Who Owns the Float?

Written by freeths on January 9, 2017

 

Unless there is an express provision to the contrary in your contract, the approach in English law is that where there is remaining float in the programme at the time of an Employer risk event, an EOT should only be granted to the extent that the Employer’s delay is critical to the contract completion date (as opposed to the Contractor’s planned completion date).

The ‘float’ is the amount of time that non-critical activities can absorb, in excess of their original intended duration, without impacting on the critical path of the works as a whole.

A Contractor may argue that it ‘owns’ the float because, in planning how it proposes to carry out the works, it has allowed additional or ‘float’ time to give itself some flexibility in the event that it isn’t able to carry out the works as quickly as it planned. If there is a delay to the Contractor’s progress for which the Contractor is not responsible, it may contend that it is entitled to an EOT, even if the delay to progress will not result in the contract completion date being missed but merely in an erosion of its float. In addition, the Contractor may want to accelerate the works in order to keep the float in full and claim its costs of doing so.

On the other hand, an Employer may say that the Contractor has no contractual remedy for being prevented from completing the works at any time prior to the contract completion date, and is therefore not entitled to an EOT unless the delay to progress will result in the contract completion date being missed. So, the Employer would say that it ‘owns’ the float.

What does the Contract say?

The issue of who ‘owns’ the float is often the cause of disputes between parties to a construction contract over entitlement to EOTs. The first port of call in the event of a dispute arising on this issue will be to review the terms of the contract. In the UK, the express issue of ‘float’ rarely appears in standard form contract conditions. However, the answer may appear in the EOT provisions. Where the EOT clause states that an EOT is only to be granted if the Employer delays completion beyond the contract completion date, then the likely effect of that wording is that the total float has to be used up before an EOT will be due (i.e. the Employer would ‘own’ the float). If, on the other hand, the EOT clause states that an EOT will be due whenever the Employer’s delay makes the Contractor’s planned completion date later than it would have been if it were not for that delay, then the total float will probably be available for the benefit of the Contractor.

However, most contracts give no indication as to whether an Employer delay has to affect the contract completion date or merely the Contractor’s planned completion date before an EOT is due. That is why parties should ensure that this issue is properly addressed at contract negotiation stage.

If the Contract is silent, does the Contractor own the float?

Prior to the 1999 case of Ascon Contracting Limited v Alfred McAlpine Construction Isle of Man ltd., if the contract was silent on the issue of float, the general approach adopted in the UK was that the Contractor would own the float because it was the Contractor who had built the float into the programme to provide a cushion for unforeseen problems. However, the current approach as established in the McAlpine case and supported by the Society of Construction Law Delay and Disruption Protocol, is that an Employer delay has to be critical before an EOT will be due. This has the effect that float is not time for the exclusive use or benefit of either the Employer or the Contractor but, rather, exists for the benefit of all parties to the contract. So, even if an Employer delay causes a delay to a Contractor’s planned completion date, an EOT will not be due unless that delay resulted in a delay to the overall contract completion date.

In terms of what that means for acceleration costs, in the event that a Contractor sought to accelerate the works in order to keep the float, the current position is that, unless the contract states otherwise, such costs would not be recoverable as the float would belong to the project rather than to one of the parties.

This position can lead to unfairness and ambiguity. For instance, under contracts where Employer delay has to affect the critical path before the Contractor is entitled to an EOT; if an Employer delay occurs first and uses up all the float, then the Contractor can find itself in delay and paying LADs as a result of a subsequent Contractor delay which would not have been critical if the Employer Delay had not occurred first. However, on the other hand, under contracts where the Employer delay only has to affect the Contractor’s planned completion date, the Contractor is potentially entitled to an EOT every time the Employer delays any of the Contractor’s planned activities, irrespective of their criticality to meeting the contract completion date.

The position established in the English courts is that neither party owns the float if the contract is silent on the issue and the Contractor will only be entitled to an EOT for an Employer delay which impacts on the critical path i.e. the courts have elected not to confer a benefit on either party in the event of the parties’ failure to deal with the issue in their contracts.

