Sun Alliance and London Assurance Co Limited v Pensions Ombudsman 1
Reference: (2001) OPLR 63
Sun Alliance issued an insurance policy relating to the Employer's occupational pension scheme. A question arose to whether Sun Alliance was allowed to withdraw guaranteed annuity rates in respect of entrants to the scheme or increases in premiums after notice of withdrawal had been given. The Employer appealed to the Pensions Ombudsman.
The Ombudsman determined that Sun Alliance were not entitled to remove the guarantees from "increases in contributions from existing members", but could do so in relation to future members. The policy had to be construed in the light of all of the literature published by Sun Alliance which gave the impression that the guarantee attached to future contributions. In relation to existing members, the argument turned on the meaning of "increase in insurance" in the policy document and in the absence of a clear and agreed definition, Sun Alliance must accept the objective interpretation made by the employer. Sun Alliance appealed.
The court found for Sun Alliance and held that "insurance" was an agreement in consideration of one or more premiums to pay on the occurrence of a specified future event, sums or benefits calculated in accordance with the terms of the policy. It was held that an "increase in insurance" must, in principle, involve an increase to both the premium paid by the insured and the benefit payable by the insurer. The judge explained that on the facts if an existing member decides to pay an increased premium the increase would be treated as payment under a separate policy. Therefore two notional cash funds are built up. When the member reaches normal retirement date he has the option to require the guaranteed annuity rate to be applied to both the funds. If before normal retirement date Sun Alliance sought to alter the guaranteed annuity rate it could do so in respect of future but not past increases; if the member increased his premium for a second time, his third cash fund would have the benefit of the new annuity rate.
