Senior in-house lawyers are in danger of being negligent over their employer’s insurance requirements, according to Mactavish, a London consultancy specialising in insurance governance.
Need basic knowledge
Data suggests that 45 per cent of larger complex commercial claims are disputed by insurers and that on average they take three years to resolve, with settlements of around 60 per cent of the initial estimated values. Bruce Hepburn, chief executive of Mactavish, argues in-house lawyers do not have to become experts in insurance law but they do need to know the basics, and when they should get specialist help. Regulatory developments in the UK, such as the Insurance Act 2015 and the update to the corporate governance code earlier this year, mean company directors and legal counsel need to be much more aware of the risks facing their organisations, but many have a poor understanding and often fail to fully appreciate their responsibilities and liabilities.
Mr Hepburn explains that in-house legal counsel neglect their duties in this area, leaving their employers and themselves dangerously exposed. These developments effectively set a benchmark on what companies must do to identify, manage and transfer risk, and also crystallise the financial and reputational risks of falling short. In-house legal teams need to have a solid understanding of basic insurance law issues. If an employer needs to make an insurance claim, the legal department’s ability to spot issues and help to guide the process, or pre-empt them when policies are first taken out, can mean the difference between a quick pay-out and a long court battle. Businesses are at much greater risk of having insurance claims rejected because insurers were not told about all the risks they should reasonably have known. Mr Hepburn believes too many in-house lawyers wrongly believe insurance risk is the responsibility of their colleagues in the finance or risk departments, and view insurance viewed as a specialist area entrusted to brokers, whose service does not include any legal or compliance advice, thereby leaving in-house counsel exposed to negligence claims.