Fenchurch Law Advocacy Services

Fenchurch Law launches Fenchurch Advocacy Services

Fenchurch Law, the UK’s leading firm of solicitors focused exclusively on representing policyholders in insurance coverage disputes, is delighted to announce the launch of a unique claims advocacy service for insurance brokers, Fenchurch Advocacy Services, which will be available from 1st September 2020.

Fenchurch Advocacy Services is a non-legal insurance service designed to replicate the high quality, specialist claims advocacy currently only provided by the “Big 3” brokers and the Nationals.

Fenchurch Advocacy Services will provide brokers and their clients with access to an experienced ACII qualified and chartered status insurance claims professional, to offer brokers support, advice and assistance, as and when required, on claims-related issues, for a fixed monthly fee.

Announcing the launch David Pryce, Fenchurch Law’s Managing Partner, commented that: “For several years the brokers who we work with have been telling us that they really value the services we provide to them, and would like us to support them in other ways.  Fenchurch Advocacy Services allows us to do just that, by providing brokers outside the “Big 3” brokers and “Nationals” with the same high quality claims advocacy that those larger brokers are able to provide to their clients. As a firm our purpose is to help level the playing field between policyholders and their insurers, and the launch of Fenchurch Advocacy Services is an important milestone in that journey”.

Fenchurch Advocacy Services will be headed up by Phil Taylor, Insurance Consultant. Phil joined Fenchurch Law after 15 years as Regional Claims Director at a leading broker, dealing with a wide portfolio of clients in relation to major and complex losses, and coverage disputes on first and third party claims. Prior to broking, Phil’s background was in Liability Loss Adjusting specialising in EL, PL, Products and Professional Indemnity claims. Phil has 35 years of experience in the insurance industry, is ACII qualified, and holds Chartered Status with the CII.

For further information please click here or contact Phil Taylor.


Fenchurch Law property

Fenchurch Law opens new office in Leeds

Fenchurch Law, the UK’s leading firm of solicitors specialising exclusively in representing policyholders in insurance coverage disputes, is delighted to announce its further expansion with the opening of a new office in Leeds from 1 September 2020, which will provide improved access to policyholders in the North of England, and their insurance brokers.

Founded in 2010, Fenchurch Law was created to allow policyholders access to specialist and high quality insurance advice that insurers have received for decades.

Fenchurch Law is now the largest specialist team of solicitors in the UK dedicated to serving the needs of policyholders. We focus exclusively on representing policyholders in insurance coverage disputes, specialising in high value and complex disputes.

The firm comprises five main practice areas, each of them partner-led by lawyers with a reputation for innovation and excellent client care:

·         Professional Risks

·         Financial & Commercial Risks

·         Construction Risks

·         Property Risks, and

·         Products & Environmental Risks

Whilst Fenchurch Law has always acted for policyholders across the UK, as well as internationally, we have recognised an increasing demand among policyholders based in the North of England to have access to solicitors who are based closer to them. Our Leeds office has been launched in response to that demand.

David Pryce, Fenchurch Law’s Managing Partner is excited about the next stage of the firm’s expansion:

“For some time we’ve recognised not only that policyholders outside London often like to be able to instruct solicitors who are based closer to them, but also that there is a great pool of talented insurance disputes solicitors who are based outside the City. The launch of our Leeds office is the first step in helping to connect policyholders in the regions with solicitors who are not only based near them, but are genuine insurance disputes specialists with deep insurance market knowledge and experience”.

The Leeds Office will be headed up by Senior Associate, Daniel Robin. Dan has wide ranging experience of the insurance market, having previously worked as a panel solicitor for insurers, as a broker, and as a claims handler for insurers. He now uses his knowledge of how insurers operate to help policyholders to achieve the best outcomes from their insurance disputes. Dan has a particular focus on professional liability, property and financial lines risks.

Working alongside Dan is Phil Taylor, Insurance Consultant. Phil joined Fenchurch Law after 15 years in Broking as Regional Claims Director dealing with a wide portfolio of Clients, major and complex losses, and coverage disputes on first and third party claims. Prior to Broking, Phil’s background was Liability Loss Adjusting specialising in EL, PL, Products and Professional Indemnity claims. Phil has 35 years of experience in the insurance industry, is ACII qualified, and holds Chartered Status with the CII.


