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Post Magazine & Insurance Times 18 June 2009 Editions

Prepared by

Eleanor Mole Bid assistant, BLM London [email protected]

Contents

Post Magazine

News Parliamentary act needed to curb exaggerated claims Ecclesiastical fire extinguisher success Insurer giants back fast-track claims protocol Biba board appointment Airmic career model reveals route to the top

Feature articles Long tail disease: ELIB – Part Two In the second article on an insurance fund of last resort for injured employees, Post Magazine details the additional issues that render it a complex area of policy and debate.

Bloodstock: Taking the blinkers off? With falling racehorse prices, Post Magazine examines the bloodstock sector and asks whether it is a boom-and-bust industry.

Law reports Heavy case claimant has damages reduced Court exercises discretion over sexual abuse case Judge’s ruling was accurate

Insurance Times

News Management changes at HSBC Insurance Accountants overturn Lomas fine on appeal

Feature articles People & Opinion: Joe Plumeri The HRH takeover, the all-American business bravado, the tie pins… Willis chief Joe Plumeri has left the UK market in no doubt about his energy and influence. In a rare interview, he shares his frustrations and ambitions with Insurance Times.

News Analysis: Where now for RBSI? What are we to make of it: RBSI on then off the market, four top NIG job moves in as many months, Direct Line branching out into commercial lines…Insurance Times spells out the challenges facing incoming boss Paul Geddes.

1 People & Opinion: Guy Munnoch He may get stuck in blizzards from time to time, but Zurich’s chief executive is clear about the recent company restructure. It makes sense and will work extremely well, he tells Insurance Times. As will that little shift of capital across...

In Business: How to stay one step ahead of disaster Cuts are inevitable in a recession, and training is often the first to go. But Aviva’s Phil Grace says businesses cannot afford half-measures with their risk management strategies.

Parliamentary act needed to curb exaggerated claims

Court of Appeal judge has insisted that parliamentary intervention is needed to stop third- party claimants who exaggerate injuries receiving compensation.

It follows the ruling in the case Ul Haq & others v Shah, where the court held that a couple was able to gain compensation for whiplash injuries, despite fraudulently claiming for a third passenger to increase the value of their claim.

However, Lady Justice Smith said that while she sympathised with the view that these type of claims should be struck out in their entirety, any significant changes to the law would require an act of parliament rather than judicial intervention.

"I consider that the law is so well-established that I would not think it right to change it by judicial intervention. In my view, such a change would have to be a matter for parliament," she added.

In first-party cases, due to the contract between the insurer and the insured, exaggerated claims can be struck out entirely. The situation has not been as clear cut in third-party cases because of the lack of a contractual agreement between the claimant and the insurer and conflicting decisions in the lower courts. It is understood that this was the first time a third-party case had been heard by the Court of Appeal.

Lady Justice Smith added that it was up to police to bring a prosecution for fraud and that the court had no power to deny the defendants' damages for their legitimate injuries as punishment.

Anthony Hughes, chairman of the Forum of Insurance Lawyers, told Post an effective deterrent is needed to curb exaggerated claims.

He said: "From an insurance perspective it is disappointing because it doesn't provide a sufficient disincentive for fraudulent claims. If there was a multitude of these, the leakage for insurers would be considerable."

Mr Hughes added: "We are talking to the Association of Personal Injury Lawyers" it doesn't want its members to become targeted by fraudsters and we are working together to reduce the possibility of this happening."

An Association of British Insurers spokesman concluded: "We would like to see a strong message for any fraudsters and, importantly, potential fraudsters. Not allowing a claim unless it is 100% genuine would do that."

Ecclesiastical fire extinguisher success

Ecclesiastical has won a court case that could impact the liability of insurers for fire safety equipment in historic properties.

The insurer was held not liable in the county court for the £300 000 repair bill when children deliberately discharged fire extinguishers in a listed church in Lincolnshire.

