Annual Insurance Review 2021 - RPC
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Annual Insurance Review 2021 ADVISORY | DISPUTES | REGULATORY | TRANSACTIONS
Contents 2 Introduction 4 Accountants 5 Art and specie 6 Brokers 7 Construction 8 Contingency 9 D&O 10 Energy 11 Financial institutions 12 Financial professionals 13 General liability 14 Health and safety 15 International arbitration 16 Intellectual property 17 International property 18 Legal practices 19 Life sciences 20 Marine and shipping 21 Media 22 Medical malpractice
23 Miscellaneous professional indemnity 24 Pensions 26 Political risk and trade credit 28 Power 29 Procedure, damages and costs 30 Product liability 31 Property and business interruption 32 Regulatory 33 Restructuring and insolvency 34 Surveyors 35 Technology 36 Warranty and indemnity 37 Asia and Australia 38 France 39 Italy 40 Latin America 41 Middle East and Africa 42 North America 45 Offshore
2 2021
INTRODUCTION
Welcome to RPC’s 2021 Annual Insurance Review. No prizes for guessing
what we will be talking about this year.
In last year’s review, we spoke about insurance market but for virtually all industries Our review this year will provide you with
geo-political instability, Brexit and the US and individuals. It will leave countries, the usual collection of articles from our
election’s impact on international trade, industries, businesses and individuals with business class experts and from around
climate change and insurance as a driver of unprecedented levels of debt for recent the world’s key insurance markets. You can
geo-political change. times. Ultra low interest rates look here to read how COVID-19 has impacted your own
stay and whilst uncertainty remains around market/region, but whilst that is obviously
In common with governments and the detailed terms of the trade deal with the dominant topic of conversation, there
businesses around the world, what we the EU and how this will be implemented, are many other issues that remain of
did not recognise was the risk of a global Sterling is likely to remain volatile. This makes crucial importance.
pandemic bringing unparalleled disruption the longer term economic impact of COVID
to global economies – and lives. harder to predict. Key risk issues from previous years have
not gone away – they’ve just been
In 2019, we saw what at the time appeared The consequences of the virus are overshadowed temporarily (we hope).
to be unprecedented disruption to global likely to be quite far reaching. Industry So, you can read about how over the
businesses and events due to political commentators remain of the view the coming year:
uprising and adverse weather conditions, market will likely continue to harden and
including the cancellation of the Japanese that begs the question as to whether new • there will be re-engagement with climate
Grand Prix and several Rugby World Cup capacity will emerge and, if so, what its change initiatives, and a continued drive
matches due to Typhoon Hagibis. Of approach to underwriting risk will be. The away from fossil fuels towards renewable
course, this year it’s hard to think of a sport, reach of the pandemic on the insurance energy, with some talking of a green
cultural event or business sector that has market goes further though than just claims recovery from COVID-19
been unaffected by the virus. exposures, pricing and capacity. It is likely • tech and artificial intelligence gains,
to lead to a fundamental shift in customer accelerated by mass home working
Brexit suddenly seemed to almost be a topic and the needs of a global medical
of light relief (until very recently, perhaps). demand both short and longer term. It
might also lead to the re-emergence of emergency, will be built upon and taken
All in all, it’s been one of the most volatile reinsurance disputes. advantage of
and difficult years in history, not just for the
ANNUAL INSURANCE REVIEW 3
• Environmental, Social and Governance businesses are looking to rebuild after all at a time when, more than ever, the
(ESG) as a means of evaluating a this year-of-years and insurance market’s importance as the
company’s corporate behaviour • perhaps the biggest test of all will likely essential lubricant for business of all kinds,
(including its behaviour whilst under come towards the middle and end of and indeed for society as a whole, is being
the stress of the last year) will be ever 2021, as governments’ financial support recognised. With BI claims and test cases
more important is withdrawn and businesses that have around the world attracting headlines,
• notwithstanding the UK-EU Trade struggled to survive 2020 begin to fall regulatory, political and societal scrutiny
and Cooperation Agreement signed into insolvency. over the insurance industry’s provision of
on 30 December, the full details and products that meet clients’ needs and the
impact of the deal will only now begin So there is a great deal for our industry to efficient and fair handling of claims will be
to be understood, all at a time when be thinking about and working on, and more intense than ever.
Simon Laird Robert Morris Toby Higginson
Partner Partner Partner
T +44 20 3060 6622 T +44 20 3060 6921 T +44 20 3060 6581
simon.laird@rpc.co.uk robert.morris@rpc.co.uk toby.higginson@rpc.co.uk
4 2021
ACCOUNTANTS
By Matthew Watson, Senior Associate
Key developments in 2020 corporate fraud in line with the public’s We will have to see whether this change
perception of the role of auditors. The reduces auditors’ exposure to potential
In 2020 we saw the Financial Reporting
additional cost of such an approach is claims for failing to identify discrepancies
Council (FRC) adopt a more robust
unlikely to be welcome to audited entities. in companies’ accounts.
approach towards implementing its
enforcement powers than in previous years. Accountants will no doubt have been We anticipate that insolvency practitioners
The Kingman Review of the FRC appears to kept busy in 2020 advising businesses on and accountants advising businesses
have prompted the regulator to try to shake the Coronavirus Job Retention Scheme that are facing financial difficulties as a
off the label of not being fit for purpose. (CJRS) or “furlough” scheme. Auditors result of COVID-19 may face an increased
will have also needed to keep a close eye exposure to claims in the next few years.