Fenchurch Law Royal Courts

COVID-19 Business Interruption Update: FCA Test Case First Hearing and Guidance for Insurers

First Hearing – Case Management Conference (CMC)

On 16 June the first hearing (Case Management Conference) of the FCA Test Case took place remotely at the Commercial Court.  At the hearing, the court granted an order that the case will be expedited in accordance with the proposed timetable (i.e. with a final hearing from 20 July to 30 July) and that the Financial Markets Test Case Scheme will apply. The court confirmed that the case will be heard by a 2-judge panel consisting of Mr Justice Butcher and Lord Justice Flaux.

There was some early disagreement between the FCA and Insurers as to the scope of the declarations sought from the court by the FCA, in particular whether the court should make any ruling as to the actual prevalence of COVID-19 in the UK during the relevant period, and the extent to which any such finding would depend on fact and/or expert evidence.  These matters will be considered further at the second CMC on 26 June.

The insurers’ Defences are due to be filed on 23 June and at that stage we will see the full extent and basis on which the insurers will resist the declarations sought by the FCA.

The second CMC will be live-streamed on 26 June via https://fl-2020-000018.sparq.me.uk/

Guidance to Insurers

The FCA’s guidance for insurers and intermediaries has now been finalised and came into effect on 17 June. It is equally useful for policyholders seeking to understand the process and how their claim may be affected.  Important points to note include the following.

Summary of Test Case

In summary, the core questions that the test case seeks to resolve are:

i. issues of coverage in relation to ‘disease’ and ‘denial of access’ clauses (including any relevant exclusions); and

ii. causation (including any relevant ‘trends clause’ or equivalent wording).

The test case is not seeking to resolve, in particular:

  • coverage issues relating to clauses that have an exhaustive list of diseases which does not include Covid-19
  • coverage issues relating to clauses which require the disease to be present on the insured premises
  • issues concerning misselling of policies
  • other issues flowing from the determination of the questions in the test case such as aggregation, additional causation issues specific to loss of rent and similar claims under a property owner’s policy, and the specific quantum of any particular claims

Policy Review

Insurers are required to examine each of their relevant policy wordings to determine whether the outcome of claims under the policy will be affected by the resolution of the Test Case.

Insurers are to notify the results of their review to the FCA by 8 July.  The FCA then intends to publish a comprehensive list of insurers and policy wordings that will be affected by the outcome of the Test Case.

Claims Review

The guidance also sets out quite detailed requirements for communicating with policyholders during the Test Case.

In particular, by 15 July 2020 insurers should individually notify policyholders whose claims or complaints for business interruption losses related to the coronavirus pandemic under relevant non-damage business interruption policies are outstanding or have already been declined (or had an adjustment or deduction for general causation) of:

  • whether their claim or complaint is a potentially affected claim or a potentially affected complaint and the implications of that (including the FCA’s expectations of the insurer in respect of such claims or complaints under this guidance), or
  • the reasons why their claim or complaint is not a potentially affected claim or potentially affected complaint, and the implications of that.

Insurers are required to continue to communicate with policyholders as and when any developments occur in the case that may affect the outcome of their claim.

Any policyholder whose claim has been declined or remains outstanding should therefore follow up with their insurer or broker if they have received no communication by 15 July at the latest.

Clock Stopped on Time Limits

Time limits for making claims or taking any other step under policies, or for making complaints to the FOS are suspended from 17 June until final resolution of the Test Case.

Whilst most claims should already have been notified before 17 June, this means that any other time limits expressed in the policy, for example in relation to proving calculations of loss, or taking action against the insurer will not apply while the test case is ongoing. That does not stop policyholders from taking such steps or pursuing their claims.

Settlement

The guidance expressly recognises that claims may be settled between insurers and policyholders while the test case is ongoing.  However, when making any offer to settle, insurers should inform the policyholder about the test case and its implications. In particular, they should tell the policyholder whether the final resolution of the test case may affect the insurer’s decision about their claim, and the implications of accepting or rejecting an offer made on a full and final settlement basis.

