The 12 Clauses of Christmas (my claims lawyer said to me)

Clauses are not just for Christmas. Some need revisiting annually. Some are old standards. Even as a wordings and claims specialist lawyer, I sometimes find it hard to believe what I see written into insurance policies.

This year, whilst reviewing prospective clients’ existing arrangements, I have witnessed policies land on my desk that still have clauses covering off how the policy will respond in the wake of the Millennium Bug.

Sometimes it feels like there is no rhyme or reason to some market wordings, and they need careful attention to assess their effectiveness.

Here are a few clauses to keep an eye on this festive season and beyond, to keep your business safe and healthy.

‘Tis the season to be hacking

We see a rise in fraud attempts during public holidays, when staff are thin on the ground and those that are around are more likely to be distractible. Which makes Christmas the most wonderful time of the year for criminals to attempt a modern classic fraud: social engineering.

Social engineering used to be a relatively low-tech crime, but now sophisticated criminals hack into the systems of two parties who have a reason to transfer funds. Criminals play the part of the expectant recipient, mimicking the tone of the usual interactions in an attempt to redirect funds.

The tools available now for mimicry are mind-blowing. Anyone who saw the recent scam using a deep-fake clone of Martin ‘Martin’s Money’ Lewis can testify to that. If your business leaders have voice or visual recordings of them online, criminals can easily clone their voice. With that, they can quite easily program an A.I. bot to conduct a natural-sounding discussion with its mark.

At this time of year, it is well worth checking if and where you are covered for social engineering – and on what terms. Because your social engineering clause may now have conditions attached.

This means social engineering sub-clauses requiring authentication of the validity of a payment change request. Failure to comply with these would mean a claim being rejected. So there’s no time like the present to review processes and policies.

Open your heart… go on, it’s Christmas.

Any fan of cheesy Christmas movies will know Christmas is a time for opening your heart and saying what’s on your mind. What’s this got to do with insurance clauses?

Throughout the year, we spend a lot of time advocating for clients who are in dispute with insurers about the timeliness of reporting of a claim. The claims notification clause appears in all types of insurance, and deadlines are often missed. This happens for various reasons.

One of the most commons scenarios is a professional indemnity policyholder deciding for themselves that a client complaint has no substance, and giving it short shrift.

Convinced that they have no liability, an insured might brush off a poorly-presented claim and give it very little attention. Only to change their mind down the line, well after the notification deadline. This ties in neatly with the ever-present circumstances clause, where you are not just required to report claims, but can (or, sometimes, must) report scenarios you are concerned may eventually become claims.

Not every little niggle with a client will meet the threshold. But if there’s something you are genuinely worried about you should let your broker know. We deal with claims notifications every day, so can provide advice and stop the late notification defence becoming your nightmare before Christmas.

Some people worry that reporting every single circumstance will lead to premium rises. But with your Duty of Fair Presentation (your legal obligation to tell insurers any information material to your risk), circumstances will all be flushed out at renewal anyway, so there is no disadvantage to you.

It’s well worth noting that as an insurance broker, we are your agent. Aside from a few legal exceptions, anything you tell us is in strict confidence. We will always respect your confidentiality (one from our own Ts&Cs there). But we will always tell you what insurers do need to know, always with your best interests at heart.

The season of goodwill to all regulated businesses?

For some, Christmas gatherings can be a time for grinning and bearing. This Christmas, spare a thought for any company director taking the holiday season as a brief respite from regulatory investigation proceedings. Depending on what sort of allegations they face, directors may find some comforting words nestled within their Directors' and Officers' insurance policy. An investigations clause is there to lock in protection for the costs of complying with and defending your position during an investigation by a regulator.

Recent commentary coming out of the FCA suggests their strategy going forward will prioritise the supervisory aspect of their remit, in the hope that prevention is better than cure.

Theoretically, this should mean fewer investigations in the coming years – but this doesn’t mean it is worth adjusting any sub-limits around this in the hope of saving a little premium. If the regulator did come knocking, investigations can run for years, costing the defending company millions.

If you were looking to save a little money, one thing that could have an impact is looking at your aggregation clause. This can affect how many times a year you need to pay an excess to insurers, by grouping multiple connected claims into one larger one.

If your policy is on an “aggregate” basis, with a single limit of liability applying to all claims, it will almost certainly be beneficial to have broad aggregating language, increasing the likelihood of claims being grouped together and a single excess applying to all claims.  If your policy is on an "any one claim basis", there may be benefits in narrower aggregating language as the full limit is available for each claim. But you will have to pay the retention (excess) amount each time you claim.

Getting your head around the impact of aggregation wording is not something to attempt the morning after the Christmas party, but it is an important consideration in controlling costs. A lot turns on whether the claims you receive are likely to be occasional and hefty or more frequent and smaller. Perhaps one to address when the sounds of Auld Lang Syne have faded away…

Making a list…of accountable individuals in Ireland

Anyone doing regulated business in Ireland could find more individuals subject to regulatory scrutiny, and therefore, at risk of investigations, due to changes being introduced by the Irish regulator.

The incoming Irish Senior Executive Accountability Regime brings a necessity to check relevant roles and individuals are covered in the policy. So if your business manages funds or is otherwise regulated in Ireland, it’s time to review your Directors’ and Officers’ insurance.

It’s important your D&O remains fit for purpose, so do make time to review the investigations clause, and any wording around pre-investigation and regulatory crisis. It’s important to understand what you are covered for and the processes around that.

If those clauses are the “what”, the Insured Persons definition is the “who”, listing out the roles which are covered under the policy (spoiler alert: not everyone is). 

Wrapping up

It’s a big part of the broker’s role to make sure you are clear on all of the terms of any insurance contract that we provide to you (another from our own commercial client agreement), enabling you to make informed, intelligent decisions on your insurance and risk management.

While this article was played for festive fun, we remain deadly serious in our passion for client service and adding value above and beyond. Which is one reason we write many bespoke wordings ourselves, to empower our clients to choose solutions that precisely fit their needs.

I hope it has been of some help, and if has raised any thoughts or concerns, don’t hesitate to get in touch.

Sam Vardy is a lawyer specialising in complex business insurance claims. He is an Executive Director within Howden’s Legal, Technical and Claims Department. Connect with him on LinkedIn.