Given the position taken by the Courts, it’s important to deal with the issue of float during the contract negotiation stage. However, if that’s not possible, you should at least price for the risk of losing the float for reasons that are outside of your control.

 

For more information on this issue please contact one of the team below.

James Driver, Partner – james.driver@freeths.co.uk

Jennie Jones, Senior Associate – jennie.jones@freeths.co.uk

Mark Christie, Solicitor – mark.christie@freeths.co.uk

Harriet Atkin, Solicitor – harriet.atkin@freeths.co.uk

 

james driver

 

 …

High Court rules on Brexit: Parliament to vote on whether to trigger Article 50

Written by freeths on November 4, 2016

The High Court has ruled that a Parliamentary vote is required in order for the UK to trigger Article 50 and begin the negotiations to exit the European Unit. The Government lost the argument that a Parliamentary vote was unnecessary and that Article 50 could be triggered using the Royal Prerogative executive powers.  This is an important judicial reassertion of what is commonly referred to as the keystone to the UK’s unwritten constitution- “Parliamentary Sovereignty” i.e. the supreme legal authority in the land is the legislature.

The crucial issue which appeared to guide the Court’s decision was that triggering Article 50 would be irrevocable and would mean certain of UK citizen’s domestic rights would be automatically extinguished. It is a clear principle of the UK’s constitution that the Government are incapable of acting in a manner that removes citizen’s domestic rights unless authorised to do so by an Act of Parliament itself.

With the Government indicating that they will seek permission to appeal this Decision to the Supreme Court, it is unlikely that we will get a final decision on this matter until January 2017 at the earliest. However, most legal experts are of the opinion that the judgment is correct and an appeal is highly unlikely to be successful.

Perhaps the most interesting aspect of this decision will be the political ramifications which arise from it. Put simply, Theresa May will be unable to pull the trigger without getting Parliament’s approval. An Act of Parliament can be pushed through quickly but then MPs and Peers sitting in the House of Lords will have to vote again on whether the UK should leave the EU. This will raise interesting questions regarding which way MPs will vote given there may well be a discrepancy between the Referendum result in their own constituency and their Party whip.

The UK Government is likely to be pressured in the meantime to reveal further details on its negotiating stance with the EU and/or plans for post-Brexit Britain, to enable Parliament to make an informed decision when voting on any primary legislation drafted for the UK to trigger Article 50. The only certainty would appear to be that there will be further delay in Article 50 being triggered and we shall have to wait and see how the financial markets react to this further development.

For more information on this issue please contact one of the team below.

 

James Driver, Partner – james.driver@freeths.co.uk

Jennie Jones, Senior Associate – jennie.jones@freeths.co.uk

Mark Christie, Solicitor – mark.christie@freeths.co.uk

Harriet Atkin, Solicitor – harriet.atkin@freeths.co.uk

 

james driver

Construction Update: Beware – Disclosure of Expert Evidence

Written by freeths on October 24, 2016

 

Allen Tod Architecture Ltd v Capita Property and Infrastructure Ltd [2016] EWHC 2171 (TCC)

This case serves as an important reminder that the Courts have a wide discretion to order the disclosure of any expert evidence, including communications with experts and documents produced by experts. Therefore, parties need to be mindful that any communications with experts and any documents produced by experts must be treated as potentially disclosable.

In Allen Tod, the parties had been given permission to call an expert structural engineer. The claimant instructed an expert but lost confidence in him after delays in the production of his report. The claimant instructed a new expert.

The defendant sought disclosure of the claimant’s letters of instruction to the original expert and to the new expert, and any report, document and/or correspondence setting out the substance of the original expert’s opinion, whether in draft or final form. The claimant had disclosed the letters of instruction and the original expert’s report, which was supportive of the claimant’s claim.

The claimant submitted that the documents sought by the defendant were privileged and should therefore not be the subject of an order for disclosure. It also argued that it had already disclosed sufficient material, and it had not been guilty of ‘expert shopping’.

However, the Court ordered that the claimant be permitted to call a new expert witness at trial on condition that it disclosed any report or document produced by its original expert, in which its original expert had set out his opinion on the issues in the case, whether in draft or final form. Significantly, the Judge made this order despite finding that this was not a case of ‘expert shopping’.

