Liability Insurance
What is the dirty little secret of Insurance?
There are hidden clauses that loom large in policy documents and some are more sinister than others. Here I explain what the secret is, why it is dirty and how it’s still a secret.
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What is insurance companies dirty little secret?
The insurance market has a reputation of escaping from legal contracts using small print.
When businesses have a dispute they often seek legal recourse. The complainant will sometimes have insurance to cover such disputes. They ask their insurer to cover the cost of taking action yet policies prevent insurance buyers from taking action against insurance companies. Not much help if an insurance company has refused to honour the policy they issued.
Insurers do not make this clear. It’s difficult enough when commercial disputes arise, it’s galling to find that you have been given a false impression by the people you had invested in. Insurers paying claims want to reduce the most obvious or exclude them. It’s unfair when the exclusion prevents you taking action against a supplier that has obviously got something wrong – as is often the case when claims are badly handled. But for insurance companies to close ranks in this manner, that’s pretty low. Whatever their reasons.
Why it is dirty?
Because it’s industry wide, it’s tantamount to a cartel. Have all insurers secretly agreed that they will support claims against any industry except their own? If not, why hasn’t an entrepreneurial insurer stuck their head above the parapet and issued a policy that covers taking such an action?
Insurance disputes are common and it’s not always the broker that makes a mistake. Insurers are often culpable yet it costs almost £20,000 to take action against them. That is bad for UK business. Of course, it could be down to the fact that the insurance actuaries have worked out that insurers nearly always win cases. I suspect this is because complainants often run out of money to fund their legal case. If I’m right the figures will always be skewed.
Why it’s a secret?
I doubt if insurance companies place this exclusion at the back of their policies by accident. It’s not front and centre as you would expect such a sweeping exclusion to be.
There are other secrets in policies that are difficult to unearth and comprehend. Yet the dirty little secret of not allowing your client’s to take action against your competition is the most sinister show stopper.
Wrap up: Insurance companies do not pay claims when the insurance contract between them and their policyholder has been breached. If they refuse to pay a seemingly valid claim policyholders need to dig deep to ensure they get what is due to them.
Top Tip: Spend time assessing the key risk to your business and make sure you understand your insurance policies which are legally binding contracts. Make sure that important contracts and agreements are not excluded from your policies.
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Accountants insurance is changing
Accountants indemnity changes 1st September
I thought you might be interested to hear about the new rules for accountant’s professional indemnity. Here I explain why it’s important to make an early report of claim circumstances, where problems with timing could occur plus a clear definition of what should be reported.
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Why should I report a minor concern?
Some policyholders believe that premiums go up if they report scenarios that are not really claims. If they don’t report a “circumstance” it proves to be a false economy. When the rules change it’s even easier to make a costly late notification.
Claims don’t happen often yet the early warning signs are common. Questioning fees, complaints about service and a lack of communication are typical indicators that a client or third party may become litigious. Especially if they don’t get their own way.
Have the new ICAEW rules made it clearer?
The new wording applies to cover effected on or after 1st September 2010 and makes it clear that claims can and will be declined if “circumstances” are not reported before the expiry of a policy. The intention is to ensure that insurance companies are aware of possible claims before the policy expires.
There is no longer a wishy washy wording – previously insurers refused claims notified later than they would like. This was despite the policy being on a “claims made” basis meaning claims made after the expiry would be covered if the work was completed during the period of cover. The terms of notification were not clear.
Now, possible claim circumstances not reported within the policy period will not be covered. Period.
What is a circumstance?
Definitions in policy wordings can be subtly altered without the policyholder noticing. Insurance contracts are full of detail. A “circumstance” is anything likely to affect the underwriters view of the risk. That doesn’t mean all complaints should be reported.
It’s ridiculous to report all complaints so ask your insurance supplier to interpret what is termed reasonable by your insurance company. There is no need for the new rule to result in more red tape. The fact that I’m writing about it means it probably will at the change is embedded into the policy wordings. That is not the intention, it’s just the devil is in the policy detail. We all want claims settled promptly and correctly.
Wrap up: Attempts to make policies clearer add to confusion. Indemnity policies have strict timescales for reporting claims or circumstances. Guidance on what a circumstance is should be sought before a policy expires, ie. before the renewal date.
Top Tip: Uncertainty is not good for anyone. Ask your insurance supplier for clarification of expiry dates, notification deadlines and clarify what “circumstances” are real in your World.
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Solicitors frustrated by broker tactics
Now silly season is upon us, I thought I would update you on what is actually happening in the solicitor’s indemnity market. I know quite a few solicitors and I understand their frustrations. Rather than wax lyrical, I’m going to stick to the good, the bad and the ugly in the current market.
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The good
There are a lot of hard working brokers out there who are satisfied that they have strong enough relationships with their clients and are not using “hard ball” tactics to scare their clients into renewal. You probably have one of those on your side and your terms and conditions will be reasonable.
Ensure you provide full and detailed information when requesting your renewal terms.