In July 2020 the FRC’s “Annual Enforcement
on their clients’ accounts in cases where The number of insolvencies to September
Review” showed that its Enforcement
support grants have been received. A 2020 were down by over a third compared
Division had grown. The FRC also increased
failure to identify “furlough fraud” may to the same period in 2019. However, the
the number of conduct issues identified
put auditors in the spotlight especially if it eventual withdrawal of the government’s
by “horizon scanning” (ie carrying out
could be said they did not adopt enough support packages for SME businesses is
pro-active searches of companies’
professional scepticism when reviewing a likely to result in more insolvencies. This
misconduct) by 80% in 2020 compared to
company’s accounts. is likely to lead to an increased workload
2019. But the FRC’s more robust approach
for insolvency practitioners who may
to enforcement is unlikely to change the
Government’s commitment to replace
What to look out for in 2021 face claims from disgruntled creditors
and/or shareholders. Similarly, auditors
the FRC with a new regulator (the Audit, We expect to see more accountancy firms
and accountants for (and professionally
Reporting and Governance Authority). restructure their business models in the
qualified directors of) insolvent firms will
next 12 months. The Big Four accountancy
The release in 2019 of the Brydon Report, inevitably face significant scrutiny of their
firms have until 2024 to separate their
which called for industry wide audit work prior to the businesses’ insolvency,
auditing practices from other business
reform, also had an impact in 2020. The even more so following the Court of
areas. We have already seen some firms
report suggested that auditors have Appeal’s decision in AssetCo v Grant
(including those outside of the Big Four)
“an obligation to be suspicious as well Thornton which is seen by some claimant
make this change in recent months and
as sceptical”. There still seems to be a firms as encouragement to pursue
we foresee this approach will become the
disconnect between the general public’s claims against auditors for companies’
norm for larger firms.
perception of the role of an auditor and trading losses.
the reality of what an auditor’s job entails. The separation of accountancy firms’ audit
The Brydon Report suggests that in the work from the rest of their business is in
future auditors may be expected to take line with the recommendations of the
a more investigative approach to identify Kingman Review and the Brydon Report.
Karen Morrish Robert Morris
Partner Partner
T +44 20 3060 6521 T +44 20 3060 6921
karen.morrish@rpc.co.uk robert.morris@rpc.co.uk
ANNUAL INSURANCE REVIEW 5
ART AND SPECIE
By Emma West, Senior Associate
Key developments in 2020 What is clear is that the pandemic led to a software is first trained using a wide range
flurry of claims under business interruption of existing works and then produces its own
The COVID-19 pandemic has had an
policies, with a class action being launched works until it cannot distinguish between
unprecedented impact on the art market.
against insurers on behalf of more than the two. The art produced is surreal,
Auctions and art fairs moved online and
fifty art galleries, museums and sole abstract and yet strangely familiar. It also
galleries closed their doors for a substantial
traders. Museums and galleries forced to crosses genres: Christie’s has auctioned an
portion of 2020, with mixed success.
close welcomed the outcome of the FCA’s 18th century style portrait produced by AI;
Sotheby’s doubled the average value
test case on business interruption cover more recently a software called GANsky has
of items sold in online sales and many
in September. Although no art-specific created street art murals.
galleries reported that they had reached a
clauses were considered in that case, the
new generation of buyers. However, there Technology can also be used to detect
court decided that some of the policy
were signs that buyers were not prepared fakes and forgeries. Software is taught to
wording it reviewed provided coverage
to purchase “big ticket” pieces without recognise an artist’s work, and then from
if, for example, businesses could not be
seeing them in the flesh. as little as a single photograph indicates
accessed as a result of government order.
At the time of writing, the decision remains whether the piece is genuine. With some
Art was certainly more stationary in
subject to appeal, and each policy should experts estimating that around 20% of
2020, which may have reduced claims
be considered on its own terms. artwork in major galleries is fake, this
for the loss and damage of works in
technology is likely to play an increasing
transportation. Looking ahead, buyers are
role in resolving questions of attribution.
more likely to have relied on information What to look out for in 2021
provided to them when purchasing a Technology is being used in increasingly The use of technology in the creation
piece as opposed to their own inspection. ingenious ways to both create and test the of art has the potential to raise complex
An increase in claims on professional authenticity of art. intellectual property issues, both in respect
indemnity policies can perhaps be of the technology itself and its product.
expected as buyers reassess the prudence Art created by artificial intelligence is a Whilst technology develops, its status
of their acquisitions in 2020. growing area of the market. A new breed alongside more traditional attribution
of artists is using “generative adversarial methods is unclear, potentially increasing
networks” to produce original artworks. The the scope for claims against professionals.
Rupert Boswall Davina Given
Partner Partner
T +44 20 3060 6487 T +44 20 3060 6534
rupert.boswall@rpc.co.uk davina.given@rpc.co.uk
6 2021
BROKERS
By Kirstie Pike, Senior Associate
Key developments in 2020 What to look out for in 2021 In order to be able to give that explanation,
it is vital for brokers to fully understand
The hard insurance market, coupled with If insurers’ appeal is successful, brokers
their clients’ needs. As a result of COVID-19,
the effects of COVID-19, has meant that may find themselves in the firing line. In
the risk profiles of a lot of businesses will
2020 has been an extremely challenging difficult financial times, policyholders
have changed and so brokers will need to
year for insurance brokers. The pandemic will look for somebody to blame. Claims
spend time getting to know their clients
and Government-directed lockdown in against brokers are likely to relate to
again. Remote working means that, for
March put enormous strain on brokers as a failure to arrange suitable business
many, new and innovative ways to keep in
a result of the significant volume of health, interruption cover or advise on the
touch with clients and conduct business
travel and business interruption claims, scope of cover obtained. Causation
will need to be developed.
with clients desperate to know whether or may well be a significant issue. This
not they were covered for their losses. The could have a substantial impact on the Small businesses will continue to be hit
broking community breathed a (short- brokers’ professional indemnity market hard for the foreseeable future, putting
lived) sigh of relief when the High Court and premiums. a strain on brokers’ fee income and
in the FCA business interruption test case commission volumes. For those businesses
(The Financial Conduct Authority v Arch If the Supreme Court upholds the High
that manage to survive, cost cutting
Insurance (UK) Limited and others [2020] Court decision, customer support will be
is likely to mean their focus is less on
EWHC 2448 (Comm)) found in favour of more important than ever. Clients will seek
insurance and more on risk management.
the arguments advanced for policyholders assistance with their business interruption
This is where brokers can really add value
on the majority of key issues, which claims. We anticipate that insurers will
to their relationships.
meant that many of them were likely to react to the decision by tightening up their
recover their losses. On 2 November 2020, policy wordings and restricting the scope
however, just as businesses had been told of cover. Brokers are, therefore, likely
that they faced another national lockdown, to be called upon by their clients to fully
the Supreme Court granted permission understand the policies they are arranging
to a number of the insurers to appeal. and provide more technical knowledge.
