Great Day For Affinity Select, Home of PI Expert!

It’s been a great day for all of us today. Not only have we made it into the shortlist of three finalists for the Insurance Times Award for Commercial Lines Broker of the Year where we are up against two of the largest UK Brokers but our two trainees have passed their exams too!

Well done us!

Risky business for Ex-directors

If you are a director of a business then you are probably aware that you should buy Directors and Officers (D&O) Insurance. D&O insurance is probably one of the least well understood insurance policies that a business should buy, and often this lack of understanding results in the business putting off the decision to buy cover until they have time to sit down and properly understand what it covers.

D&O insurance covers the directors of a business against their personal liability for claims which arise from the decisions and actions that they take in the course of running the business. In addition a D&O policy will also cover any costs that the
company has paid out to a claimant in order to protect the directors.

Directors of publicly listed companies are most likely to be the subject of a D&O claims, however directors of any sized company, not-for-profit organisation or charity, has potential exposure to D&O claims.

No matter how qualified or careful a director is the decisions that they make can result in losses for the company or a third party, and the directors who made those decisions can be held personally liable for those losses and can be involved in costly
litigation. Such personal liability is unlimited and does not cease on death.

The business environment has become more risky rather than less in recent years. For example Margaret Cole, Director of Enforcement at the Financial Standards Authority, recently sated the Authorities intention to hold more directors and officers of companies to account. “We’ve made a strategic decision to investigate more individuals,” she is recorded as saying.

Directors and Officers insurance provides the directors of a business with the freedom to make decisions. If a claim arises as a result of these decisions, D&O insurance can provide the complainant with a degree of financial security. In cases where a company goes into liquidation or closes a D&O policy is often one of the companies few  remaining assets, and this can provide the company, its shareholders or its creditors a
way recapture some part of that loss.

A D&O policy provides financial protection for the directors and managers of a business against the financial consequences of actual or alleged “wrongful acts” when acting in the course of their duties. The policy will pay for defense costs and financial losses which result from the wrongful acts.

A D&O policy can also be extended to cover costs of administrative and criminal proceedings or in the course of investigations by regulators or criminal prosecutors. A
D&O policy does not cover fraudulent, criminal or intentional non-compliant acts, although innocent directors would be covered if they are brought into an action as co-defendants.

A Directors and Officers policy will normally cover all current, future and past directors and officers of a company and its subsidiaries. This can also include non-executive directors. Directors and Officers insurance is normally bought by the company, not the individual directors. As D&O insurance is written on a “claims-made basis”. This means that claims are only covered if they are are made while the policy is in effect. These two factors can result in a problem for retired directors or director that have sold their businesses as a future director could decide to cancel or lapse the policy.

This is particularly pertinent in the case of companies that go into liquidation as a D&O claim is most likely if a company declares bankruptcy. This is because claimants will try to hold the Directors liable for the company’s failure in an attempt to recapture debts owed to them. Liquidators are also obliged to look for and pursue promising claims as a source of liquidity.

Typically claims under a D&O policy arise from Employment practices & HR issues, Shareholder actions, Reporting errors, Inaccurate or inadequate disclosure (e.g. in company accounts), Misrepresentation in a prospectus, Decisions exceeding the authority granted to a company officer or Failure to comply with regulations or laws.

The cover granted under a D&O policy will be restricted by the individual policy terms and conditions, and limited to a maximum amount chosen by the business owner.
Limits for D&O cover start at £100,000, however as the limit includes the legal defence costs, such a low limit is not recommended. The policy limit will be on an “annual aggregate” basis, this means that there is only one single limit for all the claims against all the directors during the policy year.

Most D&O policies include a “change in control” provision. This basically allows for the policy to stay in place (subject to the premium having been paid) If the company is merged or bought. This would cover claims based on wrongful acts that occurred before the change of ownership goes into legal effect.

For directors and officers a takeover can present real difficulties. If the acquiring company faces liquidity problems due to costs of the acquisition the new owners can investigate the company’s recent history and decide to sue the old management, looking for wrongful acts in the past to make D&O claims.

In such cases the directors who have left the company will have difficulty defending themselves as they will not be able to access data and internal information of the company. Normally the merged or bought company will be integrated into the D&O program of the new parent company with cover for new wrongful acts. For claims due to wrongful acts in the past, a “run-off policy” can be agreed for an additional ppremium, granting cover for claims for up to six years after the date of the transaction.

Some directors and officers liabilities can extend beyond this period so lifetime D&O run off liability might be preferable.

