The primary aim of the Institute of Chartered Accountants in England and Wales (ICAEW) in enforcing a minimum policy wording is protecting the public. The regulator must however have commercial considerations in mind: make the terms too onerous and insurers may withdraw from the market leaving the remaining insurers unable to offer affordable premiums. That could in turn lead to practices closing or accountants opting to operate without cover – something which flies in the very face of the real purpose of the minimum terms! It is a careful balancing act.
It follows that whilst the minimum terms and conditions are regarded as gold-plated policies, there are some powerful rights afforded insurers, especially around the timing of notification of claims. Here we examine some quirks of the ICAEW minimum terms affecting the basis, scope and limit of any cover for those handling accountants claims to be aware of.
Key issues to watch out for
First, check the chronology:
- These are claims-made policies. Check when the claim was first made. If during an earlier policy year, the claim will fall to be covered by the prior insurer.
- Was a circumstance notified to a prior insurer? Any claim subsequently arising within the scope of that notification will fall to that prior insurer.
- Was the claim notified as soon as reasonably practicable? If not, consider whether the late notification has caused prejudice and reserve rights accordingly. Insurers have the right to reduce cover as they see fit, even to a lower indemnity limit in a previous policy year if a circumstance should have been notified during that year. This is a sting in the tail for accountants.
- Consider whether there has been any dishonest intent on the part of the insured failing to notify a claim as soon as possible or in withholding any material details, as again prejudice could arise (which could affect the value of the indemnity) meaning that rights should be reserved accordingly.
If the chronology fits, do any applicable exclusions apply?
The policy wording contains a number of important exclusions, some of which are not seen in other professions’ minimum terms, the key ones being:
- Claims arising out of:
- proceedings in the US or Canada or work done from an insured’s US office
- personal injury claims
- employment disputes
- property damage
- There is no cover for a dishonest insured and no cover for fraud from the point it is discovered or there is reasonable cause for suspicion of fraud/dishonesty on the part of that person. Note, however, that cover will always be available to each and every person insured under the policy who has not committed or condoned the fraud.
How has the claim been handled so far?
- Has the insured admitted liability or settled without insurers’ consent? What is the impact of this decision? If the defence has been prejudiced or a better settlement could have been achieved, insurers may be able to reduce the level of indemnity to be afforded to the insured accordingly.
- It is important to remember also that at all times, insurers are entitled to take over the defence, investigation or settlement of the claim in the insured’s name and receive the insured’s full cooperation.
Is there a dispute between you and the insured?
- Any dispute in relation to the policy (insurer to insurer or insurer to insured) can be referred to a sole arbitrator.
- Any dispute as to whether the insured should be required to contest proceedings can be referred to a QC for determination.
The minimum terms ensure protection for professionals and the public alike, but this is not at the expense of insurers being bound by every claim against the insured regardless of notification, handling or applicable exclusions. Insurers should assess policy coverage as a priority when a notification is made, and any relevant reservations issued, investigated promptly and explained to the insured so that no breach of the Insurance: Conduct of Business Sourcebook (ICOBS) can be alleged against insurers.
While the ICAEW’s minimum wording does not apply to accountant members of other professional accountancy bodies, policies written for the sector tend to mirror the ICAEW minimum terms for commercial and practical reasons. For those insurers who are bound, there is of course a freedom to offer wider cover than can be found in the ICAEW minimum terms and many do to obtain commercial advantage.
Finally, although wholesale changes are rarely imposed, the ICAEW seeks to update the minimum terms to react to market pressures and changes in legislation, such as the Insurance Act 2015 which starts to feature in the latest wording from August 2015. It is therefore advisable to keep up to date with changes to ensure all cover is compliant.