Insurer accused of exploiting confidential information

In the case of The Motoring Organisation Ltd v Spectrum Insurance Services Ltd the High Court has held that an insurer was in breach of contract, fiduciary duties and confidence when it used confidential information provided to it ahead of a potential merger, exclusively for its own benefit.

Background

The legal dispute arose from discussions between The Motoring Organisation Ltd (“TMO”) and Spectrum Insurance Services Ltd (“Spectrum”) regarding a potential merger, which had been ongoing for several years. TMO, a provider of vehicle warranties and after-sales products, had shared confidential information with Spectrum in anticipation of the merger. This included details of an opportunity with Korean car manufacturer SsangYong and an opportunity to provide regulated insurance products to certain car dealers (the “2020 Customers”).

TMO alleged that Spectrum had wrongfully exploited both these opportunities for its financial gain. Consequently, TMO brought claims against Spectrum for 1) breach of contract (in each case, breach of an oral agreement); 2) breach of fiduciary duty; 3) breach of confidence; and 4) unjust enrichment.

In respect of the breach of contract claim, Spectrum argued that an agreement was never made between the parties, due to a lack of written or documentary evidence. While the judge accepted that this would be a good submission in many cases in a commercial setting, in the context of this case, the parties’ dealings were mainly unwritten and therefore concluded that an oral agreement existed. Furthermore, while documents produced by Spectrum did not provide a direct record or similar direct evidence of the alleged agreement, they were broadly consistent with TMO’s case rather than its own.  The court found Spectrum liable for breach of contract.

In relation to the breach of fiduciary duty claim, the judge acknowledged that fiduciary duties are not typically applied in commercial relationships outside of settled categories. This is because such relationships are primarily contractual, and each contracting party is usually entitled to seek to prefer its own interests. However, the judge found that the terms of the agreement between the parties did not allow Spectrum to prefer its own interests to the exclusion of TMO.  It was on this basis the court held that a fiduciary relationship existed between the parties and that Spectrum was liable for breach of fiduciary duties

Regarding the breach of confidence, Spectrum argued that the information was not confidential as it had also been shared with other warranty providers and was publicly available. The judge found that whilst some of this information was publicly available, not all of it was in the public domain and moreover, the information had been restricted to pre-identified providers. The judge further accepted that TMO had provided the information to Spectrum in order to place the business for it and this gave rise to an obligation of confidence which Spectrum had breached. Additionally, TMO had permitted Spectrum to use this information in order to source an insurer; it had not permitted Spectrum to use it for its own benefit, therefore Spectrum had used the information in an unauthorised way.

While TMO also claimed unjust enrichment, the judge deemed it unnecessary to consider this claim given the findings on breach of contract, fiduciary duties, and confidence.

All claims in respect of the 2020 Customers failed.

Analysis

This ruling serves as a reminder to businesses of the importance of upholding contractual agreements, observing fiduciary obligations, and respecting the confidentiality of shared information in commercial relationships and emphasises the legal consequences of exploiting privileged and confidential information for personal benefit.

Should you require any assistance with mergers and acquisitions, or if require agreements to be put in place to safeguard confidential commercial information, please do not hesitate to contact our Corporate and Commercial Team.