When a client is declared bankrupt or goes into liquidation, receivership or administration, the broker’s responsibility is to the client.
“It’s your job to help maintain the insurance in order to protect the remaining business assets and guard against liability exposures,” said Charmian Holmes, solicitor director of The Fold, a financial services law firm.
Brokers also have to think about the insurer and any premium funder and help the client to comply with the duty of disclosure, she added.
In tough economic times, the likelihood of a client going broke increases. Here are six important tips for managing this situation:
• Get instructions from the official in charge of the financial wind-up. Don’t do what the ex-director says: he or she doesn’t have the power any more.
• Don’t cancel the client’s policies unless you have specific written instructions from the official. Check to see if the premium will be paid.
• Tell the premium funder what is happening. They will want to cancel the policy if they don’t have assurances from the official that the repayments will be made.
• Make sure premium refunds are returned to the right person. This means to the official (if the client paid upfront) or to the premium funder (if it has been funded). Get advice if you’re unsure.
• Advise the official. If the policy ceases, or does not cover the insured while insolvent, advise the official as soon as possible so they can try to make alternate insurance arrangements.
• Cooperate. Provide reasonable access to information and documents from your file, especially if there are outstanding claims. Do this even if another broker has been appointed by the official.
“Will you be paid for the work you do in dealing with all of this?” Holmes added. “Probably not, but you still have the legal obligation.”
