Herbert Smith, a law firm, is currently pursuing more than 500 financial advisers in recompense for the millions of pounds in compensation it has paid to investors for Keydata, the failed investment firm. Fund managers and intermediaries have had to finance the payouts through compulsory industry levies.
The business insurance provider, who commented only on the condition of anonymity, sent a letter to the adviser remarking that it had conducted an investigation into Herbert Smith’s claims against it. The insurer came to the conclusion that it did not have to cover the action for negligence based on the exclusions within policy’s terms and conditions, and the insurance provider pointed out claims originating from an insolvent firm and exclusions for traded life investments as its reasoning behind the decision to not pay out in the event of the adviser requiring it.
In administration since June of 2009 at a Financial Services Authority order on insolvency grounds, Keydata has left a legacy of advisers being pursued by Herbert Smith for their recommendation of the failed investment firm’s products backed by life settlements traded by SLS. The professional indemnity insurance policy of the IFA, which carries a £1.75 million indemnity limit in the aggregate and for any one claim independent of expenses and costs, would have seen the IFA having to pay policy excess fees of £5,000 for every claimant even if its insurer had not rejected its application for cover, experts say.