Whatever the outcome, the Supreme When placing policies, it may be prudent
Court’s decision will have a major impact for brokers to demand from insurers
on brokers. One thing that is certain is the confirmation as to what cover they will
next 12 months will be as challenging for provide and be very careful to explain to
them as the last. clients when their insurance requirements
cannot be met.
Tim Bull Robert Morris Karen Morrish
Partner Partner Partner
T +44 20 3060 6580 T +44 20 3060 6921 T +44 20 3060 6521
tim.bull@rpc.co.uk robert.morris@rpc.co.uk karen.morrish@rpc.co.uk
ANNUAL INSURANCE REVIEW 7
CONSTRUCTION
By Sarah O’Callaghan, Associate
What to look out for in 2020 supply chains and the practical issue of claims resulting from Health & Safety on
social distancing on site. In short, many site (potentially against Principal Designers)
COVID-19 has dominated the news.
firms are facing insolvency; insurance and a continuation of the number of
However, the construction industry was
premiums have increased, COVID-19 has adjudications in professional negligence
facing a challenging time before the virus
made it (even more) difficult to pay those claims, as claimants try to recover losses
swept the world.
premiums, and it only takes one company quickly, before either they or the target
As anticipated in this review last year, to cease trading for projects to fall into of their claim become insolvent. More
the Grenfell tragedy and the subsequent delay or be cancelled. positively, the number of new cladding
Hackitt Review have led to a host of claims claims should start to fall away.
There are, however, reasons to be positive.
relating to, and investigations into, fire
During Lockdown 2.0 construction Finally, we continue to see a number of
safety and the suitability of cladding on
workers in the UK were once again allowed disciplinary investigations by the ARB and
buildings. This made insurers nervous and
to attend building sites, notwithstanding RIBA (and the RICS). An area for architects
many decided to pull out of construction
other sectors being told to work from to keep an eye on in this regard will be
insurance. Linked to this, the Lloyd’s
home. In addition, the construction the MHCLG consultation on proposed
2018 Thematic Review into construction
sector brought back almost 75% of those amendments to the Architects Act 1997. The
insurance revealed big losses for some
individuals on the Government’s Job consultation is seeking a wide range of views
insurers and required them to take
Retention Scheme by 31 August 2020, on proposed reform to building safety. The
remedial measures or, in some cases, to
faster than most other sectors. The sharp recent publication of the draft Building
cease writing construction insurance. The
fall in construction work earlier in the Safety Bill details how the Government
result of these two issues (and we have
year has eased considerably in the last intends to deliver the principles and
not even mentioned Brexit) has been a
quarter, in the face of enduring economic recommendations of the Hackitt Review
reduction in the availability of construction
uncertainty. and includes provisions to improve
PI cover and, accordingly, large increases in
the competence of architects through
premiums and more restrictive terms.
What to look out for in 2021 amendments to the Architects Act 1997.
COVID-19 has added an extra problem – a We anticipate that insolvencies in the
cashflow issue. Many construction firms construction sector will, unfortunately, lead
operate without large capital reserves and to problems with the progress of certain
the pandemic has put many in a vulnerable projects. As a direct COVID-19 related
position; many projects have been delayed issue, we can see the potential for more
or cancelled due to disruption within the
Ben Goodier Peter Mansfield Alexandra Anderson Alan Stone
Partner Partner Partner Partner
T +44 20 3060 6911 T +44 20 3060 6918 T +44 20 3060 6499 T +44 20 3060 6380
ben.goodier@rpc.co.uk peter.mansfield@rpc.co.uk alexandra.anderson @rpc.co.uk alan.stone@rpc.co.uk
8 2021
CONTINGENCY
By Damon Brash, Senior Associate
What to look out for in 2020 By the same token, insurers, even those The upshot of this may well be that in
with robust exclusions for communicable 2021 only very small or very large events
Like much of the insurance market,
diseases, will have found their wordings will be able to proceed. Small events
contingency risks were dominated in 2020
being placed under intense scrutiny. may proceed either on the basis that the
by COVID-19. This was entirely unforeseen,
Some policy wordings that carve out organiser will risk not obtaining insurance
not only by the insurance market but by
communicable diseases can contain a for communicable diseases or on the
governments, businesses and individuals
‘write back’ providing cover in certain basis that the insurer might consider the
worldwide. Last year, the key emerging
situations, including, for example, where risk sufficiently low to write it without a
risk in the contingency market was
the Government orders events to close. communicable diseases exclusion and
thought to be adverse weather conditions.
Government statements in the UK have still charge only a modest premium. Large
COVID-19 has trumped this. The virus has
been notoriously woolly leading to disputes events may proceed on the basis that
resulted in widespread postponement and
as to whether the cover is triggered. This the organiser can afford the premium
cancellation of events, from conferences
has led to increased disputes as to whether a involved. Oddly, whilst this might hold
to concerts to cricket matches. The most
claim ought to be covered. up in the short term, in the medium term
high profile amongst these was probably
this may have a countercyclical effect. The
the 2020 Tokyo Olympics, which were
rescheduled to commence on 23 July 2021,
What to look out for in 2021 restrictions on cover could mean fewer
events being underwritten as organisers
although it is still not entirely certain that Despite the emergence of several vaccines,
elect not to proceed without cover for
this date will not be moved once again. COVID-19 is not going to go away, at
communicable diseases. This could drive a
least in the short term. Producing and
Many artists, performers and organisers glut of capacity in the market, thus pushing
administering a vaccine in large numbers
will have found the consequences of premiums down.
is likely to be a considerable logistical
cancellation severe due to communicable exercise that will take time to implement. A comprehensive roll-out of an effective
disease exclusions that are often contained In the meantime, COVID-19 may well vaccine might stabilise the position but
in contingency policies. Some organisers still lead to tightening of exclusions in it would seem likely that COVID-19 will
may even have faced a double hit. Having contingency policies, especially around have one lasting effect: broad exclusions
organised the event once and postponed communicable diseases. To obtain for communicable diseases will be part
it from early in the year for a short period cover without a communicable diseases of much contingency cover for the
(say, 6 months) in the belief that by then the exclusion is likely to be very expensive, if it foreseeable future.
world would have COVID-19 under control, is possible at all.
they may now have found that even the
rescheduled event cannot proceed.
