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.

Don’t forget, if you want to reduce risks to assets, income and reputation sign up to our RSS or email feed to the top right of this page to receive insurance tips, new posts plus details of events and promotions that could help you or your network reduce the risks facing them or their organisation.

See our top tips section for simple ways to help yourself today.

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Have you contributed to Madoff’s legal defence costs?

Not all insurance disputes should be won by the insured, especially if they are fraudulent.

Usually I’m furious when I hear that an insurance claim has been declined. This time I was pleased; Lloyd’s of London successfully defended themselves in a US court when Madoff tried to appeal that Lloyd’s were wrong to cut off the funding of his defence costs.

Lloyd’s had already parted with $4million whilst the legal eagles prepared their cases. They pulled the plug after one of his cohorts pleaded guilty to fraud of one sort or another. Evidence of illegal acts is one of the triggers for insurance problems. Once an allegation is made underwriters will refuse to continue paying defence costs or any damages awarded. Until then, the policy wording (a legally binding contract) meant that they were obliged to pay for defence costs for Madoff, other Directors, Officers and decision makers of the company that purchased the cover.

This may seem odd yet the wording of the contract states that there has to be evidence of fraud, or another type of breach, before insurers can turn off the claims tap. In this case, the reason for the admission of guilt could be anything from a guilty conscience, a shorter sentence, a smaller fine or some form of persuasion that you and I won’t know about – having not been accused of infringing the law or fleecing thousands of innocent investors.

The defence costs are covered if one of the “controlling minds” of a company (or charity) is accused of a “wrongful act” in their duty as a director (or trustee). Breach of fiduciary duties is considered a wrongful act yet it is not covered if illegal or deliberate.

There are loads of other examples of what are considered wrongful acts and surprisingly few exclusions on these policies. That’s because they’re a relatively new form of cover. Over time, as claims that shouldn’t be paid are, underwriters will start to exclude the most common instances. Most policies don’t cover fines or punitive damages. They are there to protect the innocent, not the bloody minded.

So how do you know if you contributed? If you have such a policy with a Lloyds underwriter part of your premium may now be lining the pocket of one of America’s legal eagles. If you see a picture of them when this truly momentus case comes to court (Jacko’s lawyers became celebrities) consider that you might have funded their tie or specs. Which isn’t so bad if they’ve got taste.

You can’t prevent your premium being used to defend people that appear to be crooked yet you can ask your insurance company for a summary of claims they have settled. If you think they’re settling claims that you won’t be making perhaps you can choose an alternative which is more appropriate.

Top Tip: You can defend yourself against your own innocent mistakes and even wrongful acts of your peers. Make sure you don’t turn a blind eye and assume that insurance will protect you. Insurance protects income and reputation if arranged properly. It will not prove useful if things have been ignored or buried.

See our top tips section for simple ways to help yourself today.

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Professional advisers are not always protected by their insurance

Want to know why some indemnity insurance claims are declined? I have two examples of claims being declined, one more extreme than the other, yet both prove small errors can prove costly. And I’m going to tell you why they were declined and how to avoid it happening.

The first is the most recent, only a few months ago an insurance company refused to cover a claim for a company that was being sued for £47,000. The claim related to an incident that occurred in July 2005 when they had translated a document (allegedly incorrectly) yet it would have been covered if the insurance company had been made aware of it earlier.

The incident was first reported to the business in May 2005 and the complaint wasn’t disclosed to the insurance company. The complaint may have been the reason the owner of the business sought cover in the first place. This happens quite often. Not telling the insurance company what it needs to know is an easy mistake to make and can be avoided if insurance suppliers ask the right questions when cover is requested. Alternatively, the business owner should study all the documentation including the policy wording before they agree that the cover is suitable.

The worst case of an indemnity claim being declined is quite complex. It proves timing is critical when claims are reported. Some years ago a large PR company were contracted to build mobile facilities for a large entertainment company that wanted to provide entertainment road shows at large events.

HGV’s were to be adapted and turned into “play zones” where people could interact with new products. The PR Company won the contract because they proposed to turn Lorries into fully functioning interactive units within 30 minutes – using 4 men. You might have seen Jamie Oliver cooking in one of these contraptions in the TV adverts for Sainsbury’s.

In actual fact it took twice as long and twice as much labour to convert these monstrosities. Costs escalated which annoyed the client somewhat. They made a claim against the PR Company for reimbursement of the cost of hiring the extra labour, not just those that assembled the units. There were additional extra driver costs too.

The claim was for over £1,000,000 – count the zeros – and was for negligence in advice from the PR Company which lead to a financial loss for the client. The client couldn’t change their plans because this was a major part of their product launches for that year.

The claim was refused by insurers because the complaint had not been reported early enough. The client had made a fatal error. The cover was arranged on a Monday and the application form was signed on the following Friday. The complaint was first reported by the client on the intervening Wednesday and when this came to light the claim was refused on the grounds that they had breached the contract with the insurance company.

The application form stated very clearly that it is the client’s responsibility to tell the insurance company about everything that may affect their judgment of a risk at the earliest possible stage. They didn’t declare the complaint and the insurance company refused to pay. 

The PR Company went bust. They were well renowned and had a great track record yet they could not fund the loss.

