Directors need a law degree to understand their liabilities

Posted by 19 April, 2013 (0) Comment

When the going gets tough, everybody gets the blame. This article is about how recessions bring increases in claims, why this happens and why insurers are always well prepared.

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Out of touch, means out of pocket!


There’s a growing debate on Directors protection (they need protecting from regulators looking to fill Government coffers), fuelled by an article in a legal publication. Directors are finding that the cover they thought protected them actually doesn’t, because of small print. Lawyers are not being paid as a result and they’re starting to wonder “why?” are a bit late in noticing this issue – we highlighted it back in 2010 when we wrote about the withdrawal of legal defence for mad Bernie Madoff.  In mad Bernie’s case, Lloyds of London spent £4 million defending him before they pounced on the opportunity to withdraw cover, when one of his co-defendants pleaded guilty to fraud and admitted Madoff was purposely stealing client money, rather than accidentally stealing people’s money.

I agree with most of the comments in the article, yet the paragraph that says that insurance “will cover all Directors defence costs” only mentions one exception to the rule. There is always more than one exclusion – plus each policy is different. If they weren’t, insurers would be suing each other for breach on copyright, at the very least. And that’s another legal matter entirely.

How do insurers avoid getting caught out?


Insurers were prepared for this recession, as a result of the last recession. They’d worked out what caused the majority of claims last time and reduced, excluded or watered down the options they made available thereafter. They sneak most such changes into renewal documents because they know brokers and policyholders don’t read them.

It doesn’t help that a lot of Directors have been advised that a limited company protects them personally. No it doesn’t, as I keep telling them….gently, it covers shareholders. Directors that are shareholders do not get the benefit of shareholder protection. After all, they are supposed to be running the business and keeping an eye on everyone else in it, not turning a blind eye to rogue Directors riding roughshod over clients, employees and shareholders.


Wrap up: Not all Directors are the same so why would their insurance be? Work out what could go wrong before embarking on a search for comprehensive cover. It doesn’t exist.

Top tip: Insurers rarely lose so peek at their exclusions to see what they are prepared to take  a chance on.

P.S. Look out for our next blog which highlights how a lady reported the obliteration of a garden wall to a home-owner, shared a cup of tea with them and the “investigating officer”, then (after excusing herself) be unveiled as the perpetrator – only thanks to a neighbour’s CCTV.

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What is the dirty little secret of Insurance?

Posted by 1 November, 2011 (0) Comment

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

Posted by 15 February, 2010 (0) Comment

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 Read the rest of this entry

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