Reassessment of Claims following Final Resolution

Upon final resolution of the Test Case, insurers should reassess all potentially affected claims, apply the judgment, and promptly inform the policyholder of the outcome of the reassessment.


Fenchurch Law covid19

Coronavirus – Am I Covered? A Routemap to Recovery for Policyholders, Part 1

As the spread of COVID-19 gathers pace, there is increasing concern over not just the potential public health impact, but the financial consequences anticipated by businesses within all sectors.  Containment measures implemented by public authorities will hopefully manage the spread of the disease effectively and minimise the physical impact on public health, but may themselves lead to substantial economic losses across the economy.

Most businesses will have comprehensive insurance programs in place, but where should policyholders look for coverage of anticipated losses associated with the spread of the Coronavirus?

The first in this two-part series looks at the two primary policies which may respond to economic losses caused directly or indirectly by the COVID-19 virus – Business Interruption and Event Cancellation.

BUSINESS INTERRUPTION

What might be covered?

Business Interruption cover for loss of profits and increased costs of working was traditionally attached to property insurance only, but can now be found in a variety of commercial policies.  This will be a primary focus for businesses facing a reduction in income and increase in costs as they try to cope with containment measures in the first instance and, in the event of the escalation of a pandemic, potentially severe supply chain disruption and the mass absence of employees and customers.

What are the difficulties?

Coverage Trigger

The first challenge to establishing a BI claim is the trigger for coverage.  In a property policy, BI cover will usually only be triggered where covered property damage has occurred.  That is unlikely to be relevant in the present circumstances, so policyholders will need to examine any extensions available, or the existence of standalone contingent BI cover.  In some cases, express Infectious Disease cover may be provided.  If not, other extensions, for example suppliers and customers, denial of access and loss of attraction covers may all be relevant, but the availability of cover will be entirely dependent on an analysis of the factual cause of the loss in the context of the specific wording.

Those policyholders with an express Infectious Disease cover or extension might appear to be well-protected, but the scope of cover tends to be very tightly drafted and may not extend to novel pathogens such as the coronavirus.

Notifiable Diseases

Some policies provide cover for losses caused by any ‘notifiable’ disease, which may give rise to difficulties in the case of a novel disease that does not become notifiable until some way in to the period of loss.   A decision of the Hong Kong Court of Appeal in the aftermath of the SARS pandemic established that such a clause had the result of reducing the amount of loss covered in two ways.  First, losses suffered before the date on which the disease became notifiable were not covered.  The decision of a competent authority to make the disease notifiable did not act retrospectively.  Secondly, the starting point for establishing the amount of profit lost was the period after the advent of the disease, but before the disease became notifiable, not the period before the first incidence of the disease.  To the extent that the business’s profitability has already suffered before the disease becomes notifiable, this will therefore affect the amount the business is able to claim as loss of profit going forward.

COVID-19 became notifiable in Scotland on 22 February 2020, and in Northern Ireland on 29 February 2020, whilst in England the authorities only took the decision to make it notifiable on 5 March 2020.  The wording of any policy will therefore need to be checked carefully to establish which date acts as an effective trigger for BI cover.  If multiple triggers apply, calculating the amount of covered loss will be complex and no doubt contentious, given the staggered approach in different regions of the country.

Excluded Diseases

Even where broad coverage for notifiable diseases is provided, policies frequently include an express list of excluded diseases.  Whilst this is unlikely to include any reference to Coronavirus or COVID-19 specifically (unless issued very recently), it may include catch-all language such as ‘or any mutant variant thereof.’  We have already seen some suggestion that losses from COVID-19 are excluded as a mutant variant of ‘SARS or atypical pneumonia’ (which was itself a form of coronavirus) and the medical definition or categorization of the disease will no doubt give rise to disputes over coverage.

Specified Diseases

Conversely, some policies provide cover for a specified list of infectious diseases, rather than any notifiable disease.  Such policies are unlikely to provide coverage from Coronavirus losses, unless it can be established, as a matter of scientific or medical fact, that the COVID-19 virus does fall within the list of defined diseases where ‘variant’ language is used, as in the case of excluded diseases.

