Loss Prevention Alerts

Loss Prevention Alert No 18 -    BEWARE OF INSURANCE RENEWALS

This loss prevention alert has been produced by the Loss Prevention Working Group (LPWG) of the AGS.  It highlights issues that the LPWG considers may be of relevance to members.  It is not intended to provide a definitive response to any issues and before taking action members should consider carefully whether they need to seek independent legal advice.

In a Loss Prevention Alert issued almost exactly a year ago (Alert No. 7 - Check Your Insurance Now!) we warned of the risk of treating indemnity insurance as a commodity, assuming that insurers compete only on price rather than on quality of coverage.  If anything, this risk will increase over time as the insurance market hardens.  Members' brokers will be providing quotes from existing insurance providers which seem excessive by contrast to the relatively low premiums members have enjoyed over the last decade or so.  Brokers might be despatched to obtain other quotes, some of which may be dramatically lower than the quote from the existing insurance provider, but it does not follow that the member is getting a better deal.  All depends on the quality of the coverage provided.

At its most extreme, members might find that there are exclusions in their policy which might exclude cover for particular areas of their work. For example, it is not uncommon to find an exclusion which says:

            "The insurer shall not be liable under the policy for any claim directly or indirectly relating to seepage, pollution or contamination."

It is difficult to know what to make of such an exclusion until the courts provide guidance but it might have quite dramatic ramifications. On a narrow view, that exclusion might relate only to activities of the insured's which cause pollution to occur and, a consultant might think, if he is not engaged in contracting work or in the supervision of contractors, that he is relatively isolated from such a risk. 

But this narrow construction ignores the wording of the exclusion which appears to be aimed at excluding even indirect claims based on pollution or contamination.  On this scenario, a consultant who merely gives advice in relation to contaminated land (for example, who prepares a due diligence report for a purchaser of a site) would find any negligence claim made by that purchaser to be excluded from the policy cover. This would be disastrous, as it would exclude entirely the sort of claim that many consultants are most likely - and in some cases only likely - to attract.

It is also unwise for a member to assume that his insurance broker will only guide him towards insurers who provide appropriate insurance cover. All depends on the instructions to the insurance broker.  Many members will have relatively remote relationships with their brokers, using them only to obtain quotes.  It may even be the case that the brief to the broker is so poor that the broker is not even aware that the person for whom he is acting is indeed an environmental consultant who depends on some element of cover for claims which relate to contamination or pollution.

There is no alternative to reading the policy document or the cover note to ensure that the member is obtaining appropriate cover.  If there is any doubt about policy wordings, which often contain technical language, then members should obtain specialist advice.

Finally, remember also, when considering a choice of insurer, particularly for a ‘long-tail’ matter such as PI, a number of factors need to be considered in addition to policy wording and premiums, including:-

1. the identity of the insurer, their financial standing and long term commitment to the class of business
2. the approach of that insurer to claims, including the solicitors which are used to defend claims
3. the services that the broker can offer including, critically in the present business climate, risk management.

 
Prepared for the Members of the AGS by Steven Francis, DLA
Date of Issue:  28 March 2002