A beginner’s guide to insurance law in 2020

Answer

Risk? What risk?

Anything that can go wrong can be insured – in other words, anything can be insured, from the work of architects and accountants to fine art, gold and money in transit.

Insurance companies are in the business of risk and insuring that risk for a premium. Think about how you would approach insuring a business against the risk of a pandemic affecting trade. Then consider how different this risk assessment would be now compared to 12 months ago.

The role of the insurance lawyer is wide ranging. It can involve drafting policy wording, advising on policy response, assisting with notified claims or getting involved in litigation - and all in the same day!

Insurance can be a particularly difficult area for aspiring lawyers to become acquainted with but that’s the challenge. Most students have heard about home and car insurance, but relatively few will have dealt with facultative reinsurance (insuring insurance), treaty reinsurance (insuring other insurers), or professional indemnity (insuring professionals – including other lawyers).

Insurance law is not obviously familiar to most students. It includes both contentious and non-contentious work but also requires the skills to advise and manage both the sophisticated commercial client and the “ordinary man in the street”, often at the same time. It spans advice relating to policy response or advising small businesses on minor property damage to multi-million pound, multi-national projects both in the UK and internationally. 

Insurance lawyers can find themselves advising on anything from a construction project overseas to a claim for negligent cosmetic surgery. Either way, while budding insurance lawyers aren’t expected to know everything, the ability to learn quickly and adapt is a must. Diving into a new area on every matter is a challenge, but it is this which makes insurance law attractive for those who have broad interests and enjoy variety.

Insurance law in practice

By way of example, a typical professional indemnity claim may involve the following scenario:

The facts

A brother and sister inherit land and they instruct a lawyer to deal with the sale of part whilst retaining enough land to develop. The developed plot requires an access strip, but this turns out to be too small. The lawyer fails to spot this and the brother and sister lay the blame on him. Now the siblings must spend more money buying additional land for the access strip to work and they seek the cost of doing so from the lawyer.

The outcome

The costs of the litigation are high so the matter is ultimately resolved through mediation. The parties recognise the potential for disproportionate increases in legal costs being incurred and the need to act economically. The losses claimed are in the thousands but a resolution through mediation is able to satisfy both parties and bring the matter to an end without trial.

Consider and contrast that scenario with a claim involving a cyber-attack. Here lawyers are instructed to advise insurers where their insured’s systems have suffered a cyber-attack. The resultant loss is unknown but potentially vast in amount. The lawyer’s advice can include policy coverage, protective and defensive measures or simply practical advice on damage limitation steps. So much depends upon the insured’s security systems in place at the time but either way speed is very much of the essence and losses can and often do run to millions, whether or not a claim is made or accepted.

Who is the client?

It depends. Lawyers can often find themselves dealing with and being instructed by two clients when dealing with an insurance claim. This can happen with a professional indemnity policy where the lawyer is instructed by both the insurer and its insured. This dual retainer brings with it its own challenges and tests the lawyer’s integrity throughout the life of the matter, as a conflict of interest between insurer and insured will mean ceasing to act.

Generally speaking insurance companies are some of the most legally sophisticated and challenging clients in the market. Front-line claims handlers and underwriters know their business and insurance lawyers have to develop the skills to work flexibly and with intuition at all levels of seniority. Legal ability is a given in this competitive market - relationships and trust are key to success.

Managing the client relationships is a unique challenge for lawyers advising in this arena. Insurers are often legally qualified and operate with a commercial focus, keen to achieve a cost effective but fair outcome. Their professional insured’s main concern is likely to be preserving their reputation and career, whereas a commercial insured will have yet another different agenda. Dealing with these relationships is a delicate balancing act and a unique challenge for those looking to put their client management skills to work.

Searching for certainty in an uncertain world

Insurers are particularly influenced by current events. The market has spent the last few years carefully eyeing the prospect of a no-deal Brexit and how this might affect their business, as well as their ability to continue to operate within Europe. They are now facing the impact of covid-19, as policyholders deal with the effects of lockdown and prolonged interruption to their businesses.

As we write, the Financial Conduct Authority and a group of large insurers are pursuing a test case dealing with the impact of covid-19, asking whether it can be viewed as a disease capable of triggering a valid claim for business interruption. The High Court’s initial decision is generally favourable to policyholders albeit with a number of caveats. However, even if an appeal is successful the decision will have consequences measured in the millions. We anticipate that the impact will generate more work for insurance lawyers for many years to come.

The Grenfell Tower disaster is another example of current events impacting commercial practice. It continues to influence the construction industry in a number of ways. Insurance premiums have increased and some insurers have dropped out of the market altogether. Professionals are facing the prospect of defending claims for their use of cladding on other buildings not yet under scrutiny, and individuals and investors who own affected buildings are unable to sell or insure their properties. Everyone is waiting for the outcome and insurance lawyers will be involved in assisting the courts, tribunals and insurers in this determination, which will set a precedent for the industry in years to come.

Adapting to the future

This conservative industry has been obliged to adapt to new technologies. Innovation is key for all businesses hoping to remain competitive in the market. Change is ahead of us and there is a need to keep up. M&R are committed to innovative working practices, and changes in this area are affecting insurers and their lawyers alike.

Consider the driverless car as an example of the need for change. In road traffic accidents, traditional motor insurance focuses on the faults of the driver, so how do you insure a driverless car? When drawing up a policy, how do you assess the risk so that it is covers all eventualities - and who is to blame when things go wrong? These are the questions insurance lawyers are being asked to consider to assist these technology advances.

The insurance industry is facing an array of challenges over the next few years, and change is coming fast to a once conservative industry. New entrants into the legal profession will find a career in insurance challenges their skills and their ability to adapt, but it also offers a chance to tackle unique problems every day, and to be on the front line working collaboratively with a valuable industry as it adapts and grows.

Peter Lennon and Kate Westley are lawyers at Mills & Reeve. Peter is a trainee solicitor and Kate is an associate.