Simmons & Simmons Insurance Insight
Insurance Insight is a blog featuring industry developments and legal updates.
30 March 2017: Regulation of litigation funding
Some of us attended a fantastic seminar on litigation funding, hosted by JLT Specialty. Among other points, the consensus of the distinguished panel (including Nicholas Bacon QC) was that regulation of litigation funding cannot be far away (bearing in mind the ever increasing prevalence of litigation funders in the legal landscape). Funders who are well resourced, and who abide by existing voluntary codes of conduct, will have nothing to fear from regulation. Regulation was seen as a positive.
- 24 March 2017: Another door into South America
On 01 January 2017, Argentina started a gradual opening of its reinsurance market to Admitted Reinsurers (Lloyd’s being one of them). The process involves a phased reduction of the local market reserve by annually increasing the percentage of ceded premiums local insurers are permitted to place directly with Admitted Reinsurers. This year the limit is 10% and, via a stepped increase, the limit will be 80% by 01 July 2024. The remaining share of the market can only be placed with local reinsurers; however local reinsurers may retrocede the risks to Admitted Reinsurers.
For risks exceeding US$50m, the stepped annual increase does not apply and the entirety of the risks may be placed immediately with Admitted Reinsurers.
This reduction of barriers prohibiting local insurers from placing risks directly with foreign reinsurers follows a similar framework in Brazil which will see the allowed percentage of ceded premiums to Admitted Reinsurers increase to a 75% limit from 01 January 2020.
The Resolution triggering the Argentine process can be found here (in Spanish).
- 23 March 2017: Gabriel v Little appeal - Supreme Court applies SAAMCO principles to a solicitors’ negligence case
Insurers will be interested to hear that the Supreme Court has confined the liability of a firm of solicitors for negligence by applying the principles set out in SAAMCO.
The Supreme Court held that, although BPE had been negligent in drafting a loan facility agreement, and that the claimant would not have made the loan but for that negligence (ie it was a "no transaction" case), they were not legally responsible for Mr Gabriel’s decision to make a loan. BPE’s duty was limited to providing certain information on one of many factors that Mr Gabriel would rely on in deciding whether to make the loan.
None of the loss which Mr Gabriel suffered fell within the limited scope of BPE’s duty. Instead, the loss arose from “commercial misjudgements” on the part of Mr Gabriel.
- The Court reaffirmed the principles established in South Australia Asset Management Corpn v York Montague Ltd (SAAMCO), and clarified the distinction between the “advice” category and “information” category in no transaction cases.
- The Judgment serves significantly to confine the liability of solicitors for negligence in respect of cases falling within the “information” category.
- It is not clear from the judgment whether and if so how the so-called “SAAMCO Cap” might be applied in solicitors’ negligence cases where some, but not all, the claimed loss flows from a breach of the solicitors’ duty.
The Judgment can be found here.
- 22 March 2017: AIG decision - aggregation clauses in solicitors MTC
The Supreme Court has this morning handed down judgment in AIG v Woodgate, a case concerning the scope of aggregation under the Minimum Terms and Conditions applicable to solicitors’ professional indemnity insurance, and in particular aggregation of claims which arise from “similar acts or omissions in a series of related matters or transactions”. The claims in question were by individual investors in two development projects, one in Turkey and one in Marrakech. The investments were to be held by a trust, of which the defendant solicitors were trustees, and released from an escrow account to the developer pursuant to a cover test to be applied by the solicitors. The developments failed and the claimants sued the solicitors for negligence. AIG argued that the individual investors’ claims aggregated so as to attract only one £3m limit of indemnity; the solicitors/trustees that they did not.
The Supreme Court has disagreed with the Court of Appeal that the phrase “related matters or transactions” requires that there be some “intrinsic” relationship between the transactions. No further wording or circumscription should be applied to the phrase; but the exercise of deciding whether matters or transactions are related in any given case is an “acutely fact sensitive exercise.” In this case, the Supreme Court has held that the investors’ claims in relation to each development aggregate, being “connected in significant ways”: “The members of each group were investing in a common development, for which the monies advanced by them were intended, in combination, to provide the developers with the necessary capital. Notwithstanding individual variations, they were all participants in a what was in overall terms a standard scheme. They were co-beneficiaries under a common trust.” However, the two developments did not have the requisite degree of connection. Thus, on that analysis, the £3m limit of indemnity would apply twice, one in relation to each development.
- 20 March 2017: Axa Versicherung Ag v Arab Insurance Group
The recent Court of Appeal decision of Axa Versicherung Ag v Arab Insurance Group has considered what is required by an (re-)insurer to prove inducement where there has been a material non-disclosure or misrepresentation on the part of an insured.
