July saw average UK commercial insurance prices increase for the third successive quarter, with prices increasing by as much as 5% across financial and professional lines, according to the latest Global Insurance Market Index compiled by Marsh LLC.
Quite rightly, each increase in premiums will cause many companies to review their insurance cover, probably with the benefit of their broker's advice, in order to ensure that their policies represent value-for-money and actually afford companies the protection they sought to secure when taking out the cover.
Good cover can work to mitigate risk, allowing a company to pay a premium knowing that it will not face any shocks when it comes to legal expenses for that year. However, policy documents can, and do, provide a convenient hiding place for provisions which apply to severely limit the circumstances in which the benefit of cover can be had, thus diminishing markedly the benefit of that cover. Whilst this is true across policies, it is commonly an issue for clients' legal expenses insurance policies, where some of the common issues encountered include:
- Wide-ranging and extensive limitations and exclusions.
- Prescriptive, onerous and highly-regular reporting intervals.
- Immediate claim notification requirements.
- Unhelpfully low contributions to off-panel firms.
- Limited indemnities.
Each of these can work to reduce the applicability, effectiveness and value for money of a policy depending on the type of company that has taken out the cover. Take, for instance, a policy that afforded cover for contractual disputes up to an indemnity of £10,000: possibly ideal for a florist with an average per-unit sale price of £40 and little scope for disputes, far less so for a manufacturer turning out multi-million pound fabrications where a single dispute may have a claim value of several million pounds.
Selecting the right policy for your company and its circumstances is essential.
But that is not the end of the story. Imagine that this same manufacturer has taken out a policy with an immediate notification requirement, hidden deep in the policy documents, that required the company, as soon as it even suspected that a dispute was in the offing, to notify its insurer of that prospect. In the maelstrom that ensues when it faces a claim for defective goods, it is entirely possible that this provision might be overlooked in between attempts to resolve the issues directly with the buyer or its efforts to engage legal representation. By the time it does notify its insurer, possibly as little as two weeks later, the chance has gone and cover has been denied.
Understanding the limitations, exclusions and requirements of your policies is vital.
Even then, a policy can be good or garbage; the same manufacturer has taken out an appropriate policy, notified its insurer of the dispute immediately and is now looking to appoint a specialist manufacturing solicitor with a great reputation in warranty claims who happens not to be on the "panel" of the insurer's preferred legal suppliers. Whilst case law dictates that this fact cannot prevent the client from instructing the specialist firm, what it does not legislate against is the fact that the insurer can elect to apply "off-panel" rates, which are invariably significantly lower than the rates that they would otherwise indemnify. Now the manufacturer is faced with a choice: choose a generalist practice and have the entirety of their fees covered or choose a specialist and risk having to "top-up" their legal expenditure.
Knowing that your insurer's panel firms are capable, reputable and commercial is important.
There are circumstances in which you would imagine it would be impossible for an insurer to shirk responsibility, but experience belies that fact. We have seen cover denied to a manufacturer whose premises was badly damaged by an arson attack, a hospitality company whose premises suffered extensive damage following negligently performed construction work by a contractor and an architect's firm which, despite having specific cover for nuisance/neighbour claims, was denied cover when the neighbour caused water and damp issues to plague the architect's offices. In each of these instances, the insurers were able to point to a provision within their policy documents in support of their position.
It is worthwhile asking whether your broker understands the exclusions, limitations and requirements and, if not, consider taking legal advice so that you understand the nuances of a policy.
Price appears to remain the foremost consideration for brokers when deciding which policies to recommend to clients but price is not necessarily a determinant of value-for-money with a number of policies - across all price brackets - so heavily encumbered by onerous requirements as to be a false economy.
The advice for insurance brokers is to speak to a solicitor if they are in any doubt as to what a policy will mean in practice. Exclusions, limitations and onerous conditions can all have the effect of meaning that the policy is not worth the paper on which it is written, and a broker's clients will be best-served by having advice, drawn from experience, on whether the wording of the policy (coupled with the attitude of the insurer) may mean that, in reality, the client is better off with a different policy.
Ciaran Dearden is an Associate Solicitor in Freeths' Dispute Resolution team. The team have a broad range of experience with particular expertise in working in the manufacturing and technology sector and of working with clients funded by legal expenses insurance as well as other funding arrangements. firstname.lastname@example.org
The global property insurance market continues to be impacted by last year’s losses, and we are now seeing increases in financial and professional lines pricing in several regions.