One of the most important features of some of the specialist run off policies is that they allow a previous director or officer to make a claim directly against the policy
rather trying to claim against the previous company policy over which they no
longer have control.

If you need help or advice about Directors and Officer cover PI Expert can help you. Please contact us today 01825 745 410

 

Professional Indemnity Insurance – is the minimum right?

PI Expert is often asked by clients for information on the level of Professional Indemnity Insurance (PII) cover that they should buy. Typically this will be asked by businesses that do not have an industry body that lays down a minimum requirement for cover.

For professions that have a regulatory body such as Solicitors, Accountants, Surveyors, Insurance Brokers, IFA’s and Mortgage Advisors there is a set minimum laid down which should be used as a base from which to work when calculating the firms potential exposure to claims. PI Expert wants to encourage these firms to think twice about the limit of cover they really require.

It is vital to put a great deal of thought into your firms PI insurance limits and while on some occasions the minimum cover required by a regulatory body is the right level of cover for a firm, this is frequently not the case. In fact relying on the minimum level of cover as a basis for buying protection is a dangerous attitude to adopt.

Take for example General Insurance Brokers. The FSA lay down a minimum requirement for Professional Indemnity Insurance which at the time of writing is €1,120,200 for a single claim and €1,680,300 in aggregate. An incorrectly insured factory building that is destroyed by fire could wipe out the minimum FSA PII sum insured on defence costs alone!

Similarly if a business interruption sum insured for increased cost of working is forecast incorrectly, a PII claim of many millions of pounds can result. Such claims would probably be enough to take most small to medium sized brokers out of business, as well as their clients.

Lawyers, particularly those practising in the conveyancing field, or Surveyors who carry out Mortgage Valuations or Portfolio valuations can also fall into this trap. The Professional Indemnity market for both of these professions is particularly difficult at this time, so obtaining increased limits can be costly.

Accountants also fall in to this category; for example the minimum PI requirement laid down by Institute of Chartered Accountants of England and Wales (ICEAW) is two and a half times fee income. What accountancy forms should be considering is not what the minimum level that is required, but what the financial impact would be of providing incorrect advice to a larger client in respect of their VAT liability or corporation tax?

If these calculations were wrong would a claim against the firm wipe out the PII Limit? If so, remember that with sole trader and partnerships it is the individual not the firm that bears the ultimate cost, even to the loss of their own assets or the shirt off their back to quote a famous maxim.

So regardless of whether an individual or firm has an industry body that sets a minimum cover limit the cover limit for PII cover, it is essential to ensure whether that limit is adequate. The cost of buying higher levels of cover is often less expensive than firms expect as PII premium costs do not increase in direct proportion to chosen and, in the event of a claim, buying the correct level of cover will make the difference to the insured firms survival.

PI Expert offer specialist help and advice to all types of professions for their Professional Indemnity Insurance (PII) cover. Call 01825 745 410 for a quotation.

Important Claims Information for Homeowners & Businesses Affected by Riot

The recent public order problems in and around London and other major cities in the UK are likely to result in insurance claims being made by both individuals and businesses for damage to their homes, businesses and property. PI Expert would like to express our sympathy to anyone who has been affected by these problems.

Although the TV and Press are referring to these outbreaks of violence as “riot” the Police and Home Secretary have yet to confirm officially that the recent disruptions constitute a ‘riot’ under the Public Order Act 1986. This is important because if the events are classified
officially as riot then this will have a significant impact on any householder or business owner who wishes to make an insurance claim for the damage that they have sustained.

Under the Public Order Act 1986 Insurers are able to apply for compensation under the Riot (Damages) Act for any claims in respect of loss or damage which arise from an officially classified riot. This money is claimed by the insurers from the police fund for the area where the riot occurred. Therefore, and unlike other types of damage, claims which are made in respect of Riot Damage are subject to special rules and anyone who is likely to need to make a claim for damage caused in this way needs to be made aware of these.

If Insurers are to be successful with any claim that they make against the police authority concerned they have to submit it in writing to the local police authority within 14 days of the alleged incident. Time is therefore of the essence and as such most insurance policies include a requirement for any claim for riot and/or civil commotion to be notified to insurers immediately or at most be within 7 days of any damage occurring.  The claim report will need to include full supporting documentation.

This could be a tall order for anyone who has seen their home or business destroyed. It is however imperative that any policyholder who has suffered damage to contact their insurers immediately as a delay could result in the claim being rejected.

Good Advice for HR Consultants

Giving advice for a living can be very damaging to your wealth. The risks may not initially be obvious, but a claim can be ruinous and destroy your business, even if the allegations made against you are without foundation.