Naomi Vary
Partner
T +44 20 3060 6522
naomi.vary@rpc.co.ukANNUAL INSURANCE REVIEW 9
D&O
By Krista Murray, Associate, and Ben Gold, Legal Director
Key developments in 2020 actions against the oil and gas industry in Management may also be exposed to
the US in particular, posing a significant risk risks related to the way they have dealt
For D&O insurers, 2020 was all about the
to D&O insurers. Notably, in November with furlough and redundancies and other
hardening market – with rates doubling in
2020, one of Australia’s largest pension lockdown related work issues.
some cases and limits contracting – and
funds settled a high-profile climate change
the underlying causes of that. Whilst the Corporate Insolvency and
lawsuit. Whilst the settlement did not set a
legal precedent, it will likely spur on similar Governance Act 2020 temporarily
A combination of a rise in shareholder class
pieces of litigation around the world. suspended wrongful trading from March
actions, US securities claims, event based
to September 2020, to allow company
litigation, extremely large scale regulatory/
Against the backdrop of higher social directors to ensure that their businesses
criminal investigations, litigation funding
awareness, class action diversity and could weather the COVID-19 storm,
and size of settlements all contributed
MeToo claims were on the increase in 2020 that relaxation was lifted briefly before
to this hardening. The market had been
– a trend that is set to continue and have being reintroduced, and the suspension
under-priced for years and was set to
an impact on D&O policies. may itself have had the unintended
correct itself, when COVID-19 shook the
consequence of increasing creditor losses
global economy.
What to look out for in 2021 and the quantum of subsequent claims.
COVID-19 class actions started to emerge in Further, all other sources of liability under
We believe the largest source of new claims
the US in a number of industries, including the Insolvency Act 1986 and Companies
in 2021 is likely to arise from poor financial
the travel, pharmaceutical, manufacturing, Act 2006 remained unaffected, including
performance and the raft of company
retail and technology sectors. the summary remedy of misfeasance
insolvencies that inevitably lie ahead,
(under section 212) and claims for breach
In the UK, high profile criminal occasioned by the COVID-19 pandemic
of fiduciary duty.
investigations by the SFO against D&Os and the related lockdowns, leading to
continued to dominate the press, as well as shareholder derivative actions and, more Separately, climate change and diversity
follow-on expensive shareholder actions commonly, claims by administrators or litigation will, we believe, continue to gain
under Section 90A FMSA 2000 (triggering liquidators. According to the most recent momentum in 2021.
side C coverage), such as that brought Office for National Statistics survey, over a
third of hospitality businesses are currently As D&O becomes increasingly challenging
against Tesco Plc.
at moderate to severe risk of insolvency. to write, insurers will want to carefully
As we predicted last year, climate change consider the scope of coverage offered.
litigation grew, with derivative shareholder
Simon Goldring James Wickes Alison Clarke
Partner Partner Of Counsel
T +44 20 3060 6553 T +44 20 3060 6047 T +44 20 3060 6173
simon.goldring@rpc.co.uk james.wickes@rpc.co.uk alison.clarke@rpc.co.uk10 2021
ENERGY
By Chris Burt, Senior Associate
Key developments in 2020 has swiftly hardened in 2020. Capacity is governments are including such measures
now more restricted; Willis Towers Watson in their pandemic recovery policies in
In our last Annual Insurance Review we
describes the ‘balance of power’ swinging order to ensure the environmental health
gave some indications of what to look out
from an insured to an insurer market, and resilience of societies. Preliminary
for in 2020. We hope we can be forgiven
as rates have steadily increased and OECD estimates suggest these measures
for not predicting a global pandemic, but
restrictions of cover have been introduced amount to US$312 billion.
our discussion around insurers looking to
over the past year.
renewable energy as an alternative source However, according to the IEA’s
of premium income has also proved to be a There have also been some notable Sustainable Development Scenario (SDS),
major trend of the past year. strategic investments by insurers in the renewable capacity needs to grow by over
renewables market. Tokio Marine HCC 300 GW average per year between now
‘Black April’ saw oil prices turn negative:
acquired GCube in March 2020. Chief and 2030 in order to reach the goals of the
there was an imbalance between
Executive Barry Cook described this as Paris Agreement.
oversupplied oil and a significant fall
underlining their “commitment to the
in demand following the shutdown of Therefore, increased investment in
renewable energy insurance market
major economies and travel routes under and development of renewable energy
and [their] desire to actively address
COVID-19 restrictions. sources will be required to meet global
the issues around sustainability… and
offer[s] opportunities for growth and energy needs sustainably. Technological
Demand for fossil fuels is now widely seen
diversification”. developments in this area will result in new
as having reached its peak. According to
types of insurance risks and considerations.
the International Energy Agency’s (IEA)
report published in early November, global What to look out for in 2021 For example, hybrid renewable projects
renewable electricity installation will hit a The central scenario in BP’s annual report that combine multiple forms of
record level in 2020. The report states that for 2020 shows demand for oil falling by energy generation, storage or end use
almost 90% of new electricity generation 55% over the next 30 years. Renewable technologies are a potential solution. Lack
in 2020 will be renewable, with just 10% energy sources are likely to continue to fill of loss history in such new projects will
powered by gas and coal. the gap in 2021 and beyond. present challenges to ascertaining likely
insurance risk exposures.
