This might seem like a very narrow and remote question to pose but it is very topical one. With a High Court ruling on the Financial Conduct Authority’s (FCA) business interruption insurance test case being decided in favour of the insured policyholders, who have hitherto been denied coverage for COVID-19 related interruptions, it is highly likely that the after the event (ATE) insurance and litigation funding market will see a flood of claims against affected liability insurers. That is, provided the decision is not overturned on appeal (the High Court subsequently granted a “leapfrog certificate“, allowing the FCA and seven of the eight defendant insurers to “leapfrog” the Court of Appeal and apply directly to the UK Supreme Court for permission to appeal).
Will ATE insurers want to support these claims, which could have a substantial impact on the insurance community? Will they avoid getting embroiled in something so sensitive for the insurance market? How should a solicitor even make contact with the ATE market to find out?
Although this is a high-profile example, it is not uncommon to see claims against insurers for non-payment of claims or for regulatory breaches. Very often the facts of these claims are isolated to the relevant defendant insurer, but there are situations where the scope of the issues can affect a wide range of parties operating in the insurance community.
What should a lawyer with a case like this think about?
At the outset, it is important to think carefully before approaching anyone. The insurance world is a large place, but it is heavily connected, and insurers routinely share risks or control distribution channels where it may not be obvious externally.
Naturally, lawyers will want any broker, intermediary or insurance provider to run a conflict check and declare any potential conflict of interest they may have in receiving the application for a case against a specific insurer. However, such checks may only reveal a relatively narrow view on the question of conflict. For instance, many conflict checks will only pick up whether or not the ATE insurance provider is also insuring a particular named defendant in some way. In cases against insurers, that is unlikely to be relevant.
You would hope and expect that a conflict check will also pick up conflicts arising from any affiliations an ATE insurance provider has with the defendant insurer, but that sort of conflict check is less automatic than checking a name on a database, and probably involves internal checks with departments who may co-insure or reinsure with the defendant insurer.
It is also quite normal for ATE providers to sign confidentiality or non-disclosure agreements (NDAs), in order to access case materials. The NDAs will provide comfort by imposing contract obligations on the recipient, but also assist with attempts to preserve legal or litigation privilege over the information.
Conflict check and NDAs aside, what else can be done?
Clearly it is inadvisable to blunderbuss a case out to the market even having cleared conflict and signed NDAs, so approaching the market selectively with a knowledgeable party to limit the contact made could be helpful. A knowledgeable party, such as an insurance broker, will be privy to some of the connections that exist between insurance carriers in relation to specific lines of business which could prove an efficient way to be selective.
It would be wise to:
- Take a look at the ATE provider’s website and see what a simple internet search reveals about the insurer (especially its connection to other insurers and reinsurers that are referenced).
- Be wary of the largest composite insurers and the largest broking houses because they are far more likely to have a commercial conflict, if not a direct conflict, with a case against a defendant insurer. They will have the widest and most complex relationship with the liability market generally.
It is also worth selecting ATE providers who are highly specialist in ATE insurance rather than an insurer that dabbles in ATE as a side line. This is difficult to know without inside knowledge, but it is generally easier to spot specialist ATE distributors, such as managing general agents (MGAs), who have been granted an underwriting authority by an insurer.
Moreover, MGAs will generally be more receptive to cases that may be seen as more sensitive or disruptive, provided they do not impact on their own insurance carriers. Importantly, an MGA with delegated authority may also agree to review a case without providing any paperwork to their insurer until the risk is bound. This does at least restrict the flow of information just to the ATE specialist until there is a quote to accept.
The tension between the fear of sharing confidential information and the need to provide potential ATE insurers with full and frank disclosure has long been a tight rope walk for lawyers in certain sensitive cases, but this blog has illustrated just some of the small steps you can take to proceed as safely as possible.