Practices insured with Enterprise should speak to their broker, not only for advice about an urgent transition to another insurer before the 22nd August deadline, but also about engaging with the Financial Services Compensation Scheme ('FSCS'). They should be able to advise you of the requirements that will determine whether or not you qualify for compensation from the FSCS.
Needless to say, most brokers will already have significant experience in this regard, having addressed exactly the same concerns with regards to risks placed with Quinn, Lemma and of course Balva and Berliner.
Frederick White, of Grant Thornton, the liquidator recently appointed for Enterprise, has confirmed that while policies have not been cancelled, they are not able to pay any claims arising from such policies, at present at least. They are also uncertain whether Enterprise has sufficient assets to meet all insurance claims in full.
Obviously, it will not be possible to buy insurance to cover claims that have already been notified to Enterprise. However, as Enterprise has now ceased trading, we would strongly recommend that you replace your cover with a reputable MTC Insurer without delay to ensure that you are not exposed to uninsured losses arising from future claims.
Even if your practice is in run-off under the terms of an Enterprise policy, you may face exposure to claims. Any run-off claims you have are likely to be similarly affected.
FSCS Compensation Process explained
We would draw you attention to the following points/facts when dealing with the FSCS in relation to compensation for any claims you may have against your firm when an Insurer stops paying claims.
- The FSCS begins its investigation by establishing whether the Insurer genuinely lacks the finances to pay its claims.
- If the FSCS is satisfied that the Insurer cannot afford to pay its claims, the Insurer will be declared 'in default'.
- A policyholder requires compensation in respect of a valid claim being made under the policy.
- If the policyholder has not already been confirmed as eligible by the FSCS, an application form is sent to them to complete.
- If the agency handling the claims are unable to get in contact with a policyholder or the policyholder has ceased through intervention/liquidation, intervening agents and liquidators can complete the form.
- If the policyholder is a partnership, Limited company or an LLP, then the firm's audited accounts for the period between the policy inception and expiry are required to pass the FSCS small business test.
- To be eligible, a partnership's net assets must be less than £1.4M,
- Once an policyholder has been declared eligible by the FSCS, any claim payment/settlement sum, defence costs or counsel fee then has to be submitted to the liquidators of the Insurer in default.
- Once the Insurer has confirmed that the claim is covered under the policy, a bordereau is submitted to the FSCS payment portal along with supporting documents where the FSCS will then assess the claim themselves and make payment if appropriate.
Potential Obstacles to Compensation
Please be aware that there may still be obstacles that an Insured can face even when their Insurer is declared in default, as follows;
- The current FSCS rules are that they will pay 100% compensation for compulsory and professional indemnity insurance for Insurers declared 'in default' after 3 July 2015.
- The FSCS will not agree to pay compensation until the financial amounts have been agreed by the Insurer. There are many reasons that Insurer may be obstructive in giving their agreement and this can delay the process for long periods of time and can hinder not only future payments but the litigation process.
- If there are any doubts in relation to coverage, the FSCS will not pay the costs incurred in the coverage investigation, which can leave a policyholder in limbo in such cases.
- The FSCS is not subject to the Qualifying Insurers Agreement, such as, for example, the first Insurer notified agreeing to handle the claim in the event as a dispute as to the correct Insurer.
These points are not necessarily obvious from reading the FSCS rules and FAQs on the website.
Please note that, while FSCS have stated in the past that they will only consider dealing with Insured's where their net assets are less than £1.4M,we would suggest that if you are a firm with net assets just over £1.4M, it might still be worthwhile contacting the FSCS as they no doubt will view each matter on its own merits.
For further reading, please see http://www.fscs.org.uk/what-we-cover/eligibility-rules/ and for a copy of the handbook.
If you are one of the affected firms please call one of the Lockton team on 0845 050 1471