Alongside the move away from fossil fuels, There is a growing acceptance and drive
the renewable energy insurance market for a ‘green recovery’ to COVID-19. Many
Leigh Williams Toby Savage Gary Walkling
Partner Partner Partner
T +44 20 3060 6611 T +44 20 3060 6576 T +44 20 3060 6165
leigh.williams@rpc.co.uk toby.savage@rpc.co.uk gary.walkling@rpc.co.ukANNUAL INSURANCE REVIEW 11
FINANCIAL INSTITUTIONS
By Oliver Knox, Senior Associate
Key developments in 2020 What to look out for in 2021 Should these COVID-19 triggered events
transpire, they will translate to increased
The key development in 2020 is again The impact of the COVID-19 pandemic is
crime, PI and D&O exposures, which in
centred upon regulation of the financial likely to crystallise for FI insurers in 2021
turn would likely contribute to the current
services sector. As envisaged in its 19/20 in the wake of the delayed discovery
hard(ening) market. In this respect, the
Business Plan, the FCA’s focus this year of fraudulent/wrongful conduct and
D&O segment is currently recognised
has been upon financial crime controls, in the turbulence of global financial
as “the hardest of all hard markets”
particular anti-money laundering (AML) markets in 2020.
compounded by COVID-19 uncertainty
measures. This has included further
In particular, we foresee a spike in: and, as that trend continues, we would
consideration of the FCA’s oversight of
(i) instances of employee infidelity, expect greater volumes of coverage
crypto-currencies (the subject of our 2019
social engineering and accounting disputes in the year ahead and measures
key development) given their exposure to
fraud (financial engineering of company to limit D&O costs including the use of law
money laundering.
accounts) due to the impact of remote firm panels.
In recent years, AML breaches have working on internal controls; (ii) the
replaced market misconduct as the detection of insider trading and Ponzi
driver of the largest fines from regulators. schemes (historically more prevalent in
According to a report by consultancy firm the 6-18 month period after a market
Duff & Phelps, global fines for AML breaches crash); (iii) claims against investment
in the first half of 2020 are estimated at managers for mandate breaches/negligent
$706 million, which already exceeds the investment advice driven by volatile
full prior year total of $444 million. As stock performance; and (iv) shareholder
at 31 March 2020, 11% of the FCA’s open claims/securities class actions (especially
cases related to financial crime, whilst this in the US) following drops in share prices
summer has also seen: (i) the EU adopt its (on the basis of inadequate disclosures
AML Action Plan; (ii) the Financial Action concerning the impact of coronavirus). In Simon Goldring
Task Force identify trends increasing the risk the regulated sector also, scrutiny is high Partner
of money laundering and terrorist financing (for example, the FCA/PRA has issued T +44 20 3060 6553
due to COVID-19; and (iii) the Government various Dear CEO letters/guidance notes simon.goldring@rpc.co.uk
announce a £100 million levy on financial in relation to COVID-19 related conduct/
institutions to deal with financial crime. initiatives) and regulatory/compliance
breaches will likely be seized upon by
At the time of writing, the FCA is regulators, which continue to introduce
considering proposals to extend its annual stricter requirements while giving
financial crime reporting obligation to little credit to over-stretched in-house
additional firms irrespective of their total compliance and regulatory teams.
annual revenue. Such additional firms
include crypto-asset exchange companies, Certain industry experts have even James Wickes
with the direction of travel (fuelled by AML predicted a further global banking Partner
efforts) suggesting further regulatory crisis due to USD1 trillion of AAA-rated T +44 20 3060 6047
requirements being imposed on this sector CLOs containing lower-rated individual james.wickes@rpc.co.uk
in the future. leveraged loans to B down to CCC-
rated companies. COVID-19, as a global
In the words of the Vice President of the pandemic, is uniquely placed to undermine
EU Commission, Valdis Dombrovskis (as the risk diversification measures built
he addressed the European Parliament into such products, leading to significant
on 8 July 2020): “Dirty money should potential loan defaults and claims/
have nowhere to hide”. The regulation/ regulatory investigations involving banks
punishment of financial crime is a unifying and other financial institutions (eg in
cause for international regulators and respect of capital inadequacy and/or Alison Clarke
policymakers such that firms/individuals Of Counsel
reckless lending).
will be wise to keep on top of their AML T +44 20 3060 6173
obligations to avoid costly sanctions. alison.clarke@rpc.co.uk12 2021
FINANCIAL PROFESSIONALS
By David Allinson, Senior Associate
Key Developments from 2020 IFAs who had advised on transfers from the alternative means of raising funds were
Rolls Royce pension scheme in October, not always considered. The sums here are
This year has seen a continued focus
warning that they would take action if significant, with £1.06 billion being released
from the FCA on defined benefit pension
they found unsuitable advice. Also, in what to homeowners in equity release in the first
transfers. The FCA’s view is that too many
could be a sign of things to come, the quarter of 2020 alone. This comes as part
people continue to transfer from defined
Arcadia pension scheme has fallen into the of a wider review being completed by the
benefit schemes with the advice often
PPF and members of schemes with similarly FCA on later-lifetime lending.
being unsuitable. In June, the FCA set out a
troubled employers could be tempted to
package of measures designed to ‘address The most common form of equity release
move their benefits. This all comes at a
weaknesses across the defined benefit involves a lifetime mortgage, whereby
time when advisors are increasingly finding
transfer market’, with such measures a homeowner takes a loan out against
it difficult to obtain PI cover and the market
including a ban on contingent charging. their property, with the capital sum being
doesn’t look likely to soften soon.
The FCA also produced its ‘advice checker’ repayable on their passing. Interest can
in June, with this document being be paid as it accrues but many borrowers
designed to help customers determine
What to look out for in 2021
will allow this to roll up and it will then fall
whether they have received poor advice 2020 has seen a large number of claims in to be paid by the borrower’s estate, along
and, if so, what to do about it. respect of interest-only mortgages (largely with the capital sum borrowed. This could
brought by a firm called Pure Legal). significantly erode the sum that can be
The British Steel Pension Scheme It looks like another type of mortgage passed on and could lead to the executors
continues to be a specific concern; the product could also be an area of concern (and/or disappointed beneficiaries) asking
FCA’s investigations found that only 21% in the coming years. The FCA published whether or not such a loan was actually
of a sample of advice to transfer from the a review into equity release mortgages in necessary; in the absence of a firm need to
British Steel Scheme was suitable and they June, with some of the advice reviewed raise capital (without a viable alternative)
wrote to all 7,700 former members to invite being deemed not to have been in the there is certainly scope for claims to arise,
them to revisit the advice received and customers’ best interests. In particular, particularly as the interest rates here
complain if they had concerns. the FCA noted that the reasons why a typically are higher than those available on
There are more dark clouds on the homeowner wanted to look at equity a traditional mortgage.
horizon; the FCA sent data requests to 65 release were not always challenged and
Rachael Healey Robert Morris
Partner Partner
T +44 20 3060 6029 T +44 20 3060 6921
rachael.healey @rpc.co.uk robert.morris@rpc.co.ukANNUAL INSURANCE REVIEW 13
GENERAL LIABILITY
By Jonathan Drake, Senior Associate
Key developments in 2020 rates. It decided that the appropriate Act prohibits settlement of whiplash claims
approach was to calculate the value of the without a medical report.