Key Principles and Practical Implications

This case highlights that disclosure can extend beyond an expert’s final or draft report, to other documents and correspondence in which an expert has expressed their opinion.

Disclosure may also extend beyond documents produced by the expert who is currently appointed to a case and disclosure may be ordered in relation to former experts who have been involved at an earlier stage of the proceedings.

Therefore, any communications with experts and any documents produced by experts must be treated as potentially disclosable and should be drafted accordingly. Where possible, communications with experts should also be conducted through legal advisors in order to attract the protection of legal privilege.

 

To find out more information please speak to one of our Construction team:

James Driver, Partner – james.driver@freeths.co.uk

Jennie Jones, Senior Associate – jennie.jones@freeths.co.uk

Mark Christie, Solicitor – mark.christie@freeths.co.uk

Harriet Atkin, Solicitor – harriet.atkin@freeths.co.uk

james driver

 

Streetwise – Write it Down

Written by freeths on July 18, 2016

 

Anyone who knows me will remember that I rap on about “if you have not written it down, it has not happened”. Many companies are owned and run by family members or friends who make their decisions informally over a coffee and a chat. When I am advising shareholders in dispute or companies under threat from outsiders and ask why a certain step was taken and where the minutes of the meeting are, I get a slightly blank look and am told that there are no minutes. It does not matter desperately when things are running smoothly. However in choppy waters, the board as a whole (or sometimes an individual director) needs to show not only what it did but why it took that decision.  So meetings should be minuted. There is no need for an actual meeting if the board is agreed. A record to the decision and the reasons will suffice. And remember, meetings can be by Skype/Messenger/Facetime phone etc.

Minuting meetings is a skill. There is some helpful guidance from the Institute of Chartered Secretaries and Administrators (ISCA) to be found at https://www.icsa.org.uk/about-us/policy/the-practice-of-minuting-meetings.

In essence, the directors need to record:

  • Date, time and place of meeting;
  • Attendees;
  • Apologies for absence;
  • What decision has been made;
  • The reasons for making it.

Contract pen paper sign

 

 

 

 

 

 

There should be a succinct account of what was considered and which factors led to the decision being taken. The minutes should not be a verbatim version of the discussion. When a decision is made, it is a decision of the whole board. So if the board votes say 5:3 the fact that there was dissention is irrelevant. However if a board member insists that his/her vote against is recorded, then that fact has to be in the minutes.

It is the Company Secretary’s job to take minutes but in reality it is the Chairman who will influence what the minutes show.

I recommend consistency in approach. If a company generally shows reasons for its decisions then suddenly does not, the validity of the record may be questioned.

A well run company will be able to show its decision making process and will be far better placed to ward off any challenge to what it has done.

Finally, don’t be tempted to create minutes after the event. It is not hard to see that they are not contemporaneous and it looks soooo bad.

 

Christine Oxenburgh logo and bubbles

Christine Oxenburgh

Partner

Christine.oxenburgh@freeths.co.uk

 

Streetwise – Have I got a contract?

Written by freeths on July 18, 2016

I have said it before and I shall say it again, it is a source of constant wonder to me that fantastic business people do not know if they have a contract or not. Basically, where there is agreement that entity A gives something and gets something and entity B also gives something and gets something in exchange there is a contract. When I am asked about trading arrangements between a client and a third party I am often told, “We have not got a contract”. A contract does not have to be written down to exist but if it is it is so much easier to tell what the terms are.  Remember, “If you have not written it down, it has not happened”.

Contract form on a desk

 

 

 

 

 

 

 

Sometimes arrangements are so loose it is hard to tell if a contract exists. The Court of Appeal recently gave guidance on identifying if there is an implied contract. The whole thing came up in the context of sister companies (same parent company) that had both gone into administration. One company (A) employed the staff who were seconded to B. A had contracted with the parent to provide the staff to B. There was no contract between B and anyone else. B paid all the staff expenses and that income was A’s only source of revenue.

Matter went to court because there was a £35m hole in the pension fund. The question was; was B obliged to pay into the fund?