The extinguishers contained water and dry powder that, when mixed, corroded parts of the interior of St Mary and St Nicolas church in Spalding. 2 Ecclesiastical argued that security firm Chubb had not advised the church that the dry extinguisher was unsuitable for that area of the building.

Commenting on the case, technical claims handler Sandra Cooper said: "The message from this judgment is loud and clear" fire extinguisher suppliers must take their responsibility seriously when recommending fire protection for historic buildings.

She added: "While dry powder extinguishers are perfectly effective in tackling fire, if they are easily accessible to the public they could be misused and cause massive damage."

The case is now being referred to the Court of Appeal, and will be heard this autumn. If the insurer is successful it will set a precedent for cases involving similar circumstances.

Insurer giants back fast-track claims protocol

Seven of the UK's largest commercial insurers have signed up to a scheme guaranteeing prompt settlement of major claims to alleviate cash flow problems faced by corporate policyholders.

The outline agreement struck this week follows months of discussion between risk managers and insurers aimed at preventing companies going under due to large-scale property losses because bridging capital is either no longer available from banks or only at prohibitive cost (Post, 21 May 2009, p12).

Negotiated by the Association of Insurance and Risk Managers, with its seven insurer partners, the agreement has been devised in association with the Chartered Institute of Loss Adjusters whose members will be instrumental in ensuring interim cash payments are made.

Although the detailed wording is yet to be finalised, the objective is to create a Statement of Principles, similar to the one secured on reservation of rights last December (Post, 4 December 2008, p2).

Under the deal, a loss adjuster will produce a cash flow model for the period of interruption caused by the event, showing how much the insured had lost in terms of production and sales at any time. The insurer would then undertake to protect the client's cash flow position, ensuring that it remains similar to how it would have been in the absence of any loss.

"At stake is the ability of companies to make investment decisions and retain or recruit staff," explained Airmic chief executive John Hurrell. "In some cases it can make all the difference to an enterprise's survival chances."

"We have worked hard to directly address members' concerns around interim claim payments and cash flow following large losses," added Tracy Jones, technical claims manager for Zurich Global Corporate UK, who is working with Airmic to produce the protocol. "We hope that application of the Statement of Principles will ease the process and provide customers with increased financial certainty, especially in the current economic climate."

Kip Berkeley-Herring, chair of Airmic's insurance steering group, commented: "This is a big step forward and will bring badly needed relief to companies that have suffered setbacks, such as factory or office fires. Our members increasingly depend on their insurers in this type of situation."

The insurers involved are Ace Europe, AIG, Allianz Global Corporate & Speciality, Axa Corporate Solutions, RSA, XL and Zurich Global Corporate UK alongside loss adjuster Crawford & Company.

Biba board appointment

The British Insurance Brokers' Association has appointed Robert Brown, chief executive officer of Aon Corporate and Affinity, to its board, effective from July. Mr Brown brings 25 years worth of expertise in London market and regional broking and client management. Mr 3 Brown said: "There are many challenges facing the broking sector over the coming years. As the voice of the UK broking industry, Biba will be at the forefront in ensuring our concerns are aired and heard."

Airmic career model reveals route to the top

Risk managers can now pinpoint the skills necessary to progress through the ranks of seniority, and the typical salary ranges these positions attract, after Airmic unveiled its new career model.

Developed in conjunction with international executive search firm GRS, the model is intended to help members assess their training needs by setting out the experience, knowledge, skills, qualifications and achievements likely to be demanded from the positions of risk officer; risk manager; senior risk manager; and chief risk officer.

Publication coincides with the prediction that hundreds of new risk management jobs are likely to be stimulated once the recession ends. GRS has estimated 1500 senior risk manager vacancies will emerge once the economic environment improves.

However, both Airmic and GRS warned new skills will be sought in addition to core risk management skills when making top appointments.

"The role has evolved in the past 18 months," said Lucinda Brown, GRS UK managing director. "It's more strategic now with clients demanding evidence of strong communication skills in often large and complex environments."

The model will be underpinned by the new Airmic Academy, supervised by former executive director David Gamble.