Last year we commented on the
reversionary interest of the difference in
implementation of the negative discount Because the Act does not apply if there is
the value of each property at an interest
rate for calculating lump sums awarded additional injury not affecting soft tissue in
rate of 5% per year over the remainder of
for future financial loss. Although lower the neck, back or shoulder, it is likely that
the claimant’s anticipated life, using the
discount rates usually increase awards for those bringing claims will also allege injury
Ogden table 28 multipliers for pecuniary
future loss, this year, in Swift v Carpenter to other parts of the body.
loss for a defined term, and to deduct that
[2020] EWCA Civ 1295 the Court of Appeal
sum from the additional sum needed to A likely related development is the
addressed the unanticipated consequence
buy the new house. proposed expansion of the small
of a negative discount rate on claims for
higher accommodation expense. This approach gives rise to significant injury claims procedure from £1,000
under-compensation when the claimant to encompass claims with a value of
Mrs Swift owned a house valued at up to £5,000. This will mean that the
has a short life expectancy. Litigants and the
£1,450,000. She needed a new house, overwhelming majority of claims for
courts are likely to adapt their approach to
valued at £2,350,000, to accommodate whiplash, as well as many injuries arising
accommodate each individual case.
her injuries, and claimed the additional from accidents at work, will fall within the
£900,000. In 1989 the Court of Appeal Underwriters and claim handlers need small injury claims procedure, which in
approved a formula for calculating this to remain mindful of the particular turn is likely to lead to a significant increase
kind of award, by applying the discount circumstances of each claim as it progresses. in whiplash and other injury claims being
rate (at that time 2.5%) to the additional made without legal representation. A new
sum needed, and then multiplied the result What to look out for in 2021 on-line claims portal is being introduced to
by the claimant’s life expectancy. On this cater for this.
basis Mrs Swift would have been awarded We anticipate the implementation of Part 1
£623,700. Using the same formula with the of the Civil Liability Act 2018 and associated Insurers will likely receive significantly
current negative discount rate of -0.25% Regulations which introduce a new claims more claims by litigants in person and will
meant that Mrs Swift was £116,887 better procedure for relatively minor whiplash need to be prepared for this.
off and so the trial judge awarded nothing. injuries sustained by occupants of cars in
road traffic accidents. The Regulations will A review of the Court’s guideline hourly
The Court of Appeal decided on introduce a tariff of compensation awards rates for solicitors is under way and is
9 October 2020 that the calculation that for whiplash injuries. The proposed tariff of currently at the consultation stage. Because
had been used for the past 31 years was not awards is relatively low when compared to the current guideline rates have been in
fair in times of low or negative discount those currently awarded by the courts. The place since 2010, the new guidelines might
contain significant increases.
Gavin Reese
Partner
T +44 20 3060 6895
gavin.reese@rpc.co.uk14 2021
HEALTH AND SAFETY
By Mamata Dutta, Legal Director
Key development in 2020 Although a large number of employers are Following a decision in a January 2019
likely to recommend that their employees consultation, the legislative change to
On 28 September 2020 England saw
work from home for some time to come, allergen labelling requirements for PPDS
the Health Protection (Coronavirus,
this Regulation is likely to continue to be in food will be implemented by the 2019
Restrictions) (Self-Isolation) (England)
force for a considerable amount of time and Food Information (Amendment) (England)
Regulation 2020 come into force. This
so it is extremely important that employers Regulations. The amended Regulations
Regulation requires people to self-isolate
understand how best to comply, particularly will come into force on 1 October 2021.
in certain circumstances, such as if they
once people begin to return to the office. The new Regulations require the labels of
test positive for COVID-19, or if they have
Employers are advised to implement PPDS food sold in England to clearly display
had close contact with somebody who has
procedures to ensure that the self-isolation the following information: (i) the name of
tested positive. The period of isolation is
requirements dictated by this Regulation the food; (ii) a full ingredient list; with (iii)
currently 10 days, should an individual test
are followed promptly and accurately, once allergenic ingredients emphasised.
positive, or 14 days, should an individual
they have knowledge of an employee’s
come into close contact with somebody It is vital that businesses supplying PPDS
requirement to self-isolate.
who has tested positive. foods, and food products more generally,
consider the products they are offering to
It is important that all employers understand What to look out for in 2021
the public and how they can ensure that
the implications of this Regulation as it also New food labelling and allergen regulations details of all ingredients in those products
places new legal obligations on employers will be introduced in England on 1 October are immediately available to a customer.
of workers required to self-isolate as well as 2021 under new legislation called ‘Natasha’s Training staff and ensuring that they are
the workers themselves. Employers of self- Law’ following the tragic death of Natasha aware of the allergens contained in food
isolating workers must not knowingly allow Ednan-Laperouse in 2016. Under the new products is also important. Investment in
a self-isolating worker to attend any place, law, suppliers must label products which are technology which may make it easier for
other than the place in which the employee prepared and packaged on-site with a full customers to obtain immediate allergen
is isolating, during the isolation period. ingredient list. information, such as barcode scanning
Equally, an employee must notify their
equipment, may also provide businesses
employer of any requirement to self-isolate The current Regulation governing the
with extra confidence that their customers
as soon as reasonably practicable. Breach of legislative framework in respect of food
are provided every opportunity to obtain
this Regulation is a criminal offence and may allergen information requires pre-packed
details of all ingredients contained within
lead to a fine ranging from £1,000 (for a first food to provide mandatory information,
their food and drink products and that they
offence) to £10,000 (for repeated breaches) including details of 14 prescribed allergens.
are complying with the new legislation.
and these fines can be imposed on both the The Regulation governing food pre-packed
employee and the employer. for direct sale (PPDS) allows providers of
PPDS food to provide allergen information
The impact of this Regulation is significant. by any means chosen by the supplier,
Simply allowing an employee to enter their including orally.
place of work when they are obligated to
self-isolate may constitute a criminal act
warranting a significant fine.