Solicitors that work for insurance companies are asked to ensure claimants have met the conditions of the insurance contract. This is an example of how badly things can go wrong if the terms and conditions of insurance contracts are not explained to policyholders. If only they had told the insurance company when they first heard of the problem the claim would have been settled.

It is never a good idea to keep things from an insurance company however insignificant the information may seem. After all, they hold the purse strings and you don’t want to have to argue with them when a client is asking you to reimburse their loss or your income has been affected by an unforeseen incident.

Trying to argue with an insurance company when they have the law on their side is a costly business – I understand it costs something like £3,000 for a solicitor to review an insurance claim file and £17,000 to issue proceedings. Legal Expenses insurance policies usually exclude insurance disputes – well they would wouldn’t they.

Top Tip: Tell the insurance company everything, especially the “bad” stuff. This includes incidents that could lead to claims, complaints, financial problems, etc. The worst case scenario is that you might have to pay extra premium. If you don’t disclose everything you may find that your insurance will not work when you most need it.

See our top tips section for simple ways to help yourself today.

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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.

See our top tips section for simple ways to help yourself today.

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On the spot fines following these inspections have been increased to £20,000. Find out if your business is at risk and review our 7 free top tips on Health & Safety.

There are three reasons why you may hear from the health & safety “police”. All of them are beyond your control.

1. Someone disgruntled with an axe to grind
2. Incident or Accident
3. Spot check

 The first is very rare and relates to employees or ex-employees, competitors, neighbours or just about anyone else that isn’t a fan. Perhaps your partner if you’re a workaholic.

Number 2 speaks for itself yet it would have to be something serious. You may be responsible for reporting it to the authorities yourself because of regulations such as Riddor protocols (click here for a simple guide to RIDDOR from the health & safety executive). Or the emergency services or healthcare professionals may report to the local authorities.

Spot checks are unlikely yet I was introduced to a company last year that had been inspected on a spot check and given 7 days to attend to the inspectors concerns about asbestos. They would have been closed down if they did not. It was their bank manager that asked me to help. He had his client’s best interests at heart and asked me to find someone to handle this ASAP. The next day my contact visited the client and solved his problem.

Apart from these three reasons there is also the law, the recently increased fines, the hassle of tribunals or courts and evidence that businesses with robust health and safety plans make more profit.

See our top tips section for simple ways to help yourself today.

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I recently read an article in a newsletter from marketing expert Dave Croydon, Hilltop Consultancy. David was voicing his concern that automated telephone systems were of little benefit to customers, going as far as to call them a “customer disservice”.

The article mentioned that we wouldn’t accept it from the emergency services yet we’re already having to. My Mum broke her ankle last year and called me. Being made of stronger stuff than some of the celebrity icons of today, Mum didn’t want to bother the Ambulance service until she was sure it was broken. It was and I dialled the famous three digits, something we all dread.

How annoying to be put on hold by an automated system that informed me I was in a queue, at 9am on a Thursday morning.  I was very, very annoyed yet I didn’t want Mum to be any more concerned than she already was. Realising a broken ankle meant less amenity than usual was a kick in the teeth for a 67 year old, I gritted my teeth and bit my tongue.

Thankfully, after my call as answered by a human the paramedic turned up on a bicycle within 3 minutes. This shows what can be achieved with technology when it’s entirely focused on results for the customer.

Whilst at the hospital, pain killers, X-rays and a cast were in order, and this gave me time to think on the situation. Apart from the value of living close to my Mum, I concluded that these automated systems can only be successful when you have a captive market – like the NHS. Whatever service you choose, if you don’t like the system you find another option. Here’s a link to a petition to get these numbers out of the NHS.

Did anyone ever say that they wanted to be charged not to speak to the person that could answer their query? It’s even more expensive if using a mobile. At this stage I should tell you about “say no to 0870“, a website that gives you the real number yet will not get you past the systems. I dislike calling these numbers and will select suppliers accordingly. My bank will be the first after a series of unanswered calls which I see as withdrawals from my personal time bank.

So what can you do to improve the service you offer? First things first, ask your customers what they would prefer. If they ask for an automated system, go for it. If not, enthuse those that work for you or record a new voicemail or message that gives callers the option to leave a message detailing when they want to hear from you as well as the nature of their call with their name and number. Or if you want to impress and have £35 per week in your marketing budget arrange for the phone to be answered by a human being by investing in an answering service. They will answer the call, ask when the call should be returned and send you the details by email or text. Calling back at a random time doesn’t make you efficient so call back when it’s good for them – it will save both of you time.

For me, these services are not there to give the impression you have a swanky office yet they are a great way of greeting your customers when you can’t.  They simply advise the caller that you’re busy and will call back at a time convenient to them, as long as it’s reasonable, or give them the opportunity to reach you direct on another number, perhaps your mobile.

It’s my belief that automated systems are not good for the customer as they don’t provide a service. The only time they are useful is when the offer at the end of the line is worth the wait. Orderly Q operates a system that gives the caller reliable information on how quickly the call will be answered and the opportunity to leave a message requesting a call back – at a pre-determined time. The only time the other systems are acceptable is if they provide information or are able to signpost unimportant services out of hours.

Top Tip: At all other times it’s best to have the human touch and provide the personal service that you want to.

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