The bad
There are two realities to explain. A solicitor received his form, returned it and was given terms within 48 hours. He was also given 7 days (make that 5) to make his mind up. That’s not even legal.
Another practice (with the same supplier) has incorrect “claims” on the practice’s record and the supplier is refusing to correct them. Naturally, they are worried that the terms will be provided late and prove onerous.
The ugly
Some practices (mainly SP’s) have been refused terms by their current insurer already and are filling out forms (more in desperation than hope) whilst considering their future if they cannot find cover. Their supplier should have helped them with the complicated forms.
The reason for declinature is not being made clear or doesn’t add up. One broker refused to tell their client which insurance companies they had approached. That is not service as it leaves the policyholder with no real options.
Wrap up: Some suppliers are great at maintaining relationships and have secured excellent terms. Others are playing hard ball when they do provide terms, taking advantage of the fact that the competition need time to offer an alternative. Some are being obstructive or abandoning clients they cannot easily help.
Top Tip: If an application is declined request a detailed reason before applying elsewhere.
Litigation expenses insurance – Before or after?
Insurance for legal expenses has evolved along with CFA’s. Client’s may prefer the new “hybrid” offerings that allow them to pay later. Timing is of the essence and there are ways to attract the most favourable rates.
Insurance as an investment
Appropriate policies are an investment if set up correctly. Some insurance companies will accept payment of the premium after the case is concluded and they have a variety of ways to ensure that it is paid. Typically, client’s that have already assessed they have a good chance of winning the case before approaching the insurance market receive the best terms.
It’s important that the terms and conditions of the policy dovetail with other agreements. Only then will the policy pay out, return on investment is guaranteed when everything is in order. As long as the policyholder is aware of the terms and conditions, so they know exactly where they stand.
Interpretation is everything
Insurers will not issue cover without undertaking a thorough review of the circumstances. Provide them with a good case backed up by counsel’s opinion and they will respond accordingly. Investing time at this stage will ensure terms and conditions are favourable.
No two policy wordings are the same so interpret the terms in the worst possible light to exclude shades of grey. If it sounds like it isn’t covered, it probably isn’t. The brochure will paint a picture, the policy wording is the High Definition document.
As an independent broker I am (almost) professionally obliged to say you should refer to an independent broker. Be that anyone you choose, they will be able to interpret the policy conditions and the manner in which different insurance companies handle settlements. Each quotation should be judged on it’s merits.
Timing is of the essence
The earlier you apply for a quotation the better. If clients are relying on After the Event Insurance it is more expensive and restrictive than annual arrangements. As soon as you hear about a claim encourage the participant to at least consider cover. They may already have cover attached to another policy yet it will only apply if a notification is made early.
Delayed applications could mean increased percentages of awards being deducted from your costs or the clients award – if there is one. An insurance company will ensure it receives it’s premium. Where it comes from is up to the applicants.
Wrap up: Insurance is a prudent investment for strong cases. Terms and conditions from a range of providers can be assessed quickly and easily by an experienced eye. A strong case presented early will attract the most favourable settlement terms.
Top Tip: Don’t search the market yourself if your time is worth money.
Can contractors insurance enhance a reputation?
Here’s a brief explanation of how accidents can happen, the benefits of quality service and how reputations can be enhanced when bad luck turns up.
There seem to be a lot of people damaging windows in Bond Street these days. Not all of them are sinister. Here’s a true story about what can be done to prevent accidents turning into disasters.
A client had the misfortune of damaging the window of a jeweller on Bond Street whilst he was working there. The windows are supposed to be “bullet proof” yet it didn’t stop a sparky’s screwdriver – he was working inside when it happened.
This electrical contractor has a great reputation. Often working at high class restaurants and retail outlets in airports, they have always been careful to ensure they have adequate cover. And they insist we arrange insurance with companies that are willing to help as soon as a claim occurs.
This happened on a Sunday and a call reassured the jeweller that they had adequate insurance and they could order an immediate replacement window because the damage would be covered without admitting legal liability of course. They were able to do this because they understood the claim process and knew who to call to check they had the right cover. How many people can say that?
The new window was installed without delay yet we were asked to intervene when the cost of the glass (£18,000 from Germany) increased because the pound had weakened between the time the order was made and the settlement cheque delivered. We contacted the loss adjuster and they arranged for the increased settlement. And the insurance company benefitted from their willingness to see reason.
The end result was a win for everyone. The contractor had increased his credibility, the jeweller is certain they used the right contractor, the insurance company paid the claim and secured the client’s business for years to come. The insurance company also learned to settle claims promptly or suffer the consequences of currency fluctuations.
These are not the only challenges contractors face, click here for an article highlighting how subcontractors can avoid problems with HMRC.
Top Tip: Always ensure you know your claim process. It’s extra prudent to try the claim reporting number and enquire about the claim process before you buy. And get your broker to check the insurance of anyone working on your premises – you don’t want to suffer a dent to your finances because they haven’t insured themselves properly.