Causation

Even where cover for BI losses is established, there will inevitably then be disputes over causation and measurement of loss.  Where a business elects to implement or follow certain measures for the protection of its employees or customers, the position will be different from that where it is following mandatory orders from a public authority.  Even where a business is forced to close or scale down its operations, there will be arguments over to what extent the losses are caused by the immediate effects on the business, rather than the effects on the wider marketplace and the absence of customers.

We can therefore anticipate ‘wide area damage’ type arguments being raised by insurers, relying on the principle in the Orient Express case, where a hotel in New Orleans was prevented from recovering its lost profits following Hurricane Katrina, on the basis that damage to the wider area meant that even if the hotel had been able to continue operating, it would have had no custom anyway.

The insuring clause, formula and any trends clause will need to be examined very carefully in order to understand whether such principles have any application to a claim for BI losses in the aftermath of a COVID-19 outbreak.

EVENT CANCELLATION

What might be covered?

Where business interruption cover is unavailable, or inadequate to meet losses suffered, policyholders in certain industries may be able to turn to event cancellation policies to protect them for some of the same losses.  These policies cover losses caused directly by the cancellation of a specific event as a result of one of a list of specified perils (or alternatively by any cause not expressly excluded), and where triggered are intended to compensate the business for its lost profits and increased costs as the result of the cancellation.

Event cancellation policies provide coverage for a wide variety of losses suffered by the organiser of the event following cancellation.  Cover is not provided for the losses of attendees of cancelled events, who will need to rely on the terms and conditions of the relevant ticketing, travel and accommodation providers, as well as any applicable statutory provisions, to recover their lost costs as a result of the cancellation.

What are the difficulties?

Trigger

The terms of cover provided in event cancellation policies are highly bespoke and there is no standard approach.  Some event cancellation policies may simply not provide – or may exclude - cover for cancellation caused by infectious disease.  For those that do, the cover may only extend to an outbreak on the insured premises or within a specified radius, and may exclude pandemic circumstances.  The reverse can also be true, in that an exclusion may only preclude cover of cancellations due to local outbreaks.  As ever, the policy wording is determinative.

Mandatory or voluntary cancellation

The decision to cancel an event is not taken lightly.  Even so, insurers may argue that cancellation of an event was not ‘necessary’ or ‘unavoidable’ (depending on the specific policy wording in question) in the absence of any direction or recommendation from a competent authority.  Similarly, coverage is unlikely to be provided if a decision is taken to cancel simply because of low ticket sales caused by COVID-19 concerns.

Infectious diseases – excluded, specified, or notifiable. 

The comments above in relation to business interruption losses apply equally to event cancellation cover, which may contain broadly equivalent definitions and trigger provisions.  The notifiable date of the disease becomes even more critical in the context of event cancellation cover, since any event cancelled before the disease became notifiable will simply be uncovered.  The divergent dates on which COVID-19 became a notifiable disease in Scotland, Northern Ireland and England may therefore become particularly relevant to claims in this area.

COMMENT

It can be seen that whilst most businesses face potentially significant, but as yet unknown financial losses flowing from the impacts of the spread of COVID-19, the availability of insurance coverage for such losses is far from certain and likely to be contested.  Public comments by insurers indicating that they consider their aggregate exposure to be low, and that most losses will be excluded, confirm this to be case.

Business Interruption and Event Cancellation insurance may not respond at all, or may not be adequate to meet the actual losses suffered by the business.  Part 2 of this series will therefore examine potential coverage for specific losses which may be available under a wide range of other existing policies.

Aaron Le Marquer is a partner at Fenchurch Law

 


Fenchurch Law Document

The Good, the Bad & the Ugly: 100 cases every policyholder needs to know. #8 (The Good). Thornton Springer v NEM Insurance Co Limited

Welcome to the latest in the series of blogs from Fenchurch Law: 100 Cases Every Policyholder Needs to Know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.

Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.

Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.

Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.

At Fenchurch Law we love the insurance market. But we love policyholders just a little bit more.

#8 (The Good)

The next case selected for consideration from our collection of 100 Cases Every Policyholder Needs to Know is Thornton Springer.

