Dyoll Insurance Company Ltd ((in Liquidation)) Re

• Jurisdiction: Jamaica
• Judge: Sykes J
• Judgment Date: 24 November 2005
• Judgment citation (vLex): [2005] 11 JJC 2401
• Court: Supreme Court (Jamaica)
• Date: 24 November 2005

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

Miss Hilary Phillips QC and Miss Debbie Ann-Gordon instructed by Grant, Stewart, Phillips and Company for the Joint Liquidators

Mrs. Nicole Foster-Pusey and Mrs Symone Mayhew instructed by the Director of State Proceedings for the Financial Services Commission

Mr. Andre Earle and Miss Anna Gracie instructed by Rattray, Patterson and Rattray for the Committee of Inspection

Mr. Emile Leiba instructed by Myers, Fletcher and Gordon watching for Dyoll Group Limited

INSOLVENCY - INSURANCE LAW

Statutory interpretation -

1 SECTIONS 21 AND 59 OF THE INSURANCE ACT, SECTION 139 OF THE BANKRUPTCY ACT, SECTION 310 OF THE COMPANIES ACT, HOTCHPOT AND PARI PASSU

Sykes J

2 The directions sought

3 1. A properly conducted insolvency operation seeks to avoid the realisation of this famous aphorism, "Its every man for himself and God for us all". The liquidator is expected, in an orderly manner, to realise all the assets of the insolvent company and apply them in discharge of the insolvent's debts in accordance with the statutory regime that governs the liquidation. At times, the situation is complicated because one may have two or more statutes that impinge on the liquidation. The case before me raises the issue of the interplay between the Bankruptcy Act 1914, Insurance Act 2001 and the Companies Act 2004. The joint liquidators have applied by a Notice of Application for Court Orders dated October 24, 2005, for directions on

[t]he manner in which the prescribed deposit under section 21 of the Insurance Act (the Act), should be applied pursuant to section 59 of the Act and whether the said deposit should be applied to the liquidation estate of Dyoll and be distributed pari passu to the claims of all unsecured creditors.

4 2. In particular they wish to know whether the phrase application made in Jamaica in the statutory definition of local policy means that the application for the policy has to be made within the geographical boundaries of Jamaica or whether it includes an application made to an agent of an insurer registered under the Insurance Act if that agent is located outside of Jamaica.

5 3. The joint liquidators have devised a plan that according to them is fair and equitable. They say that if all the assets in Jamaica and the Cayman Islands are pooled, and all creditors of whatever description are allowed to participate then each person would receive what is due to them on a pari passu basis. The plan is called a Cross-Border Insolvency Protocol. The purpose of the Protocol is to acknowledge that the Jamaican liquidation is the principal one while the one in the Cayman Island is ancillary to it. The joint liquidators wish to avoid, if possible, conflicting rulings by the Courts in Jamaica and the Cayman Islands. The protocol speaks of the Cayman assets being remitted to Jamaica less an amount the liquidators deem sufficient for purpose there. The joint liquidators say that deposits are held by the Financial Services Commission (FSC) (the Jamaican regulator) and the Cayman Island Monetary Authority (CIMA) (the Caymanian regulator). The intention, as I understand it, is to pool all the assets, excluding those subject to secured credit, for distribution pari passu to all the unsecured creditors. This pooling includes the prescribed deposit held by the FSC. To achieve this, the liquidators insist that the phrase application made in Jamaica as used in the definition of local policy, includes an application made to an overseas agent of an insurer registered in Jamaica.

6 How the insurance industry is regulated

7 4. To understand this matter fully a word must be said about the regulation of the insurance industry in Jamaica. This brief overview will place in perspective the role of the FSC in this liquidation and the importance of what is called the prescribed deposit. After the financial sector crisis of the 1990's, which saw quite a number of financial institutions becoming insolvent the Government of Jamaica, revamped the regulatory framework for the providers of financial services. In 2001 the Financial Services Commission Act (FSCA) came into force. Under that Act the FSC was established to inter alia, supervise and regulate prescribed financial institutions. By section 2 of the FSCA a prescribed financial institution means an institution or person offering or providing financial services to the public. Financial services in section 2 of the FSCA, means, so far as is relevant to this case, services provided or offered in connection with insurance. The link between the FSCA and the Insurance Act is established by sections 2 and 4 of the Insurance Act Section 2 of the Insurance Act defines Commission to mean the Commission appointed under section 3 of the FSCA while section 4 of the Insurance Act states that the Commission shall be responsible for the general administration of the Act. The FSC is therefore charged with the responsibility of regulating the insurance industry through the medium of the Insurance Act.