The judgment provides useful guidance as to the approach the courts will take in assessing causation and whether an (re-)insurer was induced to write a risk which was unfairly presented:
- First, the Court must determine what needed to be said in order for the presentation to be fair in the view of a reasonable and prudent underwriter - an objective test.
- Secondly, in assessing whether the unfair presentation induced the particular underwriter to write the risk, the court must consider a “hypothetical broke” which includes not only the material facts that should have been disclosed at the time in order for the presentation to have been fair, but also any additional points the insured/broker would have made in order to encourage the insurer to write the risk - a subjective test.
- The burden of proof in respect of inducement rests with the (re-)insurer.
Notably, although the relevant treaties in this case were entered into before the Insurance Act 2015 (the Act) came into force, the Court used the terminology (in referring to the “Duty of Fair Presentation”) and applied the principles of the Act nonetheless.
The judgment can be found here.
- 09 March 2017: Business as usual for IDD - consultations abound
Despite Brexit, it is business as usual for the Treasury and FCA, which are pushing ahead with the transposition of the Insurance Distribution Directive (IDD) into UK law. With the 23 February 2018 transposition deadline getting closer, the Treasury launched a consultation on its proposed rules on 27 February 2017. The FCA followed on 6th March 2017, issuing the first of two consultation papers.
The Treasury consultation considered areas where the UK might go further than strictly required by the "minimum harmonisation" IDD. The UK already has a more rigorous regime for insurance mediation than is prescribed under EU law. For example, the UK already applies its insurance mediation rules to insurers directly selling insurance products, rather than just insurance intermediaries. Similar "gold-plating" will supplement the IDD (notably, in relation to "introducing"). The IDD has removed the mere provision of information (basic "introducing") from its defined of regulated insurance distribution activities. However, the UK Treasury has proposed a stricter approach - no broad exemption for "introducers"; but a specific exclusion for the mere provision of information. This approach reflects the Treasury’s concern that many "introducers" go further than providing information, actively persuading consumers to purchase a product. If the Treasury allowed too broad an exemption for "introducers", this could encourage practices such as cold calling.
The Treasury consultation will remain open until 22 May 2017.
The FCA consultation considers: (i) the application of the IDD; (ii) professional and organisation requirements; (iii) complaints handling and out of court redress; (iv) changes to the conduct of business rules for non-investment insurance contracts; and (v) the regulatory regime for ancillary insurance intermediaries.
The FCA consultation will remain open until 05 June 2017, with a policy statement due in September 2017.
A further FCA consultation paper will be published later in 2017 covering: (i) the Insurance Product Information Document (currently being reviewed at EU level); (ii) conduct of business requirements for life business, including insurance-based investment products; and (iii) product oversight and governance.
- 08 March 2017: Lloyd’s enforcement
On 01 March 2017, Lloyd’s published a market bulletin regarding enforcement proceedings against Mr Charles O’Sullivan, a member of a LLP member of Lloyd’s and a managing director of the special risks division of Besso Limited. Mr O’Sullivan was found guilty of three charges of Discreditable Conduct due to: (i) the concealment of brokerage; and (ii) a dishonest deception of a third party to secure the payment of money.
Among the penalties imposed on Mr O’Sullivan were that he had his Lloyd’s permission revoked permanently, he was declared unfit and unsuitable to act as a member of a LLP member of the Society of Lloyds and he was ordered to pay substantial costs.
The market bulletin highlighted the tough measures that Lloyd’s is prepared to take against individuals who engage in misconduct, particularly if this amounts to (as one incident in the notice of censure is described) "dishonestly obtaining remuneration by deception".
- 07 March 2017: Tomato, toMAto, let’s call the whole thing off!
A recent Italian Supreme Court ruling (Judgement 668, 18 January 2016) emphasises the importance of clarity in contractual wording in insurance policies. In this complex dispute, involving an explosion in an industrial warehouse which caused serious consequences including death of a worker, the Supreme Court overturned the Court of Appeal’s decision and found that the damage caused by the explosion was covered by the policy on the grounds that the wording used in the policy was unclear. The Supreme Court focussed on the meaning of the word “excessive” contrasting its literal meaning against its theoretical meaning within the policy. The Court concluded that if insurer companies unilaterally provide policies which use unclear or ambiguous language, then under no circumstance may the insured suffer the consequences of the flawed drafting of the insurer. This decision is a reminder that insurers, particularly those writing business in Italy, need to ensure policy wording is clear, precise and provides all the necessary additional information required by law to effectively comprehend the policy.
Read the full article and our commentary on the judgement here.