To imply a contract you look at:

  • Is there agreement on essentials that is sufficiently certain to be enforceable?
  • Is there an intention to create legal relations?
  • Is anything given in exchange for what is provided?
  • Is it necessary to imply a contract?
  • Would the parties have acted as they did if there had not been a contract?

In our case, the Court said there was so much money at stake that there must have been a contract and was prepared to imply one.

If you want to keep away from a court, put your arrangements in a written agreement, either a contract document or at least an exchange of letters or emails.

The decision was significant because the arrangements were between companies within a group where the exchange of staff and assets may be quite informal. Even group companies should keep their arrangements clear and documented.

 

Christine Oxenburgh logo and bubbles

Christine Oxenburgh

Partner

Christine.oxenburgh@freeths.co.uk

Streetwise – Accidentally selling to consumers

Written by freeths on May 19, 2016

 

I know I ought to not be political when writing these articles but sometimes I cannot help it. There is a European Union directive that defines “consumer” but we, the Brits, don’t like it. It is too narrow. So we do not slavishly follow what Brussels says. We make our own laws. When we passed the Consumer Contracts Regulations 2013, we as a nation were not thrilled that for a contract to be with a consumer, the element of non business use had to be “negligible”. Business owners may not be as keen as the nation as a whole to include in consumer contracts trade with people buying in connection with a business. It imposes additional burdens on the seller. However we get what our Secretaries of State want.

What we and the other EU members do agree on is that only a natural person can be a consumer. Corporate entities cannot.

EU and UK jigsaw puzzle flag small

 

 

 

 

 

 

 

 

 

The concept has been under discussion recently so I will share it with you. We define “consumer” as a person acting wholly or mainly outside their trade business craft or profession. So what does that mean?

We have a number of clients who have made property investments to give themselves an additional income and to provide themselves with a pension. They are, for want of a better expression, professional investors. However, if the investments:

  • Are not their main source of income
  • Are held in their own names, not through a company or LLP

They may well be consumers. So they buy the fixtures & fittings, furniture, professional and other services as consumers. The test is, if the purpose is dual, trade and non trade, if the trade is purpose not predominant (which is a far cry from negligible) the buyer may well be a consumer.

Other examples are

  • A person who buys a laptop for their own emails, watching DVDs and so on but also uses it for working from home
  • A person who uses their private car for work
  • A person who has a personal phone but makes work calls on it

Needless to say, nothing is simple and every case is decided on its own merit. So each of these examples could go either way.

So when you sell, it is worth giving some thought to who you are selling to and what they will do with your product or services. You may think you are selling B2B and fall foul of the consumer protection legislation. If you are buying, could you make yourself a consumer?

Christine Oxenburgh logo and bubbles

 

Christine Oxenburgh

Partner

Christine.oxenburgh@freeths.co.uk

 

 

Whilst every effort has been made to ensure the accuracy of this bulletin, it does not provide complete coverage of the subjects referred to, and it is not a substitute for professional legal advice and should not be relied upon as such.…

Streetwise – Directors’ Issues

Written by freeths on May 19, 2016

 

Some of my readers may have cottoned onto the fact that amongst my specialist subjects are shareholder and partnership disputes and company matters generally. I have recently put together a programme for directors so that after a day of training they receive a certificate that they have been trained, thus making DBIS happy.  The recommendation is that all directors including non execs are trained.

One of the interesting areas is the exercise of power. Directors have certain powers that they must exercise in the interest of the company, the employees, the environment and in some instances the creditors. In this article I focus on the exercise of the powers that the board actually enjoys.

People, staff circle, holding hands Benefits Gain Profit Earning Income Business Support Concept

 

 

 

 

 

 

 

 

 

The issue

Directors cannot resolve to do something they have no power to do. Obviously. A simplistic example is deciding to pay a fine imposed on a director. Another is resolving to pay the director’s wife’s tax bill. Don’t laugh. It is a real life example. I have seen it done. However, where the power exists, it has to be exercised for a proper purpose.

