UK Court of Appeal awards Co-op Insurance £80.6m in damages in IBM case
The British firm had sued IBM for £128 million in damages over failed IT project
The Court of Appeal in England has ordered IBM to pay £80.6 million (about $105.7 million) to the owner of Britain's CIS General Insurance Ltd (CISGIL) over an IT contract that collapsed in 2017 following a series of failures on the project.
The case in question, IBM v Co-op, involved a large-scale IT contract between IBM and CISGIL, then a subsidiary of Co-Op Group, for the development of a new insurance underwriting system.
In 2015, CISGIL (now Soteria Insurance Limited) hired IBM to help with an IT project, which included developing a new software platform for the company's insurance and underwriting operations.
CISGIL named the new platform Project Cobalt and agreed to pay a total of £175 million to IBM for it - £50 million for the development of the platform and £125 million for a decade of support.
The American IT giant sub-contracted some of its services to deliver part of the Project Cobalt. The sub-contract included £46 million in software from The Innovation Group. However, The Innovation Group majorly underperformed in the delivery of the project, which was time-sensitive. The delays resulted in key milestone dates to be missed, as well as issues with the coding and other factors.
While CISGIL did not terminate the contract with IBM, it declined to pay a milestone invoice of £2.9 million, following which IBM terminated the contract.
Co-op Insurance sued the American firm for £128 million ($170 million) in damages.
In December 2020, the Co-operative Group sold Co-op Insurance for £185 million to Markerstudy, and the firm is now known as Soteria Insurance Limited.
Last year, a High Court judge found IBM responsible for "critical delays" that caused the contract between the two parties to collapse. The judgment by Mrs Justice O'Farrell in February 2021 found that the American firm had improperly cancelled the contract and that CISGIL had incurred wasted costs of £122.6 million on the failed IT project.
However, the judge ruled that exclusion clauses limiting liability dramatically restricted what CISGIL could claim from IBM. Mrs Justice O'Farrell awarded £13 million in compensation to the insurance firm.
Both IBM and CISGIL appealed the judgment in the Court of Appeal which overturned in its ruling (published in April 2022) Mrs Justice O'Farrell's interpretation of the exclusion clause that wasted expenditure should be excluded as being commensurate to loss of profit.
This allowed CISGIL to receive a total of £80,574,168 from IBM, which was less than the £96 million the insurance firm felt it was due, but far more than the £12.9 million originally awarded.
IBM said it was "disappointed" with the decision and plans to appeal to the United Kingdom's Supreme Court.
A spokeswoman for Co-Op Group expressed satisfaction with the Court of Appeal judgment, which significantly increased the sum awarded in this long-running case.