financial institutions risk bulletin · 2015. 10. 12. · craig downey, professional lines claims...
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OCTOBER 2015 FINANCIAL INSTITUTIONS RISK BULLETIN
AJGINTERNATIONAL.COM
OCTOBER 2015
Welcome to the October 2015 edition of the Arthur J. Gallagher Financial Institutions Risk Bulletin.
In this edition we discuss aggregation provisions in insurance policies following a recent High Court decision as well as new products on the horizon from Arthur J. Gallagher.
The aggregation of claims or losses has particular relevance for the operation of the retention (also known as the ‘excess’ or ‘deductible’), which in policies purchased by financial institutions typically applies to ‘each loss’ or ‘each claim’. In the event of multiple claims or losses, each falling below the amount of the retention, it can be highly beneficial for such claims or losses to be aggregated so that they collectively exceed the retention.
The ability to aggregate claims or losses will hinge on the particular wording of the aggregation provision. The language of such provisions can vary, but they all seek to apply some form of unifying test so that multiple claims or losses can be treated as one claim or one loss. Examples include:
• ‘all claims arising from one act or omission shall be treated as one claim’
• ‘all loss resulting from acts or omissions caused by any person or in which such person is implicated shall be treated as one loss’
• ‘all claims arising from one series of related acts or omissions shall be treated as one claim’
• ‘all loss resulting from one casualty or event shall be treated as one loss’
There have been several high profile disputes between insurers and insureds over the application of aggregation provisions.
In Lloyds TSB General Insurance Holdings and Others v Lloyds Banking Group Insurance Company Limited [2003] UKHL 48 the insured was faced with around 22,000 small claims totalling approximately £125,000,000. The claims related to advice provided by the insured to thousands of individuals in respect of leaving occupational pension schemes.
TO AGGREGATE OR NOT TO AGGREGATE?
The recent decision in AIG Europe Limited v OC320301 LLP (formerly The International Law Partnership LLP) and Others [2015] EWHC 2398 (Comm) has once again shone a light on aggregation provisions in insurance policies. Such provisions are designed to allow for multiple claims or losses to be treated as one claim or one loss for the purposes of the given policy and are an essential element of policies purchased by financial institutions.
FINANCIAL INSTITUTIONS RISK BULLETIN
OCTOBER 2015 FINANCIAL INSTITUTIONS RISK BULLETIN
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The insurer denied coverage under the insured’s professional indemnity policy on the basis that: (1) each individual claim fell well below the policy’s £1m retention (which was on an ‘each and every claim’ basis); and (2) the applicable aggregation provision was not sufficient to aggregate the claims so that they could be considered to be one claim for the purposes of the retention. The dispute was subsequently litigated and finally came before the House of Lords (now the Supreme Court). The relevant aggregation provision provided that claims resulting from ‘any single act or omission (or related series of acts or omissions)’ would be treated as one claim for the purposes of the application of the retention. The House of Lords decided that the provision was not sufficient for the thousands of claims to be treated as one claim and therefore the insured was left uninsured for its significant losses. The House of Lords noted that if the aggregation provision had used alternative language which adopted a wider connecting factor, then the insured would have been successful in aggregating the claims.
In the recent AIG Europe Limited v OC320301 LLP (formerly The International Law Partnership LLP) and Others [2015] EWHC 2398 (Comm) the insured was posed with a different challenge. Here the policy in question was a professional indemnity policy for solicitors. The policy’s limit of liability was on an ‘any one claim’ basis, meaning that each claim benefited from a separate limit of liability. The insured was faced with multiple high value claims and therefore benefited if separate limits of liability applied to each claim. The insurer and the insured disagreed about the application of the aggregation provision, with the insurer seeking a declaration from the Court that it operated so that the claims were aggregated. The aggregation provision provided, among other elements, that ‘all claims arising from similar acts or omissions in a series of related matters or transactions’ would be regarded as one claim. The Court decided in favour of the insured by holding that the claims could not be aggregated under the relevant wording.
The two cases above show that in certain circumstances the aggregation of claims or losses will be a benefit to insureds and in others it will not. However, in the case of Professional Indemnity, Directors’ and Officers’ and Crime Insurance policies for financial institutions, when posed with the question ‘To aggregate or not to aggregate?’, the answer in the majority of cases will be ‘Aggregate!’. This is driven by the benefits of aggregating claims or losses for the purposes of the retention and the fact that the limit of liability in policies purchased by financial institutions is almost always on an ‘aggregate’ basis (as opposed to an ‘any one claim’ or ‘each and every claim’ basis). To that extent we generally seek to agree aggregation provisions with insurers that use very wide connecting factors, so as to provide the best possibility of aggregating claims and losses. As noted above, there has been a good deal of judicial interpretation on aggregation provisions and those cases undoubtedly help in formulating appropriate language.