Heavy case claimant has damages reduced

Guy Tibbatts v British Airways plc (Queen’s Bench Division – 11 May 2009)

The CLAIMANT was employed as a baggage handler by the defendant British Airways at Heathrow airport. The pleaded case was that in August 2003, while working as a baggage handler, he sustained an injury to his shoulder unloading baggage from a flight from India. The offending bag had a "heavy luggage" tag although the weight recorded on the label was inaccurate.

BA admitted that the injury was a consequence of negligence and/or breach of statutory duty under the Manual Handling Operations Regulation 1992.

The claimant was diagnosed with a small tear in the rotator cuff which did not require surgery but required physiotherapy. The claimant returned to work in May 2005 but resigned a year later with stress. The claimant contended that his stress reaction was a repercussion of his injury. The trial judge found that the stress was not attributable to the accident and concluded that the duration of his accident-related symptoms was limited to May 2004.

More importantly, the court made an assessment of the claimant's contributory negligence. On the evidence the court took the view that the claimant bore a substantial responsibility for the injuries sustained as he knew that the offending bag was one that should have been handled by two people. The basis for his knowledge was that the offending bag, which was heavy, had been identified as being so by the attachment to the bag of a heavy weight baggage label.

The court indicated that this was an appropriate system and that the purpose of attaching heavy baggage labels was to draw attention to the heavy nature of the bag and to alert those whose job it was to handle the bags of the weight. The heavy baggage labels had no other purpose, whereas the system had no point if baggage handlers did not look to see whether a label calling attention to the weight of a bag had been attached before attempting to lift it or if the claimant did not register the information as to the weight recorded on the label. 4 The court concluded that it was immaterial that the weight recorded on the label was inaccurate. The fact that there was the additional heavy label tag put the claimant on notice that this bag should have been handled by two people. The claimant's failure to obtain assistance from a co-worker was negligent and accordingly the judge felt it appropriate to reduce the amount of damages by one third to reflect the contributory negligence.

COMMENT This is a worthwhile case to those who insure baggage handling companies. It provides full endorsement of the system of applying heavy baggage tags to luggage and clearly places the onus upon the claimant, ie the baggage handler to look out for these labels and to deal with the weight appropriately by seeking assistance. A claimant who neglects to obtain assistance in such circumstances is likely to see his damages reduced accordingly. Neil Richards, BLM Manchester

Judge’s ruling was accurate

Dadourian Group International Inc and others v Simms, Dadourian and Dadourian (Court of Appeal – 13 March 2009)

An OPTION agreement between Dadourian Group International and Carlton was entered into, upon the exercise of which Carlton had the right to purchase certain tooling and equipment for $1.5m (£0.9m).

Following a breakdown of the agreement, an arbitrator awarded DGI damages on finding Carlton in breach of contract and as having made fraudulent misrepresentations in inducing DGI into entering the agreement. Carlton was unable to meet the awards.

DGI launched the proceedings to recover from the appellants, who were involved in the affairs of Carlton and obtained worldwide freezing orders against them. At first instance all claims were dismissed, except the claim, introduced by way of amendment in April 2005, that the second appellant had made a misrepresentation in holding himself out an intermediary to the agreement, when in fact he had a beneficial interest in its outcome.

A number of issues were dealt with at appeal, including (1) did the judge err in finding that the appellants were liable for the intermediary misrepresentation, (2) did the judge err in finding that DGI was induced by the intermediary representation, (3) did the judge err in the exercise of his discretion in refusing to discharge the interim freezing orders?

The judge's findings that the appellants had made and supported misrepresentations to induce DGI to enter into the agreement were upheld. He had correctly used his discretion in deciding not to discharge the freezing orders and enforce the cross-undertakings made by the respondents. The matters identified by the judge were capable of constituting special circumstances.

