Claims being received 40 plus years after the event are not uncommon and the key causes of these ‘historic claims’ are predominantly disease and abuse.
It is therefore imperative that the claims teams of the future in the newly formed Councils have a clear understanding and pathway to previous insurers, who will be the insurer providing the necessary insurance cover for these claims, the claims handling arrangements, policy cover and parameters.
Some of those insurers may no longer be trading (Independent as an example), many will have merged (Commercial Union, General Accident, London & Edinburgh as examples), and some will have sold off their old historic liability books to other insurers, in fact some years may have been sold off more than once. All of these issues will impact your ability to trace the relevant insurer and to whom the claim should be directed.
One can also expect a fairly strict application of policy cover by such insurers, which would include the application of the claims notification clauses, as well as the need to prove the policy was in place for the year(s) in question.
Let’s examine how one can begin to collate information and place the new authority in the best possible position to manage such claims.
Step 1 – A detailed library of the insurance programmes and insurers for each council coming together needs to be formulated. This library should include a hard copy and a digital copy of all polices. It would also be worth cataloguing the policy limits, excesses (SIR – self-insured retention), stop loss provision (ASL) of each policy. You need to go back for as many years as records exist and certainly back to 1974 if possible. In the last 12 months the author has received three requests to assist with knowledge and understanding of insurance programmes going back to the 1970’s where the Council don’t know or can’t trace who they may have been insured with.
It is worth also documenting the parameters of any delegated authority (DA) for claims to be handled in house, as it relates to a particular policy year. Where this exists on some of the older policies this maybe fairly limited as to value and type of claim which can be handled. Many policies will not include a level of DA and put simply because a team handles claims in house today does not mean the same DA automatically extends to historic claims.
You also need to have a good appreciation of which year(s) a particular claim maybe allocated to and if in doubt consult with the relevant insurer. If you have a claim which spans, say five years, some insurers may well wish to allocate the claim to the fifth year of the exposure, others will allocate to year one. The rights and wrongs of the different approaches can be debated forever, that is not the purpose of this article, its purpose is to raise your awareness of how the market may wish to treat some claims. Different SIR’s may be in place in year five compared to year one.
Step 2 – Within reason it is worth considering writing to each insurer and ascertaining their current claims handling arrangements i.e. who you should write to if and when a claim arises. Some insurers (especially Lloyds syndicates) may have different handlers for different years, so doing this work now can save much time in the future. It may also be worth mentioning your preferred solicitors and seeing if they have any comments. I say this as many claims often have to start being managed prior to insurer engagement and early notification of the preferred legal team can often alleviate any issues at a later stage.
Step 3 – As time consuming as it maybe, the need to establish the total claims position on an incurred basis for each and every policy for each and every year will be a very necessary part of the process of financial management of the insurance funds as they come together. Ultimately this work will need to be extended to factor in claims IBNR (Incurred But Not Reported) and IBNER (Incurred But Not Enough Reserved). From step 1 you will have an understanding of the policy construction and self-insured layers. You need to know the ASL erosion year on year for each policy as this may help you to determine to best way to deal with an historic claim, where the exposure could rest completely with the insured or with insurers or both. Because of the activity of ‘claim farmers’ post the ‘Woolf Reforms’ of 1998 many policies in the late 1990’s and early to mid 2000’s will have ASL’s which have been breached, thus many claims will almost certainly be one for insurers to fund.
Ultimately you will need to understand the exposure to outstanding claims and claims IBNR which all occur pre reorganisation date. Once this is established you can then consider the level of insurance fund required to discharge those claims. It is almost certain that some form of actuarial review will need to be undertaken (as they are today) to establish the financial position and then obviously kept under close review post reorganisation.
Step 4 – If the internal insurance fund is not sufficient to cover the anticipated liabilities, both now and maybe in the future, it is worth raising the point as to how/who will fund the future liabilities? Can the money be collected now, while budgets are still around to collect from or will the new future entity be expected to fund any shortfall?
Step 5 - One of the real challenges with handling any historic liability claim is the ‘context’ around the circumstances in which the claim has occurred. The standards of say 1998 maybe very different to standards in 2028. It is worth therefore trying to capture a library of key policy documents if possible – Health & Safety policy, highways policy including winter maintenance, engineering inspection reports, and the approach taken by Children’s services at different points in time. The detail will not be perfect, but it will offer you a base from which to consider liability and hope begin to manage/defend a claim should one be made.
It is anticipated that many authorities will lose key members of staff who either move on to new challenges or take the early retirement option. This loss of ‘institutional intelligence' is likely to represent a real risk factor to the new entity, so the more information which can be gleaned from such persons the better. No one is expecting anyone to catalogue their career in minute detail, but a short summary of the key milestones known in their career maybe very helpful – such as any changes to the highways policy which was adopted and why and when. We know from our own work with our insured over the years that such changes have taken place, and these are the changes which need to be captured.
The above represents the briefest of overviews of the key steps. There are no shortcuts to gathering information. By all means lean on the support of your broker and current and past insurers, all of whom are only too willing to help, but fundamentally someone or some persons will need to tackle this project with a clear mind, co-operation and support of all those involved and clear timelines around what needs to be achieved and by when. It is an opportunity for collaboration, and hopefully by hard work and good fortune the new entity will be in the best shape possible to handle historic claims which will come their way. Remember as you read this article the events giving rise to claims in 10, 20, 30 plus years will be happening, and one would like to think the actions we take today would allow those that come after us a half decent chance of understanding the context of the claim and ultimately determining liability.