Local authority insurance: Big News

I just had a big win on a case of major importance in its field. Here is the press release. A more detailed analysis will follow:

Local authorities not authorised to act as insurers

In a landmark case, the High Court has found that Brent LBC had no power to participate in LAML, a mutual insurer for London borough councils.

It has further found, in principle, that no local authority can participate in such a mutual if it does so solely to save money on its insurance. In obiter comments, the judge held that there might be circumstances in which an authority could do so, but that there was no evidence that LAML could bring itself within those circumstances.

Risk Management Partners (RMP), a company providing insurance services to local authorities, pursued a test case against Brent after Brent abandoned an EU-regulated public procurement process and awarded the contract for its insurance services to the London Authorities Mutual Limited, LAML, outside the tender framework.

LAML and Harrow, who were in a similar position to Brent, joined the action as Interested Parties. Since no relief was sought against them, no finding was made specifically against them.

Lord Justice Burnton (as he now is) focused on the “fundamental difference between…participation in LAML and normal commercial insurance”. Brent were not only buying insurance; they were providing insurance to others. Rather than simply paying a premium for cover, Brent had also paid a £160,500 capitalisation charge to the mutual and more importantly taken on potentially unlimited liabilities to LAML in the event of future shortfalls.

The judge found that Brent had “speculated on its success as an insurance company”. He held that the provision of insurance to others was “not incidental to the discharge of any function of a local authority” and thus fell outside the scope of s.111 of the Local Government Act 1972.

Brent further failed in their case on s.2 of the Local Government Act 2000, the so-called “well-being” power, despite that section being very widely drafted. The mere fact that Brent expected to save money on its insurance premiums did not, without more, justify its actions and it therefore had no power to become a member of LAML.

As a result of this decision, there may be questions about the effectiveness of Brent’s insurance with LAML for the 2007—2008 year.

The parties still await judgment on a related yet equally important issue: RMP say that Brent had to follow EU-mandated rules and go to open competitive tender for the business; Brent rely on the so-called Teckal exemption to say that LAML effectively operated as an in-house function of Brent and hence that it was allowed to side-step the procurement process.

RMP’s Kaz Janowicz said

“While we are relieved at the Court’s findings we take no great joy from the decision. Our sole aim in this action has been to get a level playing-field. For us, the real part of the case comes when the decision on Teckal is given. We are happy to compete with LAML, or indeed, anyone—all we ask is an equal opportunity to do so.”

RMP were awarded their costs in full. Brent, Harrow and LAML were granted leave to appeal.

You can read the judgment online. Note especially paras. 93 and 110 (on the s.111 arguments), para. 114 (on s.2) and para. 120 (on some potential exceptions to the basic principle-see esp. the last 5 lines for the facts in this case).

Risk Management Partners
-v-
The Council of the London Borough of Brent
London Authorities Mutual Limited
The Council of the London Borough of Harrow

Neutral citation: [2008] EWHC 692 (Admin)