FCA Gets Tough on UK Broker and CEO for Breach of Client Money Rules

British Currency Notes

In our last blog post, we predicted a likely up-tick in FCA disciplinary activity in 2018. It seems that we might have been right, as the FCA has already issued fines totalling nearly £2.5 million against fines and individuals in the first few weeks of the New Year.  And the insurance industry has not escaped regulatory scrutiny. On 26 January, the FCA announced big fines on broker One Call Insurance Services Limited (“OCISL”) and its CEO / majority shareholder, John Radford (“Mr Radford”) of £684,000 and £468,000 respectively for breaching FCA rules on client money handling.  In a rare move, the FCA has also prevented OCISL from charging renewal fees to customers for a period of 121 days, which may cost the firm £4.6 million.

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Lack of Inclusion Means Timely Notice of Disclaimer Is Not Required

Typically, courts are strict when it comes to insurance companies disclaiming coverage.  Generally, a disclaimer must be specific and timely for it to have any chance of being effective.  In many

cases, an insurance policy has an exclusion that the insurance company contends precludes coverage.  In other cases, the coverage alleged is just not provided for in the insurance policy.  In a recent case, the United States Court of Appeals for the Second Circuit addressed the difference between a lack of coverage because of an exclusion and because of lack of inclusion and how that difference bears on whether a notice of disclaimer is required.

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The Outlook for UK Regulatory Disputes in 2018

In 2017, the UK’s financial services’ regulator, the Financial Conduct Authority (“FCA”), imposed fines totaling over £229 million for misconduct by regulated businesses and individuals.

Looking back

Whilst 2017 did not see a return to the number or size of fines imposed by the FCA in  2014/2015 (which saw billions of pounds of fines following interbank rate and FX related misconduct), the year did see a tenfold increase in FCA fines from those imposed in 2016, just over £22 million.  This may signify an upward trend in FCA disciplinary action and a possible increase in the size and number of regulatory disputes for all financial services’ businesses in the UK, including participants in the insurance industry.

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Why Suing Every Insurance Company in Sight Does Not Always Work

There is a common misconception that suing everyone in sight is a good idea.  Yes, if you don’t know exactly what related companies (or individuals) ultimately may be responsible for the loss it may make sense to cast a wider net (especially if the limitations period is approaching).  But if it is obvious who the proper parties are, why bother to sue those who have no real involvement or liability.  This issue arises in all types of litigation, including insurance coverage litigation, where policyholders sue the obvious policy issuing company and often add several affiliates and group members of the policy issuing company’s group.

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The Bell Tolled — New York Court of Appeals Rules No Presumption on Facultative Liability Cap

An interesting trend has emerged from the New York Court of Appeals.  In several recent cases, parties have asked the court to declare that a bright line rule of construction or presumption arises in every case where an insurance or reinsurance contract has certain language.  The high court has rejected this call for a bright line rule and has reiterated that when interpreting an insurance or reinsurance contract under New York law, the normal rules of contract interpretation apply and each contract stands on its own terms, conditions and facts. The latest installment of this trend was issued on December 14, 2017, a bellwether day in New York reinsurance law (no pun intended).

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Flood Reinsurance Triggered — So What Happens Next?

In an effort to stabilize the National Flood Insurance Program (“NFIP”), Congress passed several bills that allowed the NFIP to access the private reinsurance market. First piloted in 2016, in 2017 the program resulted in a broker-placed $1.042 billion cover with 25 private reinsurance markets.  The 2017 catastrophe excess-of-loss program provides coverage of 26% of losses between $4 billion and $8 billion for a premium of $150 million.  Because of Hurricane Harvey, the NFIP’s catastrophe excess-of-loss program has been triggered and NFIP has put in a claim for the full $1.042 billion to the reinsurers.  What happens next? Continue Reading

The Bank of England Highlights Brexit Concerns for European Insurers

On 28 November 2017, the Bank of England (“BoE”) published its outlook for UK financial stability, a report on what it perceives as being the main risks to that stability.  The headline grabber was the BoE’s view that the UK financial system was strong enough to withstand a disorderly Brexit. But buried away in the report was disconcerting news for all those who participate in the UK and European insurance markets.

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Failure to Comply With Protective Safeguards Endorsement Results in Loss of Coverage

A Protective Safeguards Endorsement (“PSE”), as defined by my friends at IRMI, is “[a] property insurance endorsement that makes it a condition of coverage that the protective safeguards cited in the endorsement (such as an automatic sprinkler system or night watch guard) be in operation at all times except when the insurer has been notified of the impairment in protection. Failure to maintain the protective safeguards in good working order or failure to notify the insurer of even a temporary impairment in protection suspends coverage until the protection is restored.”  An example of the PSE is linked here.  Essentially, as defined, it is a condition of coverage that if not met results in a loss of coverage.

In a recent case, a New York appellate court, had occasion to address the PSE after a fire in a multi-building condominium complex.

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The Peril of Settling Without Insurer Consent

In an earlier blog post we discussed a Georgia case where settlement occurred without consent from the insured.  In that case, the court held that when a policyholder settles without consent in the face of a consent to settle clause, the policyholder will not succeed in seeking a recovery for that settlement from the insurance company.  In a recent New York intermediate appellate court decision, the court reached a similar outcome by affirming dismissal of the policyholder’s complaint under CPLR 3211(a)(1).

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Counterfactual Thought Experiments Do Not Establish Bad Faith in New York

The title above is taken from a quote found in a recent Second Circuit non-precedential summary order in an insurance bad faith case.  Bad faith is not easy to establish in New York.  Strategic differences between an insurance company and its insured over whether, how and when to settle an underlying case generally do not rise to support bad faith allegations.  In this recent case, the Second Circuit affirmed the dismissal of bad faith allegations.

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