- 02 March 2017: Life on the Inside: Secrets to Secondment Success
Secondments are a great opportunity for clients and their law firms. If done well, it can make the relationship flourish, but if done badly, it can kill it faster than you kill a weed in your backyard (or in my case, any plant really). Here are some “top tips” for anyone heading out on their first claims team secondment:
- Be friendly, professional and approachable. You are a valuable legal resource to the claims team (yes, you!) so make sure that you are receptive to anyone that might ask for help.
- Be aware that it can be any kind of help. Nothing is beneath you. A friend of mine assisted a colleague with their son’s motor insurance claim.
- Recognise that the pace is different when you are on secondment. You will be handling anywhere from 200 to 600+ claims. Be efficient, and remember that as a claims handler your job is not to analyse everything to the degree that you do when you are in private practice (that’s what you instruct lawyers for). When I did my first secondment, I tried to do a chronology for every claim - do not do this. Ever.
- Be prepared to think on your feet! Claims handlers often need a quick response when they ask a question.
- Equally, don’t panic. Have a more qualified “buddy” back at the firm in case you need help - one who knows you need a quick turnaround time.
- Do not look at this as an “easy life” because the hours are better. You will be expected to work hard during the time you are there - and you are there to impress.
- Buy them food and drinks - hey, every relationship flourishes when its fed and watered, right?
- Be social with them/other law firms/other market events - meet as many people as you can, and if they invite you out with their team - you go. I have eaten many curries during my secondments just to try and get to know the team. I hate curry. But remember point 1! Be professional - you are there representing you and your firm - do not be the person the team is talking about in the office the next day (unless they are saying how fabulous you are).
- For your own sanity, leave your private practice work with others back at the ranch. You are not doing your secondment any favours by splitting your time between the two - you always need to be “on” in order to foster the relationship with that client. You can’t do that if you are exhausted.
- Be observant and take good notes! You are there to be a resource for the client, but make sure that you are also a resource for your firm. Feedback knowledge to your firm about what will make the client’s life easier. This can only make your relationship with the client stronger, and will set you apart from other firms.
Have fun on secondment - but remember, as with everything, you only get out what you put in - so work hard, learn a lot and watch those relationships grow!
- 14 February 2017: Happy Valentine’s Day - Tainted Love
On 14 February the Queen and Prince Philip opened the National Cyber Security Centre. I think there’s a joke in here somewhere about Valentine’s day and royal online dating but I can’t find it.
The NCSC is part of GCHQ and the UK’s authority on cyber security. It aims to make the UK the safest place to live and do business online. It produces alerts regarding cyber threats, provides advice on incident management, and certifies products and services.
The website went down as I wrote that last sentence. Watch this cyberspace.
- 13 February 2017: Seminar - Understanding LEG Clauses and DSU Insurance
Iftikhar Ali of Simmons & Simmons, Steven Horne of CCi and Markus Heiss of MDD recently delivered a seminar on Understanding LEG Clauses and DSU Insurance. The seminar focused on identifying common issues that arise when applying LEG exclusions in a claims context.
Get a copy of the slides on elexica
- 08 February 2017: Considering Alternative Dispute Resolution (ADR)
The courts continue to take a harsh view of any party who ignores an offer of ADR, regardless of the strength of their claim or defence.
The rule is that one has to respond to ADR “in a meaningful way”. Strategically, therefore, it is still possible to refuse an offer of ADR say, for example, if it is made at too early a stage in proceedings. However, claimants and defendants alike should take care to justify the grounds for the refusal and make clear it will be considered at a later stage, rather than never.
The Defendant paid the price for this failure in Laporte v Metropolitan Police (2015) EWHC 371 (QB) - when, despite winning the case outright, the Court denied the defendant one third of its costs.
- 07 February 2017: SOWP back with a vengeance
- 25 January 2017: R. (on the application of Association of British insurers) v Lord Chancellor 
We were quite interested to see that in R. (on the application of Association of British insurers) v Lord Chancellor (unreported, Queen's Bench Division (Administrative Court) 20 January 2017) that Insurers had had no legitimate expectation that the Lord Chancellor would provide a response document after consultation exercises and allow them further input on the subject of the discount rate for awards of personal injury damages before she announced her review. She had no power to make transitional provisions for existing cases and the applicability to them of a new rate was a matter for the court.
- 13 January 2017: Friday afternoon fraud
This past 12-18 months, instances of so-called "Friday afternoon fraud" have been on the rise, and are of huge concern to solicitors and their insurers. The frauds typically take place on a Friday afternoon when the scammers know client accounts are likely to hold large amounts of money in readiness for house completions and when the fraud may not be discovered until the following Monday.
- Hacking a client's email account and directing a solicitor to transfer sale proceeds to a different bank account
- A telephone call, purportedly from the bank's anti-fraud team, asking for account details or, in extreme cases, advising the solicitor to transfer the funds to a different account on the bank's instructions, and/or
- A solicitor's own email account may be hacked or impersonated so clients are directed to send monies to accounts other than the solicitor's client account, or the firm's finance team are directed to transfer funds to a fraudulent account (they think, by the matter partner).
