The House of Lords has ruled that Lloyds TSB cannot claim on their professional indemnity insurance policy for the amount they paid out in mis-selling compensation.
Lloyds paid out £125m in compensation to 22,000 policyholders that were mis-sold pensions between the years of 1988 and 1994. They were looking to re-coup the payout through their insurance policy and not having to foot the bill themselves.
The Lords decision was based on the fact that 22,000 small claims could not be combined into one because each case was different and would have to be looked at on its own merits. A press officer for Lloyds TSB commented that the bank felt it had a strong case for recouping the cash paid out.
Our View
There are two clear sides of this story. Firstly, why should someone else have to pay for your mistakes when selling to clients? Taking this view would mean that the shareholders of Lloyds TSB would be missing out on dividends because the cash paid out could not be reclaimed. However, if you buy shares in a company you must accept its good and bad fortunes.
The other side of the story relates to the professional indemnity policy, which the insurer pays premiums for. If the policy will not pay out, why have it? We believe the whole problem with the Lloyds TSB case is that it has combined all of the mis-selling payouts into one and they should each be a separate claim. However, for the time it would take to collate and submit 22,000 individual claims, would it be worth it?