Issues

This case covered the issue of Defence Costs, and more particularly an insurer's liability for Defence Costs which relate to both insured and non-insured claims, and which are incurred in successfully defending those claims.

Factual background

Thornton Springer was a firm of accountants which sought a declaration that its professional indemnity insurer was liable to indemnify it in defending a claim by a client, who alleged that one of Thornton Springer’s partners had given negligent advice in relation to a company in which that partner had an interest. The client sued both Thornton Springer and the partner. The claim against Thornton Springer was dismissed on the basis that the partner had advised in a private capacity, and not as a partner in Thorton Springer. The issue in the subsequent coverage dispute was whether Thornton Springer could recover the costs it had incurred in defending the claim from its professional indemnity insurer NEM.

Insurance dispute

The relevant clauses in the NEM Policy were:

• The Insuring Clause, which provided that NEM agreed:

“To indemnify the Assured against any claim or claims first made against the Assured during the period of insurance as shown in the Schedule in respect of any Civil liability whatsoever or whensoever arising (including liability for claimants’ costs) incurred in connection with the conduct of any Professional Business carried on by or on behalf of the Assured …” (our emphasis);

• Special Condition 1 which provided that:

“Underwriters shall, in addition, indemnify the Assured in respect of all costs and expenses incurred with their written consent in the defence or settlement of any claim made against the Assured which falls to be dealt with under this certificate …”.

NEM contended that, as the claim against Thornton Springer had been dismissed, it did not fall within the Insuring Clause and therefore Thornton Springer was not entitled to recover Defence Costs (i.e. the obligation to pay Defence Costs, said NEM, only applied to successful claims, not to ones which failed).

Thornton Springer disagreed. It argued that Speical Condition 1 extended to the costs of successfully defending a claim, provided that the claim was one which in substance could fall within the Insuring Clause.

In addition, even if Thornton Springer’s argument were upheld there remained a dispute over the apportionment of defence costs between the claims against the partner (which were not covered under the Policy) and the claims against Thornton Springer (which it alleged were covered under the Policy).

The decision, and the implications for policyholders

The Court found that, while the Insuring Clause itself was not engaged given the dismissal of the claim against Thornton Springer, Special Condition 1 did not require any actual liability on behalf of Thornton Springer. All that was required was for the claim against it to be one which in substance was capable of falling within the Insuring Clause.

In addition, the Court held that, if the work by Thornton Springer’s solicitors had a dual purpose (i.e. it related both to the claim against Thornton Springer and the claim against the partner), the indemnity for defence costs extended to the dual purpose work, and not just to the work which was exclusively for the defence of the claim against Thornton Springer. This followed the principle in New Zealand Products Limited v New Zealand Insurance Co [1997]. Therefore, Thornton Springer was entitled to an indemnity for all the Defence Costs, save where NEM was able to identify work which related exclusively to the claim against the partner.

The Court’s finding in respect of the Defence Costs for a claim which was ultimately unsuccessful is very helpful for policyholders. However, whether or not it applies in a particular case, will depend on the wording of the specific policy in question.

Perhaps of more significance is the Court’s comments regarding the apportionment of defence costs for insured and non-insured claims, and in particular the burden it places on an insurer to show that any costs which it does not wish to pay must relate exclusively to the non-insured claims.


Fenchurch Law News

Fenchurch Law expands property coverage disputes team

Fenchurch Law, the leading UK firm working exclusively for policyholders and brokers on complex insurance disputes, has appointed Nicola Bowen as an associate in its Property Risks practice group.

Nicola has spent a number of years working in insurance litigation with a specific focus on property related matters. She has acted for leading insurers on first party and liability claims disputes and complex defendant matters. She has also acted jointly for insurers and their insureds in a number of large subrogated recovery actions.

Nicola joins Fenchurch Law from BLM, where she was a solicitor in their property damage team and was previously a property damage solicitor with DAC Beachcroft.

Joanna Grant, partner and head of the Property Risks group practice at Fenchurch Law, said: We are delighted to welcome Nicola whose  dedicated property damage litigation experience expands the coverage disputes capabilities the team can offer our clients.

