Municipal Insurance And The Creation Of Insurance Mutuals - The Requirements For Open Tender

Harrow London Borough Council v. Risk Management Partners Ltd [2011]1 Supreme Court, 9 February 2011

Until it ceased trading in 1992, most insurance provided to local authorities in the UK was underwritten by Municipal Mutual Insurance Ltd (MMI). As the name suggests, MMI was a mutual insurance company, created by and for its member authorities.

Following the demise of MMI, local authorities were required to look to the private insurance market for coverage, until 2006 when several London authorities resolved to create and participate in a new mutual, to be known as London Authorities Mutual Ltd (LAML)2. By then, however, matters had been complicated by the introduction of the Public Contracts Regulations 2006 ("the 2006 Regulations"), giving effect to EU Council Directive 2004/18/EC ("the Directive"). In short, it is a requirement under the Directive and the 2006 Regulations that, where an authority seeks offers to undertake a public contract, it must put the contract out to tender and award it to the lowest price, or to the tender "most economically advantageous" from the point of view of the authority.

The parties to this Supreme Court appeal were the London Borough of Harrow ("Harrow"), being one of those participating in LAML, and a private insurer, Risk Management Partners Ltd ("RMP") as underwriting agents on behalf of Chartis Insurance. RMP contended that, by placing its insurance risk with LAML, Harrow was in breach of its obligations under the 2006 Regulations, in that it had failed to put the insurance contract out to competitive tender. Accordingly, RMP pursued a claim for damages.

For its part, Harrow relied upon the exemption considered in the case of Teckal Srl v. Comune di Viano (Case C-107/98) [1999] ECR l-8121. That case pre-dated the current rules as set out in the Directive, but it considered the definition of a "public contract" under the prior regime. The case concerned a consortium of Italian municipalities that had collectively established a company to provide them with environmental and energy services, without inviting tenders from private providers. The court concluded that a "public contract" meant one between a public authority "and an entity formally distinct from it and independent of it in regard to decision-making". Conversely, relationships with an entity over which the authority exercised control would be viewed in the same as internal relationships within its own departments, and hence not subject to the...