8 5. Under section 21 of the Insurance Act a company cannot be registered to carry on any class of insurance business unless it deposits with the FSC the prescribed deposit Regulation 8, made pursuant to section 144 of the Insurance Act, speaks to a minimum deposit with the FSC by a registered insurer. Two minimum amounts are set. In respect of entities carrying life or sickness and health insurance the minimum is JA$90m and in respect of general insurance the minimum is JA$45m. Regulation 8(2) empowers the FSC to request an increase in the deposit either before or after granting the licence to such an amount as it considers necessary. Regulation 8 (3) permits the insurer to voluntarily increase its deposit above the minimum.

9 6. Section 51 (2) (b) authorises the FSC to present a petition to wind up an insurance company. The FSC utilised this power when it filed the petition for winding Dyoll. Mention must now be made of section 59 of the Insurance Act which states

Notwithstanding anything in this Act to the contrary, upon the winding up of an insurance company, ail moneys and securities for the time being held as a deposit in respect of that company, under section 21 shall be delivered to the liquidator and shall be applied by him, in the first instance, in the discharge of the liabilities of the company in respect of local policies,

10 7. On the face of it, it seems that if an insurance company is being wound up, the section is directing the liquidator to satisfy the liabilities in respect of the local policy holders out of a specific fund. What is the effect of this? Is it affected by the principles of pari passu and hotchpot? These questions must be resolved in order to give appropriate directions to the liquidators. It is now appropriate to set out the statutory definition of local policy, the interpretation of which is the all-important issue in this application.

11 8. Section 2 of the Insurance Act defines local policies thus:

local policy means a policy issued, whether in or outside Jamaica, by or on behalf of an insurer, upon an application made in Jamaica to an insurer, broker, sales representative or agent; and -

• (i) includes a life insurance policy issued outside Jamaica at the request of the policy holder, which the policy holder has agreed in writing shall be treated as a local policy for the purposes of this Act; but

• (ii) does not include a life insurance policy made payable, after the date of its issue, outside Jamaica at the request of the policyholder, which the policyholder has agreed in writing shall not be treated as a local policy for the purposes of this Act; (My emphasis)

12 9. The same section 2 of the Insurance Act defines policy to mean insurance policy. I now express my initial observations without embarking upon the construction of applications made in Jamaica . Generally, an insurance policy refers to the written contract of insurance that sets out the details of the contract. It is well known that the proposer completes a proposal or application and submits it to the insurer who then decides whether it will accept the risk and on what terms. If the insurer accepts the risk and the proposer as well as the insurer agrees to the terms and conditions, including the payment of the premium, then the contract of insurance is concluded. It is important to note as well that all the persons listed in the definition of local policy to whom an application may be made are defined in the Act and all of them are required to be registered in Jamaica before they can operate lawfully in Jamaica. There is no requirement for registration in Jamaica under the Insurance Act of any agent overseas acting for and on behalf of any registered insurer in Jamaica. Jamaica is defined in the Interpretation Act. These three facts, stated in the three immediately preceding sentences, tend to show that the expression means that the application is to be made within the geographical boundaries of Jamaica.

13 10. Just as a matter of language it is clear that Parliament is not tying the definition of local policy to the nationality of the applicant or the country of origin of the insurer. The Act makes provision for foreign companies (a term defined in the Act) to operate in Jamaica and who can issue local policies as long as the application is made to them in Jamaica. This means that a person ordinarily resident in a foreign state and a national of a third state may possess a local policy and a Jamaican who is resident in Jamaica may have a policy that is not a local policy.

14 The history of Dyoll, its operation in the Cayman Island and the impact of Hurricane Ivan

15 11. Dyoll was incorporated on October 8, 1964, under the Companies Act of Jamaica as a limited liability company. Its registered office is at 40 – 46 Knutsford...