not be insurance, however,
if the employer has an absolute discretion whether or not to provide any benefit
to the employee. Absolute discretion requires, for example, that the employer
has an unfettered discretion both as to whether the employee will receive
a benefit and as to the amount of that benefit. The absolutely discretionary
nature of the benefits should also be clear from the terms of the scheme and
any literature published about or in relation to it. If these requirements
are met, it may not be relevant that, in practice, the employer has never
refused to meet a valid claim under the scheme.
- 01/08/2004
Example 2: disaster recovery business
AUTH App 6.7.2
See Notes
The disaster recovery provider sets up
and maintains a range of IT and related facilities (PABX etc). The disaster
recovery contracts so far considered by the FSA give the recipient, subject to certain
conditions including an up front payment, priority access to all or a specified
part of these facilities if a 'disaster' causes the failure of a similar business
system on which the recipient relies. The provider sells access to the same
facilities to a number of different recipients, both for use in response to
'disasters' and, more usually, for use in testing and refining the recipient's
ability to switch to alternative systems in the event of a disaster.
- 01/08/2004
AUTH App 6.7.3
See Notes
In principle, a significant part of disaster
recovery business could potentially fall within the description of a contract
of insurance set out in AUTH
App 6.3.4 G.
The provider undertakes, in consideration of a payment, to provide the recipient
with services (alternative facilities) in response to a defined event (a disaster),
which is adverse to the interests of the recipient and the occurrence of which
is uncertain. The risk dealt with under the disaster recovery contract is
a pure risk (see AUTH App 6.6.8 G (2)) and, at least at the commencement of the contract, the provider
assumes that risk, within the terms of AUTH
App 6.6.2 G.
- 01/08/2004
AUTH App 6.7.4
See Notes
However, the disaster recovery contracts
considered by the FSA had
two key features.
(1) Priority access to facilities in the
event of a disaster was expressed to be on a 'first come, first served' basis.
The contracts provided expressly that if the facilities needed by recipient
A were already in use, following an earlier invocation by recipient B, the
provider's obligation to recipient A was reduced to no more than an obligation
of 'best endeavours' to meet A's requirements. The entry into additional contracts
of this kind did not increase the probability that the provider's existing
resources would be inadequate to meet all possible claims. The terms of the
contract were such that there was no pattern of claims that would cause the
provider to have to pay claims from its own resources.
(2) In general, the contracts were priced
so that the total consideration collected from the recipient over the life
of the contract bore a reasonable and justifiable relationship to the commercial
cost of the services actually provided to the recipient (see AUTH
App 6.6.5 G). This was achieved, for example, by post-invocation
charges levied according to the actual usage of services.
- 01/08/2004
AUTH App 6.7.5
See Notes
Based on these features, the FSA reached the conclusion,
with which the other terms of the contracts were consistent (AUTH App 6.6.8 G (3)), that these disaster recovery contracts
were not contracts of insurance.
- 01/08/2004
AUTH App 6.7.6
See Notes
An important part of the conclusion in AUTH
App 6.7.5 G was that, although
the provider assumed a risk at the outset of the contract, looking at the
contract as a whole and interpreting the common law in the context of the FSA's objectives (see AUTH
App 6.5.2 G and AUTH
App 6.5.3 G) there was no relevant assumption of risk.
(1) The presence or absence of an assumption
of risk is an important part of the statutory rationale for the prudential
regulation of insurance.
(2) In Medical Defence Union v. Department
of Trade and Industry [1979] 2 W.L.R. 686, the Court accepted that since there
was no common law definition of a contract of insurance, the meaning of the
term 'fell to be construed in its context according to the general law'. The
Court recognised that in deciding whether a contract was a contract of insurance
for the purposes of the Insurance Companies Act 1974, the 'context' included
the purpose of the regulatory statute.
(3) Accordingly, when the common law is unclear,
the FSA will
assess the desirability of regulating a particular contract as insurance in
the light of the statutory objectives in the Act. The FSA will
use that assessment as an indicator of whether or not a sufficient assumption
of risk is present for the contract to be classified as a contract of insurance
at common law.
(4) In the case of disaster recovery contracts,
the fact that there was no pattern of claims that would cause the provider
to have to pay claims form its own resources led the FSA to conclude that there was no relevant
assumption of risk by the disaster recovery provider.
- 01/08/2004
Example 3: manufacturers' and retailers' warranties
AUTH App 6.7.7
See Notes
Under a simple manufacturer's or retailer's
warranty the purchase price of the goods includes an amount, in consideration
of which the manufacturer undertakes an obligation (the warranty) to respond
(without further expense to the purchaser) to specified defects in the product
that emerge within a defined time after purchase. When the warranty operates,
the manufacturer or retailer provides repairs or replacement products in response
to a defined event (the emergence of a latent defect in the product), which
is adverse to the interests of the purchaser and the occurrence of which is
uncertain. In summary, therefore, a simple manufacturer's or retailer's warranty
is an identifiable and distinct obligation that is similar to and capable
of being described as an insurance obligation in substance under AUTH
App 6.3.4 G.
