Cobine Carmelson » Employer Insurance

What is the dirty little secret of Insurance?

Jason — Tue, 01 Nov 2011 09:00:00 +0000

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.

You don’t want insurance companies to pay fraudsters – especially if they’re using your premium

Jason Cobine, Insurance Expert — Mon, 15 Feb 2010 09:00:41 +0000

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.

Professional Indemnity Insurance – Discover how to avoid losses

Jason Cobine, Insurance Expert — Mon, 25 Jan 2010 08:00:24 +0000

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.

Business Insurance has a hidden weakness – does your policy protect you properly?

Jason Cobine, Insurance Expert — Wed, 04 Nov 2009 09:16:46 +0000

Insurance claim departments are taking a hard nosed approach – make sure you’re covered

I recently heard about three businesses who have been robbed of £250,000 assets and their company insurance is not paying out. Today, I heard about another case of a business getting caught out and insurers used terrible judgement to decline the insurance claim. I am trying to use the information superhighway to show you how to ensure this doesn’t happen to you or people you know that run businesses.

The scene of the crime

Criminals have been climbing into manholes and cutting telephone lines at targeted premises. This triggers the alarm and Police and a member of staff attend the premises. There’s absolutely no evidence of a break-in so the Police and staff withdraw. After everyone has left the premises are then broken into yet the alarm doesn’t sound because the lines have already been cut. Then the highly organised theft occurs. Yet insurers have refused to pay out. These are their excuses:

The alarm wasn’t fully reset at the time of the break-in (the physical break-in)
An employee should have stayed at the premises because the premises must not be left unattended if the alarm isn’t working

My opinion

The theft started when the alarm was fully operational. They are not two incidents, just one clever one.

History shows insurers declining similar claims in the past. In a nutshell, an MD who attended a premises after the alarm sounded in 1998 left because he felt uneasy. A theft ocurred and insurers said he should only have left when threatened with violence. His claim was refused. These decisions lead to insurance complaints and legal costs.

So what can you do to help yourself and others?

The easy yet not very palatable answer is to leave someone on the premises once the alarm is triggered. Organised criminals are unlikely to enter attended premises. Install a panic button yet ensure it operates independent of the compromised alarm. The Police can then respond.

Discover how you can get claims paid

Ensure you understand the claims process and the policy you’ve bought. Most policies covering assets have security warranties. Meanwhile, I’m hoping to gauge the temperature of the nation with a survey. Would you cancel your insurance policy if you found your insurance company was using bad judgement? Take part in the survey and view the results on our top tips page.

Top Tip: If you have an alarm, ask your adviser to interpret your policy terms, conditions, exclusions and warranties for you.

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

Want to secure cashflow despite bad luck?

Jason Cobine, Insurance Expert — Mon, 05 Oct 2009 13:15:03 +0000

Fire risk assessments are not exactly high on the list of priorities for everyone. Some small businesses might think fire evacuation procedures are not important. So spare a thought for the business owner in Scotland who didn’t think a fire would ever affect his organisation.

The business was unlucky enough to suffer a fire and they didn’t have an evacuation procedure, they probably couldn’t find the time to do it – especially as there 101 other things to do every week to keep the business afloat.

The fire brigade arrived yet the absence of an evacuation procedure (which should be tried and tested) meant that no-one at the premises could tell the brigade if anyone was left in the building.

The search for survivors was on and, until that was completed, attention couldn’t be turned to saving the property. After all, priorities are always people before property. In this instance the brigade were compelled to spend time looking for people as the building burned. No problem so far, until the insurance assessor started asking questions.

Fire safety is a prerequisite to insurance. It’s enshrined in health and safety legislation and insurance cover works best if health and safety law has been followed. The insurance claims department decided that the time it took to look for people could have been spent dowsing the flames.

Hence, they didn’t pay the total amount claimed stating that the policyholder was negligent and contributed to the size of the loss. I’ve been unable to determine whether or not his broker had advised him that one of the policy conditions was up to date health and safety planning. If he wasn’t I have some sympathy for him. Yet he should still have attended to the fire regulations, worst case scenario is an injury to someone trapped in the building, and no-one would have sympathised if that had happened.

We all think that it won’t happen to us. Even I did until my washing machine caught fire (quite common according to the brigade that put it out). The fire in Dean Street caused a complete evacuation in central London which prevented a total loss. I am now being asked about business continuity. A client of a business colleague was severely affected by this incident which started from nothing when an air conditioning unit started smoking and an electrical fire spread quickly. Here’s the BBC’s silent video of the incident

Top Tip: Business Owners should address health and safety in order for their insurance cover to apply. Fire risk assessments are not hard to undertake.

See our Top Tips section for simple ways to help yourself today.

Can contractors insurance enhance a reputation?

Jason Cobine, Insurance Expert — Wed, 16 Sep 2009 09:00:11 +0000

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.