This Regulation only applies in
circumstances where an employer is aware
of the requirement for their employee to
self-isolate. An employer will also not be
in breach of the Regulation if the self-
isolating employee attends a place other
than their self-isolation premises for a
permitted reason, such as seeking urgent
medical assistance.
Gavin Reese Mamata Dutta
Partner Legal Director
T +44 20 3060 6895 T +44 20 3060 6819
gavin.reese@rpc.co.uk mamata.dutta@rpc.co.ukANNUAL INSURANCE REVIEW 15
INTERNATIONAL ARBITRATION
By Kirtan Prasad, Senior Associate
Key developments in 2020 in two similar cases. All three cases arose no express choice of law of the arbitration
out of the Deepwater Horizon disaster, agreement. This judgment follows a long
Last year’s Annual Insurance Review
featured overlapping issues and a common line of decisions by the Court of Appeal on
started with the words “Technology in
party (Chubb). this issue (including Kabab-Ji S.A.L v Kout
motion! As this is being written, the case
Food Group in which RPC was involved).
of Halliburton v Chubb Insurance is being The Supreme Court held that there was a Where the governing law of the arbitration
argued and aired via livestream direct duty of disclosure but that, in this particular agreement has been explicitly provided
from the Supreme Court”. In a year that instance, the arbitrator’s failure to disclose for, the courts will defer to that choice.
has been marked by unprecedented his multiple appointments on related However, where this is not explicit, the
change, the themes for this year’s report matters did not justify his disqualification Supreme Court held that the law chosen
remain reassuringly similar: technology, for apparent bias. The court emphasised to govern the substantive contract will also
Halliburton v Chubb Insurance and Enka v that context was key. govern the arbitration agreement.
Chubb Insurance.
So, for example, in maritime, commodities, The best protection is for parties to
On technology, arbitration was further up insurance and re-insurance arbitrations, incorporate a provision as to the law
the learning curve than most national court where it is not uncommon for arbitrators to governing the arbitration agreement in
systems. The arbitration community has act in multiple cases arising from the same their contracts. However, the dawn on the
well and truly embraced the virtual world events, regard has to be had to the practice in day when dispute resolution clauses are
(see for example www.virtualarbitration. that particular sector, where there may be a given their full and proper consideration is
info and www.remotecourts.org). limited pool of expertise. Parties who consent yet to emerge!
to arbitration of such disputes are taken to
This year has also seen the hand-down of
accede to the practice in that sector.
two landmark Supreme Court decisions What to look out for in 2021
arising out of insurance arbitrations. In Enka v Chubb Insurance the Supreme Will “virtual arbitration” become the
Court considered the rules on what the norm? Technology has brought greater
In Halliburton v Chubb Insurance the
governing law of the arbitration agreement efficiencies; there are murmurs of fewer
Supreme Court considered whether an
ought to be in circumstances where: airmiles and paper bundles for arbitration
arbitrator was bound to disclose to one of
(i) the governing law of the substantive practitioners in the future. However, most
the parties to a Bermuda form insurance
contract (ie the policy) and the law of the will welcome some return to in-person
arbitration, his subsequent appointment
seat are different; and (ii) there has been hearings and witness examination.
Jonathan Wood Paul Baker
Consultant Partner
T +44 20 3060 6562 T +44 20 3060 6031
jonathan.wood@rpc.co.uk paul.baker@rpc.co.uk16 2021
INTELLECTUAL PROPERTY
By Hannah Ridzuan-Allen, Associate, and Antonia Cerri, Associate
Key developments in 2020 2020 also saw the first UK Court decision however, potential pitfalls – prospective
(Response Clothing v Edinburgh Woollen rights holders in the process of applying
In last year’s Annual Insurance Review, we
Mill) applying the CJEU’s heavily debated for an EUTM or RCD will need to apply to
mentioned an upcoming CJEU Judgment
judgment in Cofemel v G-Star Raw, which the UKIPO by 30 September 2021 in order
in Sky v Skykick. Ultimately the CJEU
suggested that there is a harmonised to get an equivalent UK right. Moreover,
diverged from the Attorney General’s
EU-wide definition of “work” for copyright rightsholders with existing EUTMs used
Opinion, finding that:
purposes which is not restricted by any pre- predominantly in the UK and registered for
• an EU trademark (EUTM) cannot be specified categories and should not take more than 5 years will become vulnerable
declared wholly or partially invalid into account any aesthetic considerations. to revocation for non-use. It is likely that
on the grounds of lack of clarity and the IP challenges presented by Brexit will
This means that more functional items such be a feature in future disputes.
precision of goods and services; and
as furniture, clothing and fabrics, which
• a lack of intention to use an EUTM may traditionally only have benefitted A case to watch out for in 2021 is a potential
in relation to registered goods and
from design right protection may now appeal to the Supreme Court in The
services can constitute bad faith if the
also have copyright protection. We expect Racing Partnership v Sports Information
applicant intended to undermine the
that more claims are likely to be brought Services (TRP v SIS). The Court of Appeal
interests of third parties or obtain an
for both registered design and copyright was split on a number of the issues, but
exclusive right.
infringement (or indeed for copyright ultimately found that sports race day data
infringement where the registered design had the necessary quality of confidence to
The case returned to the High Court with
rights have expired). It may also see claims establish a breach of confidence (although
the Judge finding that Sky had registered
for infringement which may have gone quiet found that SIS had not received the
trademarks in bad faith in respect of
in pre-action correspondence given a new information in circumstances imparting an
certain goods and services. He therefore
lease of life for opportunistic claimants. obligation of confidence).
limited the scope of Sky’s registration to
goods and services that Sky did use (or If the Supreme Court is asked to consider
What to look out for in 2021
intended to). the decision of the Court of Appeal, we
With 2020 (and now 2021) dominated by expect that the market will see a further
For businesses subject to infringement references to COVID-19, it’s back to the uplift in breach of confidence claims
proceedings (and their insurers) the decision “B” word when it comes to significant pleaded alongside and as an alternative
in Sky v Skykick provides another possible developments on the horizon for IP to database right infringement actions
basis for defendants to bring counterclaims. rights holders (and their insurers). On (particularly in spaces where data is live or
Commercial consideration should be given 31 December the transition period ended near live). We have reported in previous
to whether it is in insurers’ interests in certain and with effect from 1 January 2021 the reviews on the increase in trade secrets
circumstances to fund a counterclaim (which UK Intellectual Property Office (UKIPO) and misuse of confidential information
may otherwise not be covered) to put automatically created corresponding UK litigation, and insurers should expect the
pressure on claimants by bolstering defences rights for existing EUTMs and Registered trend to continue.
and creating better commercial leverage in Community Designs (RCDs). There are,
any settlement discussions.
