Insurers and brokers with a product suitable for certain sections of the public will often team-up with organisations or businesses with existing links to those individuals. In exchange for access to membership or contact lists, the insurer may be prepared to give special terms or favourable rates and/or share commission with the introducer organisation.
But what commission is the organisation entitled to? In respect of every member who applies? Or only in respect of those members who apply because of the introduction? Is the organisation entitled to commission for members of the public who come forward due to general marketing and who, coincidentally, happen to be members of the organisation?
Where an insurer has entered into such an 'affinity' scheme with an organisation, you might expect it to have to account to the organisation for commission on all sales of insurance products to the organisation's members. However, the decision of the High Court in Unite the Union v Liverpool Victoria Banking Services Ltd and others shows that there may well be circumstances in which the insurer can sell its products to the organisation's members without having to account for commission.
In Unite v Liverpool Victoria, Liverpool Victoria ('LV') had arrangements in place with a trade union under which the trade union provided the insurers with access to its members in order that the insurers could market their products to them. In return, the insurers discounted the price of the products to union members and agreed to pay commission to the union on the sale of its products.
As well as sales through the affinity schemes, LV also marketed the products to the general public. Amongst the members of the public who purchased the insurers' products were a number of members of the trade union. LV argued that, unless the members purchased the insurance products through the specific channels set up under the affinity scheme, no commission was payable. The trade union argued that it was entitled to commission payments on all sales of the insurers' products to its members, regardless of how such sales were secured.
The court rejected the trade union's argument, but also rejected the interpretation put forward by LV, instead adopting a construction in between the two positions. The circumstances in which the trade union was entitled to commission payments were determined by the terms of the agreement between it and the insurers. Under this particular agreement, commission was only payable when it was the use of the affinity scheme marketing arrangements that led to the eventual purchase of the LV's products by the trade union members. In each case, the question to be answered was whether or not it was the marketing effort that gave rise to the particular sale. The court was not persuaded by the submissions of both counsel that this construction was unworkable in practice.
This case serves to highlight the importance of defining clearly when drafting affinity agreements the circumstances in which commission will be payable, and of ensuring that there is a clear mechanism for enabling the calculation to be made.
The author, Sarah Raby, is a member of Burges Salmon's insurance team led by Matthew Walker.