COMMENT Where freezing injunctions have been obtained, it is important to keep them under review and seek to renew them if the basis of the claim against the defendant is subject to material change. Only in exceptional circumstances will it be found that a cross-undertaking should not be enforced. David Scott, BLM Manchester

Court exercises discretion over sexual abuse case

Raggett v Society of Jesus Trust 1929 Roman Catholic Purposes and another (Queen’s Bench Division – 5 May 2009)

5 The claimant claimed damages for sexual abuse committed by a priest, employed as a teacher, at a catholic school where he was a pupil between 1969–1976.

The defendant argued that the claim was statute barred and that significant prejudice would be caused by allowing the claim to proceed out of time. The claimant contended that his claim had been brought within three years of his date of knowledge of 17 April 2005, this being the date he recalled previously suppressed memories/emotions of the abuse. Alternatively, he sought the court’s discretion to disapply the limitation period.

The court held the claim became statute barred in 1979, three years after the claimant’s majority. The nature and extent of the abuse was such that, when viewed objectively, a reasonable person should have recognised it was sufficiently serious to justify instituting proceedings within the three years of their majority.

The court however exercised its discretion in the claimant’s favour, allowing the claim out of time. The delay in bringing proceedings was justifiable due to the claimant suppressing memories and emotions of the abuse.

The court concluded that prejudice to the second defendant was limited as it was unlikely that evidence from the abuser or other alleged witnesses would have altered the court’s findings on liability, particularly as the claimant had several similar fact witnesses supporting his case. This despite the difficulties in obtaining evidence in defence, given the death of the sole alleged perpetrator 24 years after the claim had become statue barred and the death or ill health of the witnesses.

COMMENT This is a strong judgment by the court contrasting the ordinary principles of limitation and prejudice with its unfettered discretion under s 33 of the Limitation Act 1980. It is only in rare cases that the court will find a claim has become statute barred but allow the claim out of time using its discretion. Certainly one brought so many years out of time. This shows the extent of the discretion the court can and will exercise on the facts of a given case. Jeremy Davies and Sarah Murray-Smith, BLM Manchester

Management changes at HSBC Insurance

There were question marks over HSBC Insurance (UK), formerly known as Corinthian Policies, this week, following management changes that saw the departure of chief executive Martyn Capewell.

Insurance Times understands that another senior staffer has left and that a third is on leave but may return to the insurer.

HSBC Insurance, a motor underwriter, has been on the market since last year, but the bank is thought to have struggled to find a buyer.

However, Andrew Gibson, who left his post as chief executive of Highway following its acquisition by LV last year, is thought to have been trying to put together a bid.

He is believed to have been considering a range of business plans, including putting the insurer into run-off. He could not be reached for comment.

A senior market source said that a Gibson-led bid looked less likely following recent developments. The source added that the level of reserves at the insurer could be a deterrent.

An HSBC spokesman refused to be drawn on the departures or on the level of reserves, but said: “We have been reviewing a range of options for this business for some time and the review is ongoing currently. For the time being, it is ‘business as usual’ for our customers and our staff.”

6 HSBC Insurance’s net written premium for motor business in 2007 was £180m. It also underwrites household business. Originally a Lloyd’s syndicate called Corinthian Policies, it was acquired by HSBC in 1996. HSBC also owns a broker, HSBC Insurance Brokers, which is a separate business.

Accountants overturn Lomas fine on appeal

Dennis Lomas, the disgraced former Independent Insurance finance director, has had a £10,000 fine overturned on appeal.

The fine from the Institute of Chartered Accountants in England and Wales (ICAEW) was overturned by its appeal committee panel.

The statement by the committee chairman, Adrian Brunner, QC, said: “Plainly he has suffered financially considerably as a result of his conviction and it is not open for the sum of £10,000 to be sought from him at the present time. It remains in doubt as to when, if at all, a sum of that order could ever have been recovered from him.”

Independent Insurance went into provisional liquidation in June 2001. In 2007 Lomas was convicted of fraud in relation to the collapse of the company and was jailed for four years. He was stripped of ICAEW membership earlier this year. If you have any further questions on the content, please contact the editor.

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