50 Predictions: Professional Liability

Published 1 septiembre 2016

Modern day risks for insurance brokers and intermediaries – a changing landscape

Insurance brokers will continue to be a soft target when insurers decline claims. It is hoped that implementation of the Insurance Act 2015, and the introduction of more proportionate and less draconian remedies for insurers, will mitigate the severity of claims against brokers. However, brokers will face new challenges as a result and will be required to give additional advice to policyholders to reflect the changes in law. For example, brokers will need to advise on the scope of fair presentation to insurers at policy inception and renewal. Brokers must be equipped to advise their clients on suitable cover for their cyber and other emerging risks, as they may not be aware of the data risks faced by their business or the increasing choice of insurance products covering these risks.

Increased regulatory activity from the Financial Reporting Council affecting auditors

A little-heralded regulatory expansion of the Financial Reporting Council’s (FRC) powers will shine a brighter light on corporate governance. On 17 June 2016, the accountancy regulator gained new investigatory powers as the UK implemented the EU Audit Directive and Regulations. The FRC will regulate the audits of all ‘public interest entities’, being entities with securities admitted to trading on a regulated market, banks, building societies and insurers. With enhanced powers to approach third parties directly for information, it is no longer dependent on information gateways with other regulators. Quite what impact this will have on the City is unclear, but expect to see greater prominence given to FRC investigations, particularly those focused on audits. The FRC has said these changes will be accompanied by a new forward-looking focus on maintaining and enforcing professional standards.

Small independent financial advisers under pressure

Smaller financial advice firms will continue to exit the market, consolidate or join larger advice networks. Since the Retail Distribution Review three years ago, standards and professionalism have increased but adviser numbers have fallen substantially and this trend looks set to continue. Consumers have an increasing need for financial advice but that advice is expensive to provide and there is a widespread public distrust of the financial services sector. This means consumers are increasingly making decisions with no or partial advice and using online resources of variable quality. Claims against independent financial advisers appear to be on the decline but advisers remain concerned about future liabilities, the approach of the Financial Ombudsman Service to complaints and the impact of  inancial Services Compensation Scheme levies.

Dangers for litigants, exposures for lawyers in rising court fees

The recent dramatic increase in court fees for civil litigation is leading to some shady practices by claimants who are obliged to pay the necessary court fee but unable to afford it. The current maximum court fee is L10,000 for issuing claims over L200,000 in value.

In Lewis and others v Ward Hadaway, a multi-claim action where DAC Beachcroft acted for the defendants, artificially low statements of value were declared by the claimants’ solicitors, allowing proceedings to be issued initially with a low court fee, only to be amended later with an increased fee paid. When challenged, it was held that this was an abuse of process. The defendants were granted summary judgment in those cases where limitation would have expired but for the abuse.

Our experience is that this practice has been repeated elsewhere, leading to potential opportunities to seek summary dismissal of claims improperly issued, but also consequential potential exposure for the claimants’ solicitors involved.

Key developments in 2015/16

• Construction (Design and Management) Regulations 2015
• Insurance Act 2015
• AIG Europe Ltd v OC320301 LLP & The Law Society
• Ocean Finance & Mortgages Ltd and another v Oval Insurance Broking Ltd
• Solicitors’ professional indemnity insurance