The test is objective (what would the officious bystander; a person who has replaced the man on the Clapham omnibus, say). To find out, we must:

  • Identify the power being exercised
  • Identify the purpose for which it was conferred on the board
  • Identify the purpose for which it was exercised
  • Identify each director’s motive for exercising the power
  • Decide if the purpose was proper

Well you might say, that is pretty straightforward. But what about where a director or the board as a whole has more than one purpose in mind? And what if the main purpose was improper but the decision would have been made anyway based on the other, proper purposes.

The recent decision

The Supreme Court just looked at this problem. This part of the decision was from one Judge alone and was ancillary to the main judgment but carries weight because of the level at which it was given. The Judge balanced the interests of upholding the integrity of the decision making process against interfering in the conduct of a company’s affairs.  In short,  he concluded that if the board would have made the same decision without taking into account the improper purpose, the decision stands.

Judge, court, hammer

 

 

 

 

 

 

 

 

 

 

The remedy

The moral of this story is that when making decisions that could be controversial or questioned,  the directors should

  • Think about the real reason for their action and, assuming it is proper
  • set out in the body of the minutes:
  • the reasons they took into account;
  • what considerations applied; and
  • the basis on which they reached the conclusion they did.

We help clients with minutes like this all the time.

Why bother?

If I am asked to look after a client with a shareholders dispute over an owner managed business, and believe me there are loads, the first thing I do is examine how the opposing shareholders have behaved as directors, not as share holders.

To get rid of a difficult employed director, whether they are a shareholder or not, we do the same.

If the company fails, the administrator/liquidator will go through director’s conduct in minute detail to see if the director has to pay money back in.

Getting it right is an insurance policy against future ills.

Christine Oxenburgh logo and bubblesChristine Oxenburgh

Partner

Christine.oxenburgh@freeths.co.uk

 

 

Whilst every effort has been made to ensure the accuracy of this bulletin, it does not provide complete coverage of the subjects referred to, and it is not a substitute for professional legal advice and should not be relied upon as such.…

Streetwise – PSC’s

Written by freeths on March 7, 2016

Are you ready to file your PSC?

Years ago we had a Business Names Act. There was a register of the owners of every business which was jolly useful when we were trying to track down our clients’ customers who had not paid. That was repealed and it got a lot harder to know who was behind a business. I have had numerous conversations with clients who are not quite sure who is behind the entity they have been trading with. Mostly they don’t care until something goes wrong.

As with most trends, things go full circle or at least an ellipse. So in 2015 we got the Small Business Enterprise and Employment Act. Not all of which is in force yet. The part I want to talk about will be in force on 6 April so there is time to prepare, and I am pleased to say, preparation is not that onerous.

Every company no matter what its size is required to keep a register of people with significant control (PSCs).

What is a PSC?

An individual who alone or as a joint holder of shares directly or indirectly

  • holds more than 25% of the shares
  • holds more than 25% of the voting rights
  • holds the right to appoint or remove a majority of the board
  • has the right to exercise significant influence over the company
  • certain trustees but I am not going into that aspect in this short article.

If shares are held in joint names, you calculate their total shareholding as if each owned the whole share. Nominee shares are treated as held by the nominator.

I want to look at the fourth bullet point, about significant influence. There is guidance that suggests it will help a company decide what that means. Here is a link:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/505303/NON-STATUTORY_GUIDANCE_FOR_COMPANIES_AND_LLPS.pdf.

However, it is not as helpful as I would have hoped. Maybe we will get more.

The Act talks about registrable and non registrable individuals. You are non registrable if you have no interest (i.e. shareholding) in the company other than through another company that has significant control. So if you are an employed MD, Chairman or FD with no shares, unless the guidance says you have significant influence, although in fact you must have, you are not registrable (unless you have the right to appoint to the board). If you are an employed MD or FD with a few shares gained through your employment, you may well be registrable.

Tricky, isn’t it?  The guidance does give some examples.

Where is the Register?

At the registered office. If you do not want to burden your accountant and are a private company, you can keep it at Companies House.

What to put?