- 01/08/2004
AUTH App 6.7.8
See Notes
Notwithstanding AUTH
App 6.7.7 G, the FSA's view
is that an obligation that is of the same nature as a seller's or supplier's
usual obligations as regards the quality of the goods or services is unlikely
to be an insurance obligation in substance.
- 01/08/2004
AUTH App 6.7.9
See Notes
The FSA is
unlikely to classify a contract containing a simple manufacturer's or retailer's
warranty as a contract of insurance, if the FSA is satisfied that the warranty does no
more that crystallise or recognise obligations that are of the same nature
as a seller's or supplier's usual obligations as regards the quality of the
goods or services.
- 01/08/2004
AUTH App 6.7.10
See Notes
For the purpose of AUTH
App 6.7.9 G, an obligation is likely to be of the same
nature as the seller's or supplier's usual obligations as regards the quality
of goods or services if it is an obligation of the seller to the buyer, assumed
by the seller in consideration of the purchase price, which:
(1) implements, or bears a reasonable relationship
to, the seller's statutory or common law obligations as regards the quality
of goods or services of that kind; or
(2) is a usual obligation relevant to quality
or fitness in commercial contracts for the sale of goods or supply of services
of that kind.
- 01/08/2004
Example 4: separate warranty transactions and extended warranties
AUTH App 6.7.11
See Notes
It follows from AUTH
App 6.7.10 G that the FSA is unlikely to be satisfied that an obligation
in a contract of sale or supply is of the same nature as the seller's or supplier's
usual obligations as regards the quality of goods or services, if that obligation
has one or more of the following features:
(1) it is assumed by a person other than
the seller or supplier (a 'third party'); or
(2) it is significantly more extensive in
content, scope or duration than a seller's usual obligations as to the quality
of goods or services of that kind.
- 01/08/2004
AUTH App 6.7.12
See Notes
Other things being equal, the FSA is likely to classify
a contract of sale containing a warranty that has one or more of the features
in AUTH
App 6.7.11 G as a contract of
insurance. The features in AUTH App 6.7.11 G (1) and (2) typically distinguish a 'third party' warranty and an 'extended
warranty' from a 'simple' manufacturer's or retailer's warranty.
- 01/08/2004
AUTH App 6.7.13
See Notes
If a warranty is provided by a third
party, the FSA will
usually treat this as conclusive of the fact that there are different transactions
and an assumption or transfer of risk. This conclusion would not usually depend
on whether the provider is (or is not) a part of the same group of companies
as the manufacturer or retailer. But it will be the third party (who assumes
the risk) that is potentially effecting a contract of insurance.
- 01/08/2004
AUTH App 6.7.14
See Notes
A manufacturer or retailer may undertake
a warranty obligation to his customer in a separate contract with the customer,
distinct from the contract of sale or supply of goods or services. The FSA will examine the separate
contract to see if it is a contract of insurance. But the mere existence of
a separate warranty contract is unlikely to be conclusive by itself.
- 01/08/2004
AUTH App 6.7.15
See Notes
A manufacturer or retailer may undertake
an obligation to ensure that the customer becomes a party to a separate contract
of insurance in respect of the goods sold. This would include, for example,
a contract for the sale of a freezer, with a simple warranty in relation to
the quality of the freezer, but also providing insurance (underwritten by
an insurer and
in respect of which the customer is the policyholder)
covering loss of frozen food if the freezer fails. The FSA is unlikely to treat a contract containing
an obligation of this kind as a contract of insurance. However, the manufacturer
or retailer may be in the position of an intermediary and may be liable to
regulation in that capacity.
- 01/08/2004
AUTH App 6.7.16
See Notes
The FSA distinguishes
the contract in AUTH
App 6.7.15 G from
a contract under which the manufacturer or retailer assumes the obligation
to provide the customer with an indemnity against loss or damage if the freezer
fails, but takes out insurance to cover the cost of having to provide the
indemnity to the customer. The obligation to indemnify is of a different nature
from the seller's or supplier's usual obligations as regards the quality of
goods or services and is an insurance obligation. By assuming it, other things
being equal, the manufacturer or retailer effects a contract of insurance.
The fact that the manufacturer or retailer may take out insurance to cover
the cost of having to provide the indemnity is irrelevant.
- 01/08/2004
Example 5: typical warranty schemes administered by motor dealers
AUTH App 6.7.17
See Notes
The following are examples of typical
warranty schemes operated by motor dealers. Provided that, in each case, the FSA is satisfied that
the obligations assumed by the dealer are not significantly more extensive
in content, scope or duration that a dealer's usual obligations as to the
quality of motor vehicles of that kind, the FSA would not usually classify the contracts
embodying these transactions as contracts of insurance.
