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Examining the unique exposure insurance brokers may face as a result of the pandemic

Examining the unique exposure insurance brokers may face as a result of the pandemic | Insurance Business

Examining the unique exposure insurance brokers may face as a result of the pandemic

At the Broker Connect event recently held by Insurance Business, a workshop discussed how the insurance industry is being impacted by pandemic related litigation. During this event, Angus Rodger, partner at Steptoe and Johnson LLP, and Donna Scully, director at Carpenters Group, outlined the increasing threat that insurance companies are facing as litigation actions multiply from COVID related claims. Meanwhile, to further the theme, a webinar held last week by the Professional Liability Underwriting Society (PLUS) posed the crucial question: ‘Will COVID-19 Be Terminal for the London Market?’.

Read more: PLUS highlights positive post-COVID mood in London market

During this webinar, Ariel Berman, head of financial institutions, UK FINPRO practice at Marsh JLT Specialty detailed how, as a broking community, brokers have tended to look ahead down the line to examine what the role of the broker will be as technology comes into play and the ability to transact becomes more widely available. Now, the question is how brokers will be able to reinvent themselves and highlight where the true value of their proposition lies.

“I think where we come in is really as a risk advisor,” Berman said, “creating the market, and understanding the market and knowing where the wind is blowing towards and focusing on the more complex transactions that we understand better than anyone else outside of London because we’re doing it day in day out with the same underwriter for different risks that come from different directions of the world.”

Zina Saeed, the head of management risk for Tysers, emphasised the opportunity for the London market and for London brokers to neaten their value proposition. Brokers should focus on providing added value when it comes to product expertise and knowledge of coverage and a broker should learn more about a product than the producers who are sending it to them. Now is the time for insurance brokers to invest more time in education.

The role of the broker as a trusted advisor has led to them facing a unique exposure when it comes to litigation following the coronavirus pandemic, according to London partners at the global law firm Kennedys, Fleur Rochester (pictured above) and Paul Castellani (pictured below). Discussing how the advisory role of the broker may make them at risk during the crisis, Rochester noted that the main issue for brokers relates to professional services provided through the last 12 to 18 months, when current insurance programmes were being negotiated. 

Read more: Could insurance brokers find themselves subject to litigation from the coronavirus pandemic?

“Some policyholders may argue that their broker breached an ongoing duty to advise them to review their insurance programmes during the “window of opportunity” between the first reported case of COVID-19 in November 2019 and the market’s widespread refusal to provide relevant extensions/endorsements as the potential scale of the pandemic grew clearer in early 2020,” she said. “A further area of risk for those who insure brokers is the potential scope for claims relating to the advice provided to policyholders on policy response and the presentation of claims to insurers.”

Paul Castellani, Kennedys

While there is clearly scope for E&O claims against brokers, Castellani noted, the courts will resist using the benefit of hindsight to impose duties on brokers which would have required a crystal ball even six months ago. Claims concerning advice given – or not given – in the “window of opportunity” following the outbreak in Wuhan may be difficult to prove; if the broker was in a position to know that an extension should be sought then, similarly, the insurer will have been in a position to decide it could not make a profit from writing that business.

“Causation of loss will be key,” he said. “Assuming it is found that different advice should have been given by the broker, was alternative (wider) cover available in the market?  And at a price which the policyholder would have paid (particularly given the relatively localised, rather than global, nature of the SARS, MERS and Ebola outbreaks)?”

Where policyholders suffer a loss to which their insurance cover does not (or does not adequately) respond to, Rochester said, it is inevitable that they will look at the role their broker played in placing the insurance and advising them on what cover they required. In the current climate, many policyholders are expecting that the COVID-19 related losses they have suffered, and continue to suffer, will be insured. 

“Many are discovering that cover which they assumed was available to them is, in fact, either clearly outside the scope of their policy (or, otherwise, excluded), or is subject to scrutiny from their insurers which means any payment which is made may be delayed,” she said. “If cover is not available, or there are ‘gaps’ in cover, policyholders will turn to their brokers’ E&O insurance as a last resort to save their business. Whether those claims will succeed will depend on the facts in each case, but what is clear is that most policyholders will face real hurdles in establishing both breach and causation.”

Most brokers appreciate the exposure that they face should policyholders find there are “gaps” in their cover, Castellani said, but it will be a tall order for policyholders to establish both breach and causation. Few expert brokers are likely to say that insurance brokers ought to have anticipated a pandemic event causing mass closure of towns and cities in the UK for an extended period.  Successful claims against brokers arising from the placement of many general insurances are fraught with difficulty.

“Claims against brokers placing contingency business may be more fruitful,” he said. “Certain policyholders with no communicable disease cover may look at the payout reportedly due to the All England Lawn Tennis Club in relation to the cancellation of the Wimbledon tennis championships and question why their broker did not advise them to consider that type of cover. However, most sporting associations and event organisers will have experienced insurance buyers who (depending on the facts) ought to have considered, perhaps in conjunction with a specialist broker, whether pandemic cover was required.”

Looking to the future, Rochester noted that, in claims against brokers, evidence is key.  The contents of proposal forms and brokers’ files will be crucial; as will evidence concerning the availability, and terms, of cover. 

“As always,” she said, “brokers should make sure that they ask the right questions and that the cover they place meets the policyholder’s needs. Going forward, brokers will no doubt be mindful to discuss the full array of business interruption cover available in the market with policyholders and record those discussions. In the future, it will not be possible for brokers to say that there was no breach of duty because they could not be expected to anticipate a pandemic of this magnitude.”