PI insurance firms seek to avoid paying out Keydata claims

Professional indemnity insurance firms are seeking to avoid paying out on Keydata-related claims by relying on exclusion clauses, professional liability insurance experts have recently reported.

Some IFAs received a ‘letter of claim’ last month for business liability insurance solicitors acting for the Financial Services Compensation Scheme in relation to claims from the now-defunct Keydata.  The letter, which was sent by Herbert Smith, not only delineated the intentions of the FSCS to recover payment amounts from IFAs, but also highlighted that advisers had duties of care in advising investors on their purchase of Lifemark and SLS plans.

If the IFAs in question are subject to a claim, many of them may not be covered by their professional indemnity insurance policies due to exclusion policies contained within the policies.  Liberty International Underwriters holds one of these policies, which states that any claims made respective of investment products where a counterparty or product provider has failed will lead to exclusion.

The clause in question states that it is both noted and agreed that the insurance providers will not indemnify the insured respective of any claim circumstances or claims that arise from any investment product where there are suspended income payments, known liquidity problems, or insolvency issues.  Indemnification will also not occur if there are failures in an investment product or if any regulatory agency is investigating it, the clause also said.

One legal expert said that some firms may face serious problems as a result of these exclusions.  Partnerships and sole traders are especially susceptible, the expert added, due to the absence of any type of corporate veil.

Other experts say that the FSCS may be taking these steps in an attempt to secure payments from professional indemnity insurance providers.  These providers will in turn undoubtedly seek solace by relying on exclusion clauses which may have been inserted into policies at renewal, especially after the insurer had knowledge that the FSCS may have been in receipt of claims against the policy.


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