Ciara Cullen
Partner
T +44 20 3060 6244
ciara.cullen@rpc.co.ukANNUAL INSURANCE REVIEW 17
INTERNATIONAL PROPERTY
By Hugh Thomas, Senior Associate
Key developments in 2020 The Swiss Re Institute estimates that global What to look out for in 2021
insured property losses from disasters for
In 2020 America suffered record breaking Continued rate hardening is expected in
the first half of 2020 were US$31 billion, up
hurricanes and wildfires as the effects response to catastrophe losses. The change
from US$23 billion a year earlier. Natural
of global warming continued to make in risk exposure also raises the spectre of
catastrophes accounted for US$28 billion
headlines. For only the second time, the withdrawal of capacity and challenges in
of the insured losses. The figures for the
official alphabetical list of hurricane names terms of the insurability of specific regions.
second half of 2020 are yet to be confirmed
used by meteorologists was exceeded As a result, we expect the market for
but are expected to be significant.
meaning forecasters had to turn to the catastrophe bonds and other insurance
Greek alphabet. Of the 30 recorded, 12 The COVID-19 pandemic has presented linked securities to remain robust.
made landfall in the United States breaking challenges for the entire insurance
the record of nine recorded previously Longer term, however, climate change
industry, and property lines were no
in 1916. may result in reduced appetite from
exception. Property insurers have been
investors for catastrophe bonds. Some
presented with vast numbers of BI and DSU
As hot and dry conditions hit commentators consider the only solution
claims. Notwithstanding the fact those
simultaneously, four million acres of land to be stronger public-private partnerships.
policies respond to “damage” events, that
in California went up in flames last year Insurance “pools” with government
has not stopped insureds testing the scope
(around 4% of the land area occupied by support are already being considered
and extent of cover under their policies.
the state). Several other states also saw as a way of bridging the gap in cover for
Policy terms, extensions and exclusions
wildfires which were unprecedented in pandemic related risks, and equivalent
have been poured over with the Supreme
either frequency or scale. facilities for catastrophe exposure may
Court’s decision on the FCA Test Case
soon be tabled.
Of course, natural catastrophes in 2020 appeal is still pending at the time of writing.
were not confined to the United States. Communicable/notifiable disease
In the Asia-Pacific region Australia was extensions or exclusions which clarify
devastated by bushfires which continued the scope of cover for pandemic related
to burn well into January and Indonesia losses will invariably become common
suffered flash floods that covered Jakarta place, with extensions for those risks
and its neighbouring areas entirely. coming at a premium.
Toby Savage
Partner
T +44 20 3060 6576
toby.savage@rpc.co.uk18 2021
LEGAL PRACTICES
By Will Sefton, Partner, and Nick Bird, Partner
Key developments in 2020 overseas investors. The investors are leases. The continuing increase in volume
promised excellent rates of return, security of this work will bring with it more claims
2020 will obviously be remembered for the
and the confidence that comes from in those areas and touch those with books
pandemic, the consequences of which will
dealing with a solicitor. focusing on large and small firms alike.
continue to reverberate for years to come.
It was also a year of increased focus on These schemes often involve quite This is not an area where mistakes of
solicitors’ involvement in facilitating dubious complex ownership and security law are the problem; the errors emerge
investment schemes, such as buyer-funded structures. Accordingly, the level of from translating the client’s commercial
property developments, leasehold interests scrutiny and advice expected by the SRA intentions into long and complex
in hotel or care home rooms, storage units and the Courts is higher than for the documents. Drafting inconsistencies
etc. This involvement carries significant standard property transaction. There arise between the different constituent
civil liability and regulatory risk: claims or are many pitfalls here for the unwary transaction documents where different
complaints by former clients often giving – solicitors and their insurers need lawyers are responsible for each and
rise to SRA investigations, which lead to to continue to focus their efforts on errors emerge in transaction documents
more claims and/or make those claims identifying these risks early, so they can in relation to the priorities and rights of
harder to defend. be avoided. the parties. When resolving ambiguities
and errors by construction the courts still
In August the SRA updated their warning
notice on the dangers of ‘dubious or
What to look out for in 2021 – unhelpfully in some cases – give some
weight to a presumption that where a party
questionable’ investment schemes and The seeds for the claims of 2021 and
has been represented by lawyers they will
this topic also featured prominently in beyond have been sown in fertile soil. The
have used the words intended.
their Risk Outlook and Thematic Report. combination of the worst recession for
The warning notice is essential reading 300 years, home working and significant Economic turbulence and impaired assets
for practitioners and their insurers. It changes in the volume and type of work encourage claims across a broad spectrum
highlights, and this accords with our being undertaken will bring a fresh set of areas; found on breaches which might
experience having been instructed on of liability challenges for firms and their not generate any losses in a rising market.
numerous claims and SRA investigations, insurers. Corporate restructuring work Experience from the 2008 crash suggests
how the type of asset and scheme is gives rise to large but relatively rare claims claims will emerge relatively quickly and
constantly being adapted in order to in less turbulent times – so too work on re- only tail off as limitation starts to bite.
attract investment, often from naïve/ structuring investments and occupational
Nick Bird Karen Morrish Rhian Howell Will Sefton
Partner Partner Partner Partner
T +44 20 3060 6548 T +44 20 3060 6521 T +44 20 3060 6708 T +44 20 3060 6924
nick.bird@rpc.co.uk karen.morrish@rpc.co.uk rhian.howell@rpc.co.uk will.sefton@rpc.co.ukYou can also read