We invest significant resources to ensure that our policies respond to our clients’ needs. This effort is led by our Technical Director, Thomas Falcon.
If you have any questions regarding this article please contact [email protected]
OCTOBER 2015 FINANCIAL INSTITUTIONS RISK BULLETIN
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NEW PRODUCTS FROM ARTHUR J. GALLAGHER IN 2016WHAT’S ON THE HORIZON?
It is well known that the risk environment for financial institutions is ever changing, so it makes sense that where possible financial lines insurance should reflect this.
A key area of focus at Arthur J. Gallagher is the development of new products, supported by our team of technical experts focusing purely on financial institutions insurance.
Fortuitously, insurers in the face of budgetary pressure are increasingly looking for ways to differentiate their offerings and are displaying an almost unprecedented willingness to consider new types of exposure. These factors have increased our ability to both create and place new policies and enhancements so we are pleased to announce that the following new products will be available in the very near future:
• Fully blended cyber, professional indemnity, directors & officers and crime policy. We recognise the frustrations of needing to make a separate application and renewal process if you want to purchase Cyber insurance, so this fully blended policy will make coverage clearer, eliminate duplication and drive both premium and administration savings.
• Crime insurance specific to the previously uninsurable asset based lending operations of financial institutions. This higher risk form of lending has historically been
excluded from crime policies, however if supported by strong risk management policies it will soon be insurable as a stand-alone policy.
• Up-dated plastic card fraud insurance. Reflecting current technology including NFC enabled devices.
• Multi-year placements. This year we saw two year placements re-emerge from when they were last offered in the late 1990’s. At present they are most readily available for larger financial institutions, but during 2016 we expect to see them available to a wider client base who want to guarantee terms over a prolonged period of time.
• In addition we will continue to deliver improvements to our existing suite of policy wordings
If you would like further details on any of the above then please do not hesitate to get in touch with any Arthur J. Gallagher account executive or [email protected]
SAVE THE DATE - 17TH NOVEMBER 2015
Arthur J. Gallagher Financial Institutions Breakfast Briefing - Click here to Register
TIME: 8.45 -10.00 (registration, coffee and pastries from 8.15)
VENUE: The Walbrook Building, 25 Walbrook, London EC4N 8AW
AGENDA:
Insurance Policy PitfallsThomas Falcon, Technical Director, Arthur J. Gallagher.
The most frequently observed policy pitfalls and the steps you can take to minimise them.
Financial Institution claims, an insurer’s perspective. Craig Downey, Professional Lines Claims Manager, AXIS Capital.
An overview of the current claims environment for financial institutions. Where are new claims emanating from and what trends can we expect in the future?
Insurance Market Conditions. David Rogers, Executive Director, Arthur J. Gallagher.
As 2015 draws to a close, what can we expect from the insurance market in 2016?
OCTOBER 2015 FINANCIAL INSTITUTIONS RISK BULLETIN
AJGINTERNATIONAL.COM
MEET THE TEAMMartin joined the Arthur J. Gallagher Financial Institutions team in November 2012 with a focus on developing the business from emerging markets.
It was full circle for Martin when he joined Arthur J. Gallagher as he started his career in 2000 at Heath Lambert (purchased in 2011) and he re-joined a number of familiar faces within the company. Initially starting his career account handling and broking UK based financial institutions with an emphasis on Stockbroker, Hedge Fund and Asset Manager sectors. In recent years, Martin has developed financial lines business from a number of territories off the radar for most other brokers working on Commercial Banks, Microfinance Companies, Stock Exchanges and Insurance Companies.
Having stopped playing rugby a few years ago, Martin now enjoys watching the game live or in the comfort of his own home, when given the chance with his one year old daughter demanding his time and attention.
Martin Fall Divisional Director D: +44 (0)20 7204 1860 E: [email protected]
CONDITIONS AND LIMITATIONSThis information is not intended to constitute any form of opinion and recipients should not infer any opinion from its content. Recipients should not rely exclusively on the information contained in the bulletin and should make decisions based on a full consideration of all available information. We make no warranties, express or implied, as to the accuracy, reliability or correctness of the information provided. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide and exclude liability for the statistical content to fullest extent permitted by law.
Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London, EC4N 8AW. Registered in England and Wales. Company Number: 1193013.
If you would like more information, please contact your Account Executive or email [email protected]
www.ajginternational.com @AJG_INTL /arthur-j-gallagher-international
About the Arthur J. Gallagher Financial Institutions Team
The dedicated Arthur J. Gallagher Financial Institutions team offers advice, design and execution services for a wide range of standard and bespoke insurance products. We provide competitive, cost-effective solutions for the full range of liability and crime risks faced by financial services firms and their directors and officers, including civil liability, professional indemnity, fraud, cyber risks and directors’ and officers’ liability.