One of the professions particularly at risk of claims are HR Consultants. HR Consulting covers a wide range of disciplines from drafting policies and procedures to provision of advice in respect of employment law if a business is looking to make redundancies or dismiss employees. HR consultants that do no more than policy and procedure drafting are a relatively low risk in terms of Professional Indemnity Insurance, however those consultants which advise on the more volatile area of dismissal and redundancy (D&R) can find themselves facing all sorts of issues, many of which will lead to a claim under their PII cover.

HR consultants that work in D&R are relying on the employer to give them the whole story. Human nature being what it is often results in the employers story being a one sided version of events where the employer is the” good guy” and the employee is the “villain” of the piece. An employer is likely to overplay the strength of his or her own case and potentially downplay the strength of the employee(s) in question.

A good HR will be able to drill down to a degree past this white noise and establish the facts of the matter, however as a consultant they will have less knowledge of the situation than if they were an internal employee and there will always be a danger that the employer will conceal some facts.

The HR consultant can only act on the information that the employer provides, but if that information is limited or skewed then there is a danger that the advice that they give will be incorrect. Under these circumstances things can go very wrong and if the employer ends up in an Employment Tribunal then the first person in the firing line will be the HR consultant. This is why it is essential that HR consultants not only buy PII cover, but that they purchase the right cover for the area of advice that their business specialises in.

Buying PI insurance as a HR consultant might seem to be quite straight forward, however there are a number of points to bear in mind. One of the most crucial areas to check relates to policy coverage. This might sound obvious, however not every HR consultants policy will cover the breadth of advice that has been provided. It is important to check not only the policy wording, but also the question set contained in the proposal form or statement of fact. A HR advisor that is giving advice on D&R will be considered to be advising on legal matters and it is imperative that the question relating to this on the proposal form or statement of fact is answered correctly. If it is not then the policy will not cover a claim arising out of advice provided in the D&R area.

If you are a Human Resources Consultant and need help and advice about Professional Indemnity Insurance please call PI Expert on 01825 745 410 and we’ll be happy to talk to you.

PI Expert Tackles Inertia

PI Expert recently conducted a survey across multiple business sectors about experiences of service and expectations with regards to service providers. The survey revealed some disconcerting facts. Amazingly 17% of those contacted considered their service providers treated them as a number as opposed to an individual.

Furthermore, 15% of survey participants felt their suppliers were not always looking after their best interests. PI Expert prides itself on being a people business and strives to continually provide excellent service and, as such, believe that customers should not settle for less.

Apathy is the leading cause of people failing to switch suppliers, despite being aware of their shortcomings. What’s more, many business actually rely on inertia for profit, a study by Zurich Bank estimated that inertia was costing UK consumers £4-5million every year. Read More

New Headquarters Opened by Mayor!

The Mayor of Uckfield, Councillor John Carvey, officially opened the new offices of PI Expert, on Monday 4th April. He cut the ribbon to officially launch the business at its new location.

To celebrate the move local professionals were invited for canapés and wine following the cutting of the ribbon. Of course free professional indemnity advice was on tap.

Jenny Carter-Vaughan, the Managing Director of Affinity Select commented: “I would like to thank everyone who came to the office opening, but more importantly I would like to thank my staff without who this would not be possible. Their continued professionalism and impeccable service has been invaluable while I have been taking care of the office move.” Read More

Updated information for Build Only Contractors

“Why do I need PI?” – an often heard question from contractors with no in-house design teams and who may never employ consultants, building solely to the designs and supervision of others.

MUM’s Richard Webb explains why such a contractor can find itself being asked to purchase PI cover even though it undertakes no professional work itself – downlaod fact sheet

New Headquarters for PI Expert

Our new office!

We are delighted to announce that we have exchanged contracts on our new offices this week. We already have the builders in getting everything ready for a smooth move in on 1st Arpil 2011.

Many thanks to all our customers who have supported us to date and made it possible for our company to grow. Read More

Important Changes To Employers Liability Certificate Rules

The law is changing. With effect from April 2012 every employer will be required to register details of their Employers Liability insurance on the Employers Liability Database.

Similar to the Motor Insurance Database, the Employers Liability Database will form a centralised database of Employers Liability information which will contain details of all new and renewed Employers Liability insurance policies, old Employers Liability policies that have new claims made against them and all successful traces from the current ABI Tracing Service.

The database will be available searched by employees and other interested parties to identify the appropriate Employers Liability insurer in the event of a claim. The records will be registered on the Employers Liability Database against the firms Employer PAYE Reference. Read More