Nicola Bowen is an associate at Fenchurch Law


Fenchurch Law expands coverage dispute team with Le Marquer appointment

Fenchurch Law, the leading UK firm working exclusively for policyholders and brokers on complex insurance disputes, has appointed Aaron Le Marquer as partner expanding its capabilities and international expertise.

Aaron specialises in insurance disputes for policyholders with a focus on product liability and recall and complex international losses. His experience extends to all commercial lines of business and he has handled many significant London market losses and represented manufacturers and insurers in high-profile cases in the tobacco, automotive, consumer electronics, pharmaceutical, and medical device sectors.

He joins Fenchurch Law from Tilleke & Gibbins, a leading Southeast Asian regional law firm, where he established a leading insurance practice and subsequently became a partner based in Thailand. Previously, he was assistant general counsel for Asia Pacific with AIG in Singapore. He originally trained and practised as an insurance and product liability lawyer with City and US firms based in London.

Managing Partner of Fenchurch Law, David Pryce said: “The start of 2020 marks a period of growth in our capabilities. Aaron is recognised for his insurance disputes work in Asia and now brings this substantial experience acting for policyholders and brokers on large scale and complex claims disputes together with strong insurance industry expertise and multi-jurisdictional experience. There is no doubt both Fenchurch Law and our clients will benefit significantly from his appointment. We will be making further announcements about the expansion of our team in the coming weeks.”


Consumer Insurance - A reminder of your rights and why you should not “avoid” fighting back

Consumer insurance accounts for a large percentage of insurance purchased in the United Kingdom. It is therefore unsurprising that many insurance disputes involve consumers, and the implications for an individual who has a claim declined can be catastrophic.

A recurring issue is an insurer avoiding a policy for an alleged non-disclosure or misrepresentation. Our experience is that, in a worryingly large number of cases, insurers appear to rely on a consumer’s lack of knowledge and resources to properly challenge the avoidance. In other words, Insurers raise with a consumer what appears to be an unanswerable case and present a declinature/avoidance as a fait acompli. However, in reality, the matter is very rarely as clear cut as the Insurer seeks to present.

The Financial Ombudsman Service (which is available to all consumers) has recently increased the size of the awards it can make from £150,000 to £350,000. It is, therefore, now even more important for consumers to be familiar with their obligations and rights in relation to their insurance policies given the wider scope of cost-free redress.

The Law

The Consumer Insurance (Disclosure and Representation) Act 2012 (CIDRA) came into force on 6 April 2013, and applies to all insurance policies which began or were renewed after that date. CIDRA applies to all types of insurance where the policyholder is acting in a personal (as opposed to commercial) capacity.

CIDRA governs the duties of consumers prior to inception of an insurance policy. It was introduced to address the vulnerability of consumers based on outdated law which imposed an unfair disclosure burden on them.

While CIDRA has been in force for a number of years, the more recent Insurance Act 2015 (“the Insurance Act”) has increased awareness both within and outside of the insurance market of the obligations of policyholders before entering into an insurance policy. As a result, CIDRA and the Insurance Act are often confused (by both policyholders and insurers). While there are similarities between them, particularly in relation to the remedies available to an insurer for non-disclosure disclosure, it is important for consumers to have an understanding of CIDRA because it is even more favourable to them than the Insurance Act.

CIDRA: Duty of Disclosure

Prior to CIDRA, if a consumer had either given incorrect information or failed to disclose something important to an insurer when applying for insurance, the insurer could “avoid” the policy (effectively cancelling the policy and treating it as if it had never existed). A heavy burden rested on the consumer (who had a duty of “utmost good faith” towards the Insurer) to disclose to an insurer all material facts. This duty was particularly onerous for unadvised individuals who purchased insurance directly from an insurer or through, for example, price comparison websites without the assistance of a broker.

CIDRA replaced this onerous burden with a new “duty to take reasonable care not to make a misrepresentation”. The effect was that a consumer was no longer obliged to volunteer information to an insurer, but rather to take care not to answer any of the insurer’s questions incorrectly.
The bottom line for individuals who have had a claim declined is that it is not enough for an insurer to establish that an incorrect answer was given to it when the policy was simplywritten - under CIDRA, that is only the first hurdle the insurer needs to overcome.

