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Successful judicial review of decision by Financial Services Compensation Scheme

29th Sep 2022

R (Manchikalapati & Ors) v Financial Services Compensation Scheme [2022] EWHC 2228 (Admin)

James Drake KC and Douglas Grant acted for the successful Claimants in this judicial review of a decision by the Financial Services Compensation Scheme (FSCS) to refuse compensation to a group of policyholders.

Following protracted litigation against insurers, the Claimants had been awarded damages of c.£10m by the Court of Appeal, together with interest and costs: Manchikalapati v Zurich Insurance Plc [2019] EWCA Civ 2163. Shortly thereafter, East West Insurance Company (which had assumed Zurich’s liabilities under the relevant policies) entered administration, having failed to pay the Claimants interest and costs of c.£4m.

The Claimants therefore applied for compensation from the Policyholder Protection Scheme (the Scheme), administered by the FSCS. The Claimants’ application was refused. The FSCS accepted that it was liable to compensate the Claimants for any shortfall in their insurance indemnity, but maintained that costs and interest fell outside the scope of the Scheme.

The Claimants challenged that decision by way of judicial review, arguing that the Scheme provided compensation not only for an insurer’s contractual liability to a policyholder, but also for sums which are “part and parcel of” and “integrally linked to” that liability.

Mr Dexter Dias KC, sitting as a High Court Judge, accepted the Claimants’ submissions. The Judge declared that the FSCS’s decision was wrong in law and that the Claimants were entitled to be compensated for unpaid costs and interest. The Judge therefore quashed the decision and ordered the FSCS to reconsider the Claimants’ application for compensation in accordance with the findings of the Court.

James Drake KC and Douglas Grant were instructed by Martin Scott and Paul Hargreaves of Walker Morris LLP.