Although the hacking can be obvious - eg a different background to the email chain or typos in the relevant name or email address, it can also look extremely realistic and potentially have come via the client’s email system (albeit not come from the actual person the lawyer regards as their client with the bank details being the fraudsters).
As a general rule, these claims are covered by PI policies, unless it is office money rather than client money that is transferred. PI insurers should therefore take the opportunity at policy renewal to remind solicitor insurers of the need to take care in this area and to advise staff to call the client to double check the relevant details and/or any changes before making a transfer.
In addition, solicitor insurers should themselves exercise caution, as paying client monies out to a fraudster amounts to a breach in the Solicitors Accounts Rules, which is reportable to the SRA and may incur serious sanctions against the firm. Insurance should therefore always be looked at as a last resort and is not a substitute for promoting awareness of this issue internally or comprehensive processes and procedures.
The Law Society has recently updated it's guidance on this topic on 20 December 2016. Read it in full here.
- 04 January 2017: City of London Police’s Insurance Fraud Enforcement Department have successful conviction under the Bribery Act
The City of London Police’s Insurance Fraud Enforcement Department (IFED) have had a successful conviction under the Bribery Act.
Stephen Oates was a consultant for LV= with access to information regarding car crash claims made by his employer’s customers. He passed the names of the customers on scraps of paper to Aisha Elliott, who worked for a claims management company; she would then contact the customers and offer to process the claims on their behalf. Ms Elliott paid Mr Oates £150 for each name. The COLP say that Ms Elliott reaped some £39,000 in commission as a result: she paid Mr Oates nearly £16,000. The pair were sentenced on 20 December 2016.
The IFED warned of the presence of unscrupulous fraudsters and employees who think it is acceptable to sell on customer data.
- 23 December 2016: In The Lamb
- 20 December 2016: Investigation by City of London Police’s Insurance Fraud Enforcement Department regarding leak of confidential data by former employee
- Two people were sentenced to 12 months in prison at Bournemouth Crown Court, following an investigation by the City of London Police’s Insurance Fraud Enforcement Department (IFED) into a leak of confidential data by a former employee of LV= to a claims management company.
- 07 December 2016: SRA figures show conveyancing theft most common cybercrime in legal sector
SRA figures show conveyancing theft as the most common cybercrime in the legal sector, with client losses of £7m reported in the last year. Three-quarters of cybercrimes reported to the SRA in that period were some form of "Friday afternoon fraud" which involves criminals modifying emails directly, usually by hacking into the email system of an individual. More in due course…
- 06 December 2016: FCA publishes thematic review report on general insurance intermediaries' professional indemnity insurance
On 05 December 2016, the FCA published its thematic review report on general insurance intermediaries' professional indemnity insurance (PII) (TR16/9). The FCA's key findings included the following:
- there is sufficient breadth within the GI PII market to provide choice and consequently firms were able to obtain cover.
- policies often contained exclusion clauses the effect of which could be to reduce the scope of the cover below that required by MIPRU.
- significant numbers of policies which had inadvertent gaps in coverage or inaccuracies. The FCA concluded that this indicated that the policies had not been subject to appropriate review by the firms.
The FCA expects all affected firms to consider the findings of this review. In particular, the FCA made clear that it expects all GI intermediaries that were not part of the review to review their PII policies to ensure that they meet MIPRU requirements, and the FCA expects insurers and managing general agents, which provide PII to GI intermediaries, to review their products against the findings of the report.
- 15 November 2016: Bank of England and Prudential Regulation Authority releases consultation paper "Cyber insurance underwriting risk"
The Bank of England and the Prudential Regulation Authority have released a consultation paper entitled "Cyber insurance underwriting risk". Between October 2015 and June 2016, the PRA engaged the market on the risks emanating from affirmative cyber policies as well as other liability policies "silent" on cyber. Professional prose aside its clear there are significant concerns (their words). These include:
- the potential for losses across many lines of business exposed to "silent" cyber
- no certainty regarding the exposure of reinsurance contracts
- lack of clear strategies and appetites for managing cyber risk (in some cases a strategy simply "does not exist"), and
- lack of skilled cyber underwriters in the market.
The draft supervisory statement expects firms to take steps to address all these concerns. Some are worthy if a little woolly (adjust premiums, introduce robust exclusions, articulate a risk appetite, make sure premium levels are sufficient to cover claims), others more focused (offer cyber cover at no extra cost if a line of business does not carry material silent cyber risk). But above all the need for investment is emphasised.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.