The insurer must also prove that the consumer failed to take “reasonable care” when making the misrepresentation and that, if the correct information had been given, the insurer would either not have written the policy on any terms at all, or would have written it on different terms or with a different premium. A misrepresentation which would have caused the insurer to act differently is referred to in CIDRA as a “qualifying misrepresentation”.
Alternatively, In order to avoid the policy and retain the premium, the insurer will need to show that the consumer acted deliberately or dishonestly in making a misrepresentation.

If the insurer cannot show that, but can show that there was a qualifying misrepresentation, the insurer will be entitled to a proportionate remedy. If it can show that it would not have written the policy at all, it can avoid the policy but must return the premium. If it would have written the policy on different terms, the policy may be amended to reflect those terms. If it would have charged a higher premium, the insurer is entitled to proportionately reduce the amount it pays on a claim by reference to any such hypothetical premium.

The bottom line for consumers

The overarching point for consumers to remember is that the burden is on the insurer to prove:

1. The consumer failed to take “reasonable care” not to make a misrepresentation;

2. If he/she did, that the misrepresentation is a “qualifying misrepresentation”; and

3. That the Insurer is entitled to the appropriate remedy.

Given the heavy burden on the insurer under CIDRA, consumers faced with the avoidance of their policies should not avoid fighting back, particularly now that the Financial Ombudsman Service has a much wider remit to consider larger disputes. In fighting back, and availing themselves of the Ombudsman’s enlarged jurisdiction, consumers may find that an insurer’s confidence in its position is, when properly scrutinised, rather misplaced.

Daniel Robin is an associate at Fenchurch Law


Fenchurch Law launches "The Associate Series"

Fenchurch Law’s new initiative, The Associate Series, is being launched with a view to sharing our knowledge and experience of coverage disputes with junior-mid level brokers. In doing so, we hope to enhance brokers’ ability to add value to their portfolios.

Fenchurch Law are specialists in coverage disputes. We act exclusively for policyholders and work shoulder-to-shoulder with (and never against) brokers.

The associates, whose specialisms span across a number of classes of insurance, are now sharing their expertise to assist junior-mid level brokers and claims handlers in their own careers. The associates are well-placed to do so as coverage specialists with prior experience as either brokers or insurer-side lawyers.

The Associate Series will enable us to share our knowledge and encourage you to cultivate relationships. Talks are being delivered to brokers across the UK between now and Christmas, with more seminars being planned for 2020.

The (free!) talks will be no more than 30 minutes each and focus on practical issues affecting the junior-mid tier. The fact that the talks are being delivered by your peers will, it is hoped, allow for relaxed interactive sessions.

The menu of talks will be regularly updated to reflect market developments but retain some core topics. The current menu is:

  • Notification
  • Coverage Disputes 101
  • Damages for late payment
  • A claims handler, broker and lawyer’s perspective
  • Property Risks
  • Third Party Rights against Insurers
  • D&O
  • Combustible cladding
  • Contractors and traps for their brokers

Some of these talks will also be the subject of webinars, and there will be regular blogs looking at issues and trends in the market. Keep an eye out for our events and material!

If you have any queries about The Associate Series please contact James Breese on 020 3058 3075 or via james.breese@fenchurchlaw.co.uk.


Fenchurch Law boardroom

The Good, the Bad & the Ugly: 100 cases every policyholder needs to know. #7 (The Good). Woodford and Hillman -v- AIG

Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.

Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.

Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.

Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.

At Fenchurch Law we love the insurance market. But we love policyholders just a little bit more.

#7 (The Good)

Woodford and Hillman -v- AIG [2018] EWHC 358

There are few cases dealing with coverage issues under D&O policies. This isn’t necessarily because D&O policies are rarely the subject of dispute. It is more likely a reflection of the fact that if directors have to fund hefty legal costs in defending complex civil, criminal or regulatory actions because insurers are being difficult about costs or refusing outright to pay them, their personal finances are depleted to the point where suing the insurer is out of the question (and the Financial Ombudsman’s service is no help because that avenue of remedy is closed off to company directors). The consequence is that insurers’ obligations to fund defence costs are rarely scrutinised in court.