  • Individuals: Name and home and service addresses, nationality, usual country of residence and date of birth. However, the home address is protected information. That means that it can only be used to communicate with the director or with the director’s consent or used or disclosed under an order of the Court.
  • Corporate entities name, registered address, legal form (i.e. company, LLP, partnership), laws by which it is governed, register of companies where it is registered and registration number. This will be a great help when we are trying to chase a company rules from the Bahamas but is not the be all and end all. It will save ages checking.
  • Date and nature of control. This speaks for itself. The nature of the interest may be in brackets (25-50% etc). There is a form that should be used. Companies and registrable people have an obligation to update it from time to time. Another job for the Company Secretary then. I often wonder how much spouses who are willing to have their name as Company Secretary shown at Companies House realise that there are obligations that go with the title.

What if no one has significant control?

Say for example you have 5 shareholders with 20% each. That is your statement – that no one has significant control. However, I look forward to the guidance about who is a person with significant interest to see if it covers people who are likely to hunt in packs. You cannot assume that just because people are married or are parent and child, they will vote together. Trust me, I specialise in shareholder disputes! But there are factions. I suspect they are too hard to define.

Investigating PSCs

The company has to investigate who is a PSC. Registrable people have to “out” themselves if they know or ought to know that they are registrable and do not appear on the register.

Why does it matter?

Penalties, of course. If companies or individuals do not do what is required they can be served with a notice. If they do not comply with what it tells them to do they can be served with a restriction notice.

  • That makes it an offence to sell or give away their shares. The transfer will be void.
  • It is an offence;
    • to try to dispose of your shares, or
    • to vote, or
    • to appoint a proxy
    • to tell a person with the right to vote in respect of that person’s interest of the restriction
    • to fail to comply with the notice
    • to make a false statement

So pretty strong stuff, huh? But if you start out on the right foot, everything should be fine.

There is more in this Act but I will save it for another issue of Streetwise.

Christine Oxenburgh logo and bubbles

Christine Oxenburgh

Partner

Christine.oxenburgh@freeths.co.uk

 

 

 

 …

Streetwise – Insurance Premiums

Written by freeths on January 25, 2016

This article is about how to buy insurance; either direct or through a broker that will be effective when you need it.

I have to start with the story, well two actually.

The long one

Years ago I lived through an example of what can go wrong with insurance. In brief, my client sold a highly engineered product used widely in the construction industry. It did not sell advice on the use of the product. However, its sales team were engineers who advised designing engineers and architects on the use of the product, so they would recommend to the developer/employer that it was specified in the construction contract. The client paid a lot for its insurance cover that was bought through a top rank and experienced broker. The cover included product liability insurance and professional indemnity cover for advice given for a fee (i.e. something the client did not do. The only thing it sold was the product). There was no cover for advice given not for a fee, which is what the client in fact did. Even if the same insurer is used year on year, each annual policy is separate and complete in itself.

The two types of cover have a material difference. Product liability cover is on a claims occurring basis, i.e. the policy to respond is the one in force in the year when the facts arose that the claim on the policy is based on. For PI cover, the policy to respond is the one in force in the year when the claim is notified to the insured, who is obliged to tell the insurer immediately. Also, if an insured becomes aware of a circumstance that might give rise to a claim, he must tell the insurer straight away.

So my client sold products to be used in a large development of houses. Then the client changed insurers. Something went seriously wrong with the development, like £6m worth of wrong. The developer sued the engineer. The engineer blamed my client so the developer sued my client as well. The basis of the claim was that the client had advised the engineer and therefore the developer on how to use the product and that it would perform as the engineer had said. The client claimed on the policy. The insurer accepted the claim was covered by the product liability section (which I never thought was right, the product did not fail). The engineer was underinsured and our insurer wanted to fight, as did the client, to protect the reputation of the product. We were all set for a 3 month trial. Then the insurers pulled the plug. They said that it was not a product liability claim. I could not argue with that. It was a professional negligence claim based on advice given for a fee. There was no charge for advice. Also when the policy was taken out the client had not declared that there might be a claim, although it should have known. The previous insurer refused cover because by the time the claim was notified, it was no longer the insurer. So the poor client then fell into a black hole.