(1) The dealer gives a verbal undertaking
to the purchaser that during a specified period (usually 3 months) he will
rectify any fault occurring with the vehicle. No money changes hands, and
the dealer is responsible for meeting the warranty obligation.
(2) The dealer undertakes warranty obligations
to his customer. The warranty obligations are either included in the contract
for the sale of the vehicle or are set out in a separate contract between
dealer and customer at the time of sale. The dealer administers his own warranty
scheme and does not employ a separate company (for example a subsidiary) to
run the scheme. In the event of a fault, the purchaser must contact the dealer,
who is responsible for meeting the warranty obligation. The dealer decides
whether or not to put money aside to meet potential claims.
(3) The dealer purchases proprietary warranty
booklets issued by an administration company. These booklets contain 'terms
and conditions' under which the dealer undertakes warranty obligations to
the customer. The dealer sells these 'products' to his customer under a separate
contract or inflates the price of the vehicle to include them as part of the
sale of the vehicle. The administration company administers any claims that
arise. The financial arrangements are that the dealer charges his customer
for the warranty, passing a fee to the administration company for the purchase
of the booklet and any administration relating to the processing of claims.
The dealer retains all monies (less administration fee) received from the
sale of the warranties and keeps any surplus after claims have been paid.
The dealer is responsible for meeting the warranty obligation.
(4) The dealer undertakes warranty obligations
to his customer. The warranty obligations are either included in the contract
for the sale of the vehicle or are set out in a separate contract between
dealer and customer at the time of sale. The dealer employs an administration
company to handle all the claims and associated administrative work. The administration
company usually has access to a bank account, funded by the dealer and specifically
set aside to meet warranty claims. The administration company authorises and
pays warranty claims from the bank account in accordance with the dealer's
instructions. The dealer ultimately decides on the amount of claims payable
from this account and retains all surplus monies. The dealer is responsible
for meeting the warranty obligation.
- 01/08/2004
Example 6: tax investigation schemes
AUTH App 6.7.18
See Notes
When self-assessment for income tax was
first introduced, a number of providers set up schemes connected with their
tax accounting and tax advisory services. In consideration of an annual fee,
the provider undertakes to deal with any enquiries or investigations that the Inland Revenue might launch into
the self-assessment that the provider completes for the recipient. The event
covered by these schemes (an investigation) is both uncertain and adverse
to the interests of the recipient, who would, if the scheme were not in place,
have to devote resources to dealing with the investigation. Accordingly, these
schemes fall within the description of a contract of insurance (see AUTH
App 6.3.4 G).
- 01/08/2004
AUTH App 6.7.19
See Notes
Some providers argued that these schemes
amount to nothing more than a 'manufacturer's warranty' of their own work,
within the scope of AUTH
App 6.7.7 G (Example
3: manufacturers' and retailers' warranties). However, the Inland Revenue is expected to make a significant number
of random checks of self-assessment forms, irrespective of the quality of
the work done by the provider. These random checks are also covered by the
schemes. The FSA concluded,
therefore, that these schemes were not analogous to manufacturers' warranties
and that the better view was that they were contracts of insurance.
- 01/08/2004
Example 7: solicitors' retainers
AUTH App 6.7.20
See Notes
A contract under which a provider undertakes,
in consideration of an initial payment, to stand ready to provide, or to procure
the provision of, legal services on the occurrence of an uncertain event (for
example, if the recipient is sued), is capable of being construed as a contract
of insurance (see AUTH
App 6.3.4 G).
Indeed, legal expenses insurance
is commonplace.
- 01/08/2004
AUTH App 6.7.21
See Notes
If, however, a contract of this kind
were structured so that the recipient was charged at a commercial rate for
any legal services in fact provided, the FSA's approach
will be to treat the arrangement as non-insurance. This is principally because,
by taking on obligations of this kind, the provider does not assume a relevant
risk (see AUTH
App 6.7.6 G).
The position might be different if the solicitor carries the additional obligation
to pay for alternative legal services to be provided if the solicitor is unable
to act. In that case, the FSA's approach
will be to examine all the elements of the contract to determine whether the
substance of the solicitor's obligation (see AUTH App 6.5.4 G (2)) is to insure, or to give legal advice for a fee.
- 01/08/2004
Example 8: contracts providing for ultimate repayment of any indemnity ('time and distance cover')
AUTH App 6.7.22
See Notes
A contract under which a provider agrees
to meet a specified obligation on behalf of the recipient (for example an
obligation to pay for the re-purchase of shares or to meet a debt) immediately
that obligation falls due, subject to later reimbursement by the recipient,
would be a contract of insurance if in all other respects it fell within the
description of such contract (see AUTH
App 6.3.4 G).
This is principally because the provider assumes the risk that an immediate
payment will be required and, depending on the terms of the contract, may
also assume the risk that the recipient will be unable to make future repayments
(see AUTH
App 6.6.2 G).
- 01/08/2004