Pitfalls for brokers when handling professional indemnity insurance

Transcription

1 Pitfalls for brokers when handling professional indemnity insurance 1

2 WHAT IS THE PROBLEM? 1. YOUR PI EXPOSURE 2. YOUR PI EXPOSURE 3. YOUR PI EXPOSURE DIRECT EXPENSE - THE EXCESS AND POSSIBLE RATE INCREASES REPUTATIONAL RISK EFFECTS ON BUSINESS VALUE THE AREAS OF CONCERN.. 2

3 PITFALL 1: THE INSURED FAILING TO ENSURE THAT THE FULL LEGAL NAME OF EACH NATURAL PERSON AND INCORPORATED ENTITY, AS WELL AS ANY UNINCORPORATED BUSINESS OR TRADING NAMES ARE SPECIFIED. SERVICE COMPANIES UNIT TRUSTS/DISCRETIONARY TRUSTS RELATED PARTIES EXCLUSION!!! FINANCE and FINANCIAL SERVICES LEGAL PRACTICES MEDICAL PRACTICES and ENTITIES 3

4 PITFALL 2 : CLAIMS MADE BASIS OF COVER THE BASIS OF COVER AND IMPLICATIONS OF CLAIMS MADE COVER MUST BE EXPLAINED RETROACTIVE COVER: LIMITATIONS IF ANY, MUST BE HIGHLIGHTED THE BENEFITS OF THE CONTINUITY CLAUSE SHOULD BE EXPLAINED NEED FOR RUN-OFF COVER MUSTBE MADE CLEAR 4

5 PITFALL 3: ALTERATIONS TO THE RISK and DE-REGISTRATION YOU MUST ENSURE THAT YOUR CLIENT IS AWARE OF THE NEED TO NOTIFY THE INSURER WITHIN 30 DAYS OF: ANY ALTERATION TO THE RISK e.g - CHANGE IN PROFESSIONAL SERVICES - INSOLVENCY OR BANKRUPTCY CANCELLATION OR SUSPENSION OF INSURED S STATUTORY REGISTRATION, OR IMPOSITION OF CONDITIONS 5

6 PITFALL 4: DISCLOSURE AND INSURANCE HISTORY FULL DISCLOSURE MUST BE PROVIDED OF PAST INCIDENTS AND CIRCUMSTANCES, INCLUDING MATTERS SETTLED WITHIN THE EXCESS. ANY MATTERS KNOWN OR WHICH REASONABLY SHOULD BE KNOWN TO THE INSURED, WHICH MAY GIVE RISE TO A CLAIM OR DEMAND FOR COMPENSATION MUST BE DISCLOSED. THE BROKER MUST BE SURE TO EXPLAIN THAT IF SUCH MATTERS DO DEVELOP THEY ARE EXCLUDED SO WILL NOT BE INDEMNIFIED. 6

7 INSURANCE HISTORY: OBVIOUSLY CRITICAL THAT FULL DETAILS BE SOUGHT REGARDING PAST INSURANCE: COMMENCEMENT DATE OF COVER? POLICY LIMIT? 7

8 PITFALL5: THE NATURE OF THE BUSINESS AND THE PROFESSIONAL SERVICES BEING PROVIDED DO YOU REALLY KNOW YOUR CLIENT? DO YOU FULLY UNDERSTAND THE BUSINESS AND THE PROFESSIONAL SERVICES IT PROVIDES? HAVE YOU ESTABLISHED THE CLIENT S TERMS AND CONDITIONS OF TRADE? - ANY WAIVERS OF RIGHTS OF SUBROGATION? - ANY PURELY CONTRACTUAL UNDERTAKINGS? 8

9 - USE OF FORMAL, WRITTEN DISCLAIMERS? - REPORTS ALWAYS CONFIRMED IN WRITING? - USE OF CONTRACTORS/SUBCONTRACTORS AND THE EXPOSURE OF THE INSURED? TO BEST SERVE YOUR CLIENT YOU MUST PROVIDE CLEAR AND COMPLETE DETAILS OF THE NATURE AND TYPE OF ADVICE BEING PROVIDED 9

10 PITFALL 6: EXCLUSIONS and LIMITATIONS OF COVER FAILING TO PROPERLY INFORM THE INSURED OF THE EFFECT OF (1) ANY EXCLUSIONS AND (2) ANY LIMITATION OF COVER EXCLUSIONS: BODILY INJURY AND PROPERTY DAMAGE SERVICES/OCCUPATION SPECIFIC such as: 10