Occasionally, though, directors will take D&O insurers on, notwithstanding the power imbalance and the personal financial risk.  Two such directors were Mr Woodford and Mr Hillman. They had been directors of the Olympus Corporation. They left in 2011 when Mr Woodford blew the whistle on a financial scandal.

In 2015 Olympus launched proceedings against them in the High Court in London for £50m, claiming that their involvement in an Executive Pension Scheme while at Olympus breached their duties as directors.

Olympus had D&O cover which covered past directors.  Woodford and Hillman notified the claim to the D&O insurers, AIG, seeking an indemnity.

AIG’s resistance to Defence Costs

AIG refused to fund Woodford and Hillman’s defence costs (£4m and counting) claiming they were not reasonable. The policy was governed by German law but disputes fell to be determined in England.

The D&O policy made AIG liable for legal defence costs “provided these are reasonable with regard to the complexity and significance of the case”.

AIG argued that their liability for costs should be determined by a costs assessment. This is an assessment by a costs judge, normally undertaken when litigation ends, to determine how much of the winning party’s costs the loser should pay. The costs judge very critically examines the costs being claimed.  The party whose costs are being assessed should expect to take a hair-cut on their recovery. A discount of 30% is not unusual and full recovery is very unlikely. On any view, therefore, a referral to costs assessment, as insisted on by AIG, would have involved Woodford and Hillman being left significantly out of pocket.

The Judge held that a costs assessment was not the right way to determine AIG’s liability for defence costs. Such an assessment was appropriate at the end of litigation as part of the court’s general discretion in relation to costs. An indemnity for defence costs under a D&O policy was “very different”. The Judge said that an insurance policy is intended to indemnify the directors for defence costs. Indemnity was a contractual right which meant that the court had no inherent discretion in relation to such costs. This meant that the (discretionary) costs assessment process had no application.

Instead, the court should assess the right to defence costs in the same way it would assess any issue of quantum. The criteria set out in the policy was that the costs were payable if “reasonable with regard to the complexity and significance of the case”.

The basis for the assessment of the “complexity and significance” of the case faced by the insureds was that it:

  • would involve a three-week High Court trial;
  • dealt with complex issues in a specialist area of law (pensions);
  • was for a significant sum (£50m);
  • had reputational significance for insureds because of the seriousness of the allegations.

AIG’s particular objection was to the charge-out rates of the insureds’ city lawyers:  £508 for partners and senior lawyers; £389 for mid–level lawyers and £275 for junior lawyers. The Judge held that the complexity and significance of the matter meant it was reasonable to use a City firm at the rates charged. The Judge rejected AIG’s suggestion that the Guideline Hourly rates published by the Court Service for use in a costs assessment (rates significantly lower than City lawyers charge) had no application.

AIG’s determined resistance to paying the fees did not stop there. They complained of duplicated work, excessive billing, failure to delegate appropriately, churning of costs (an allegation that AIG dropped) and engagement of two QC’s. The Judge found that the QC appointments were reasonable in the context, the fees were reasonable and AIG’s other complaints were unsubstantiated.

Woodford and Hillman were awarded all their defence costs: they had been incurred reasonably in view of the complexity and significance of the case against them.

Implications

It is standard for a D&O insurer’s liability for costs to be qualified on grounds of reasonableness. It is now clear that an insurer’s attempts to call in aid the cost assessment process with a view to chipping away ultra-critically at the defence costs claimed by insureds should not work and there are better prospects of the directors’ outlay on defence costs being matched by insurance cover.  Insureds now have a case to use when firing back at insurers’ attempts to lowball them, giving them some hope of prising the insurer’s purse open that little bit wider.

Enterprise Act Angle

Woodford and Hillman had to fund their defence costs from their pension funds because the D&O insurer was not responding.  They incurred significant tax consequences as a result.  Had the policy been governed by English law (and had it been taken out after May 2017) they may also have had a claim against AIG for damages for breach of the obligation to pay claims within a reasonable time (an obligation introduced by the Enterprise Act 2016) equal to the tax charge they suffered as a result of accessing their pension funds. Application of the Enterprise Act might have had an impact on the insurer’s approach to the case.

John Curran is a partner at Fenchurch Law