The Duty of Care: Some Practical Exercises

This article, provided by guest authors Robin Wood and Roger Franklin, continues our series looking at an insurance broker’s duty of care and improving the quality of your Professional Indemnity risk management. This week focuses on the standard of care and competence that insurance brokers need to demonstrate when carrying out their work.

A slight change from planned this week. As a broker you have to live your job and we have had three claims in the space of a week which smash through the record book on latent risk.

• We have storage racks which have collapsed on a delivery driver in a small supermarket. The outlook is not good with a broken back and probably total disability. The policy has a £2 million limit of indemnity under the PL section. The brokers face a massive PL claim and probably well over its PI limited of £2 million.
• A packaged office policy for an online marketing company whose turnover has risen to £8 million over the last few years and the GP figure remains at £500,000 from about 5 years ago.
• A package policy again for an office but the policy has an Increased Cost of Working cover and not gross profit and we cannot see where that choice comes from. The client has grown to 256 staff with a turnover £6 million. It does have more than one premises and it has ICOW cover of £250,000 and an indemnity period of 3 months.

We want you to think about all three scenarios and we want you to make a list for each of what you would like to see as evidence to help you, as an expert, support the broker against a claim of negligence.

If possible, we also want you to do a practical exercise if your boss will let you. We want you to look at 20 cases where you know there are default sums insured (typically commercial package policies) and make a list of any latent risk you think exists. If you want to share your results with the over 600 people who read this series on RWA Insight and LinkedIn, then get in touch.

Finally, the fourth claim of negligence which is a staggering latent risk, and it involved an employee who is the finance person of a professional firm who has stolen over 7 years about £1.5 million of the Partners’ money (not the clients’). The PI broker has been sued as although the PI policy covers loss of third-party money it does not cover first party fidelity risk. The PI brokers was never asked to insure other than 3rd party risks and claims it is the job of the broker handling the office insurance to have insured the first party risks of theft by staff (fidelity cover).

So, what do you think and why? Think about the potential latent risk of a member of staff stealing the company’s money and is the cover enough even if it exists at all? Do you have cases like this where you have not recommended enough 1^st party fidelity cover to your client?

As with all latent risk you do not have to wait to renewal to advise the client of your concerns. The sooner the better.

Our motto is “expunge the latent risk now. Don’t wait”. It really is the best way you can care for your client.

Over to you and don’t forget to get in touch if you have any questions or want help. This week we really are putting into practice what you have learned and if you can save your firm form a PI claim all the better.

And please trust us that when you find your first latent risk case, you will feel quite smug and rightly so.