Why the Insurance Act means you must take care of your ‘Golden Balls’

Even the strongest, most precious, professional relationships come to an end, occasionally dramatically:

He was around 12 feet from me. Between us on the floor lay a row of boots. David swore. I moved towards him, and as I approached I kicked a boot. It hit him right above the eye. Of course he rose to have a go at me and the players stopped him. ‘Sit down,’ I said. ‘You’ve let your team down. You can argue as much as you like.’”

Of course, not all professional relationships come to an end following confrontations as dramatic as Sir Alex Ferguson and David Beckham’s ‘boot-gate’ incident but there is a prescient lesson for insurers about being prepared for key individuals moving to pastures new.

Understandably, once sold following ‘boot-gate’, Beckham’s sole-focus was Real Madrid. In the same way, any underwriter moving to a new insurer would be expected give their sole focus to their new employer. But whereas Sir Alex probably never then needed Beckham’s assistance in devising a plan to win a tough FA Cup fixture away to West Ham, an insurer might need the co-operation of an ex-underwriter to assist with a potential avoidance defence in future litigation. And not just some co-operation, but a lot of it.

This has always been a problem for insurers. Avoidance defences, and in particular the necessity to prove inducement, are based entirely on the witness evidence of the actual underwriter involved in placing the risk. If that underwriter is no longer employed by the insurer, then to obtain that underwriter’s assistance in litigation requires reliance on that underwriter’s good-will or professional pride. That is unless the underwriter has a contractual obligation to assist the insurer as set out in either their employment contract or in the agreement entered into on termination of their employment.

The Insurance Act 2015 has surely made the issue of post-employment assistance in relevant litigation even more important. Whereas previously the issue of inducement was all or nothing, which means, in principle, that an underwriter’s evidence of “If presented with x, I would have written this differently” (if accepted by the court) would have been enough, the Insurance Act 2015, with its graduated remedies dependant on what the underwriter would have done in terms of specific underwriting actions, requires a more forensic analysis of each and every aspect of placement, from price and rating to exclusions. Of course, that is not to belittle the analysis that is required of the actual underwriter under the old law (as any underwriter that has been involved in the process can attest), but it must surely be the case that because there are now more possible outcomes under the new Act, that in turn requires a greater scope of evidence, which in itself means more time, more patience and more commitment from the underwriter concerned.

If the underwriter has moved on, it makes sense for insurers not to have to rely solely on the good-will or professional pride of that individual to obtain the evidence it requires to make good its defence. In which case, a post-employment contractual duty is a must. It isn’t quite a €35 million transfer fee but it is the next best thing.

Joe O’Keeffe

Franco D’Andrea