I am pleased to say that there was a happy ending. We won at trial and on appeal slam dunk. That is another story. We got some costs from the developer. That left the funding gap i.e. the difference between costs recovered and the actual cost that the client was expecting the insurers to pick up until they jumped ship. I had sued both insurers and the broker; the broker for not negotiating the cover that was needed. It was not an easy claim to bring. Eventually, the insurers and broker between them picked up the tab, but not without some serious strong arming of the other two by one of the insurers who did not want to damage its reputation in the commercial market. Phew.

The short one

On an otherwise perfectly valid claim for the cost of repair and loss of business due to a flood, the insurers refused to pay out because the company had not disclosed that a director had been made bankrupt 5 years before. The proposal form was filled in by a secretary who made no inquiries and no one had thought to give the relevant information. In fact, the client had not realised it was relevant. The consequence was that the client which had been a good and profitable business went bust leaving the directors with big personal guarantees.

Why does it matter?

So what is the moral of the stories? When the first client bought the cover, the broker did not think about the client’s business model and therefore negotiate cover that suited it. What we got was a one size fits all, but it does not. A proper discussion between client and broker to identify what was required and telling the insurers could have saved a load of grief.

And the second? Buying insurance is a serious business to be dealt with at senior level and properly planned.

 

Christine Oxenburgh logo and bubbles

Christine Oxenburgh

Partner

Christine.oxenburgh@freeths.co.uk

 …

Streetwise – The Insurance Act 2015

Written by freeths on January 25, 2016

The Act

The bit of Act I am looking at is to do with what the insurer and the insured both know and whose knowledge is imputed to either. What the policy says is for another day.

What to tell your Broker

The whole point of this is to give the insurer the information it needs in order to:

  • Assess risk
  • Decide if it wants to take it and if so
  • Calculate the premium

So you need to disclose every material circumstance (the words used in the Act) that will affect risk or premium.

What do you know?

A Company knows something that is known by

  • An officer
  • Senior Management
  • Someone responsible for insurance (including the broker)

All of those are individuals, even though the insured may be a company. We are looking at what individuals know.

Knowledge is actual knowledge or something that the individual ought to know. You cannot turn a blind eye to things you would rather not think about such as potential claims, the history of your business partners and internal weaknesses.

So you have to disclose it to the insurer.

What don’t you know?

You do not know:

  • Information known to an individual who is only an employee, unless they fall into a category above.
  • What the broker knows through a business relationship not connected with the policy e.g. what the broker may have found out on someone else’s policy or read in the newspaper.

So you do not have to disclose it.

What does the insurer know?

It knows what you tell it.

It also knows only what the individuals who are getting the policy know or ought to know.

That individual ought to know:

  • What the insurer’s agents or employees know and ought to have passed on
  • Information that is readily available to the individual working on getting the policy (such as your past claims history with that insurer or what has been disclosed previously)

Remember, the broker is the agent of the insured, not the insurer. So that is you then. So not only do you have to tell the broker what you know and what you want the insurer to know, you also need to be sure it is passed on to the insurer.

Insurance PHOTO CMYK 300dpi

 

 

 

 

 

 

 

 

 

 

What should I do?

1. Gather your information. Create a list of questions to be answered by everyone listed under “What do I know”. Your broker or we can help if you get stuck.

2. Analyse your business model so you know what you need to be insured against. Again, get help if you run out of steam.

3. Sit down with the broker and discuss what you need.

4. Give all the information in writing so you know it is seen and understood as you intend

5. Take advice from the broker

6. Ask for and READ the insurance policy when it comes. Yes I know it is long and boring and in insurance language but the broker ought to understand it and if all else fails we will understand it. In my long story in the previous post, the insurers had not even issued a policy document.

If you get it wrong, the insurer may:

  • Cancel the policy (if the omissions is deliberate)
  • Keep the premium
  • Charge an increased premium
  • Pay a proportionate part of the claim
  • Refuse to insure you next year

Make sure your premiums give you the cover you want.

 

Whilst every effort has been made to ensure the accuracy of this bulletin, it does not provide complete coverage of the subjects referred to, and it is not a substitute for professional legal advice and should not be relied upon as such.

Christine Oxenburgh logo and bubbles

Christine Oxenburgh

Partner

Christine.oxenburgh@freeths.co.uk