11 MANAGEMENT CONSULTANTS INVESTMENT ADVICE MERGERS AND ACQUISITIONS VALUATIONS DUE DILIGENCE PROJECT CONSULTANTS INSOLVENCY OF ANY PARTY COSTS EXCEEDING MAX AGREED ESTIMATES OF ROE/YIELD INSURANCE ADVICE INCLUDING BONDS and SURETIES 11

12 PITFALL 7: CLAIMS FAILURE TO ADVISE THE INSURER OF CIRCUMSTANCES NOTIFIED BY THE INSURED INDICATING THAT INDEMNITY WILL BE GRANTED UNLESS THE INSURER HAS CONFIRMED IN WRITING FAILING TO ADVISE CIRCUMSTANCES WHEN RE-MARKETING LACK OF UNDERSTANDING IN RELATION TO FI CLAIMS (WHICH ARE ALWAYS COMPLEX!) 12

13 PITFALL 8: JURISDICTION V TERRITORY TERRITORIAL LIMIT: CONFINES INDEMNITY TO ACTS OR OMISSIONS WHICH OCCUR IN THE STATED TERRITORY (e.g. WORLDWIDE EXCLUDING USA AND CANADA) JURISDICTIONAL LIMIT: CONFINES INDEMNITY TO LEGAL ACTIONS MOUNTED IN EITHER NOMINATED OR NON-EXCLUDED COUNTRIES (e.g. JURISDICTION IS LIMITED TO AUSTRALIA AND/OR NEW ZEALAND) 13

14 FINANCIAL INSTITUTIONS ENORMOUSLY COMPLEX SO GREAT CARE MUST BE EXERCISED. HEDGE FUNDS vs FOREX FUNDS vs MORTGAGE FUNDS vs EQUITYFUNDSvsCFDs SIGNIFICANT WORDING DIFFERENCES CLAIMS ARE ALWAYS DIFFICULT 14

15 SOME INTERESTING FI CASES: PROSPERITY: (FINANCIAL PLANNERS). CLIENT WANTED TO KNOW WHETHER CLAIMS ARISING OUT OF A SINGLE FAILED FINANCIAL INVESTMENT WHICH HAD BEEN RECOMMENDED WOULD BE TREATED AS A SINGLE CLAIM FOR THE PURPOSES OF THE AGGREGATE DEDUCTIBLE e.g. 100 CLIENTS PUTTING $40,000 EACH IN A FAILED INVESTMENT WHERE PROSPERITY WASFOUNDTOBENEGLIGENT=ONECLAIMOR100CLAIMS? Broker advised = one claim Subsequently 160 clients sued it for negligence regarding a mezzanine product; loss $17m but claims could not be aggregated as each involved specific tailored advice given to each client. Broker was held to have been negligent. 15

16 DUNLOP HAYWARDS v BARBON INS(2009) DH PROVIDED PROPERTY CONSULTANCY WHICH INCLUDED VALUATIONS AND INSTRUCTED ITS BROKER TO COVER ITS PROFESSIONAL ACTIVITIES. COVER PLACED IN PRIMARY AND EXCESS LAYERS BUT THE LATTER DID NOT COVER VALUATION WORK (COVERED COMMERCIAL PROPERTY MANAGEMENT ONLY). CLAIMS FROM LENEDERS AROSE IN RESPECT OF NEGLIGENT VALUATIONS WHICH WERE DENIED BY THE EXCESS LAYER INSURER. HELD: PRIMARY BROKER AT FAULT (80%) AND PLACING LLOYD S BROKER ALSO AT FAULT(20%). 16

17 TOSICH v TASMAN INVESTMENT(2008) T MADE AN INVESTMENT WHICH FAILED, ON THE ADVICE OF TASMAN; HE SUED THEM AND THEY CROSS-CLAIMED AGAINST THEIR BROKER, AON. TASMAN S POLICY DID NOT COVER THE ADVICE GIVEN TO TOSICH SO THE QUESTION WAS WHETHER AON HAD FAILED TO TAKE REASONABLE STEPS TO PROCURE ADEQUATE PI COVER TASMAN S PI COVER WITH MACQUARIE EXPIRED 2/2002 AND IT WAS NOT ENGAGED IN FIN PLANNING WHEN THE CLAIM WAS MADE. HELD: AON HAD BREACHED ITS DUTY BECAUSE IT FAILED TO RAISE THE NEED FOR RUN-OFF COVER FOR THE PLANNING ACTIVITIES. 17