| Link(s): | Damning ruling on E&J’s insurance over-charging – Leasehold Knowledge Partnership COMPOSITION OF TRIBUNALS (leaseholdknowledge.com) |
Context
The Leasehold Knowledge Partnership has published details of a damning ruling handed down by a First-Tier Tribunal Property Chamber, where an insurance broker provided advice to a freeholder to enable them to overcharge leaseholders by 145%, and use a captive insurer in order to maximise their income.
Key points to note and next actions
Brian White MBE, acting for his daughter, the leaseholder, claimed (under the Landlord and Tenant Act 1985) that the insurance premiums were systematically inflated, by a variety of means, to maximise the monies being extracted from leaseholders. He contended that the connected nature of the companies and individuals associated with placing the building’s insurance and the lack of any effective market testing resulted in leaseholders being charged substantially in excess of the market rate for building insurance. White’s detailed grounds of challenge were:
(1) That VAT should not have been included in the reinstatement value.
(2) That 30% of the Building Declared Value to protect against inflation of reinstatement costs was excessive.
(3) That the “commission” payable to Penult Capital Partners (“PCP”) and Arthur J Gallagher (UK) Ltd (“Gallagher”) for insurance services was not reasonably incurred.
(4) That the captive reinsurance agreement between the insurer, Zurich, and Augustus Insurance Company Ltd (“Augustus”) was relevant and indicative that the insurance premiums were not reasonably incurred.
(5) That the rebuild costs per square foot applied were too high.
In short, the Tribunal agreed, stating “… in respect of their responses and evidence as to processes applied to ensure fair and competitive insurance premiums, the Tribunal found their evidence to be lacking transparency, economical as to disclosures, contradictory and lacking credibility. In short, we do not find that the Tribunal was presented with the evidence required to show that the premiums charged were reasonable and not artificially inflated by the connected nature of the various parties or the adoption of a portfolio insurance approach.”
The ruling means that E&J Estates (which owns the captive insurer used – Augustus) must repay thousands in overcharged insurance – about half that charged.
This is perhaps another warning for those brokers operating in this sector that past actions and involvements can be subject to First-Tier tribunal scrutiny and to legal challenge in the Courts.