‘No action needed’ on Quinn Insurance
The Solicitors Regulation Authority and the Law Society have both issued statements reassuring Quinn Insurance policyholders that they do not need to take action after permanent administrators were appointed to the Irish insurer yesterday.
The SRA said that the full administration of Quinn under Irish insurance legislation ‘does not appear to amount to an insolvency event for the purposes of the Solicitors Indemnity Insurance Rules in England and Wales, and therefore there is no requirement at this stage for firms insured with Quinn to seek replacement qualifying insurance’.
It added: ‘We will continue to monitor the situation closely and will advise the profession of any significant developments or change to our view.’
The Law Society said that ‘financial regulators in Ireland and the UK are advising that Quinn policies remain in full force and effect’.
In its statement, the Society warned solicitors not to act on an unnamed professional indemnity insurance (PII) broker’s letter to customers of Quinn Insurance, the Irish insurer currently in administration.
According to the Society, the broker’s letter states that ‘there remains the possibility that [Quinn Insurance’s] provisional administration will be either set aside or confirmed. In the latter event, Quinn would cease to be a qualifying insurer and its insured firms would have to seek cover from another qualifying insurer within four weeks’.
The Society said: ‘We do not think the position is as clear cut as the broker’s letter sets out and we would urge policyholders to await further developments and guidance before taking any action.’
The Society said it believes that ‘the making of the particular type of administration order concerned by the Irish courts under the particular piece of Irish legislation concerned is not a direct equivalent to an administration order made here in England and Wales', and as a result, ‘this does not automatically mean that an insolvency event for the purposes of the Solicitors Indemnity Insurance Rules has occurred’.
Normally, when an insurance company suffers an ‘insolvency event’ under the rules, such as provisional or full administration, solicitors are required to find alternative PII cover within four weeks.
The Society said that the type of administration order concerned ‘appears to be more akin to a regulatory intervention in a business and is intended to maintain the business as a going concern’, but said that the SRA will determine this issue. ‘Even if the confirmation of the administration order does amount to an insolvency event it may be open to the SRA to exercise its discretion to grant waivers of its rules,’ the Society said.
‘Firms will wish to keep these matters under careful and close review since, as [yesterday’s] events confirm, matters could move quickly. For our part the Society is constantly monitoring these matters and is in close contact with all appropriate stakeholders. We will be issuing more information and guidance to the profession (as will the SRA) as the circumstances require.’
Meanwhile, administrators are reported to be seeking permission from the Irish Financial Regulator to reopen parts of Quinn Insurance’s UK arm, but are not planning to re-enter the UK PII market, which is understood to have been loss-making.
Comments
Earth to SRA & Law Society
Policies may remain 'in full force and effect' for the time being but can the SRA and Law Society guarantee that policyholders will have valid claims paid whenever they need settling in years to come? PII claims can take years to settle after first awareness and notification. What will Quinn's financial state be in 2015?
If not, principals of LLPs/ Limited Companies and firms with fee income of more than £1m (who will receive no redress from the FSCS) risk personal exposure to claims by not acting to replace cover now.
The issues associated with dual insurance assume that there is more than one valid policy capable of paying and present less of a risk compared to having no cover at all.
quinn
I think it is incumbent on the sra to publish a detailed reasoning of why administration in ireland is not analogous to administration in the Uk.They both have big ears ,trunks and trumpet so look suspiciously like elephants to everyone else
The SRA are choosing to
The SRA are choosing to interpreting Rule 6 and the definition of an "Insolvency Event" in a way that suits their cause. There are no qualifying words in the definition in Rule 6 which is simply "the appointment of a provisional liquidator, administrator, receiver or an administrative receiver" FULL STOP !
To say that the appointment of an administrator by a Regulator does not fall within the definition is beyond belief. If they intended the Rule to say this then why wasn't it amended in 2009 ?
Has an administrator been appointed ? Yes
Has an Insolvency Event occurred ? Yes (unless you are the SRA then No)
As requested in another comment the SRA should explain their reasoning.
Can't the PI market offer a
Can't the PI market offer a "re-insurance" type policy that covers you if your primary insurer goes bust?
Insolvency event
The appointment of the administrators is under the Insurance (No 2) Act 1983, not under insolvency legislation. Rule 6 relates to Insolvency Events. So while I am not expressing a view on the SRA's interpretation (absent terms of business and payment!), it does not appear to be an unreasonable view to take as some commentators are suggesting.
However, and importantly, people are confusing or concatenating two entirely unconnected issues -
1. Is a Quinn policy a policy of qualifying insurance? The SRA say it is - see the latest pronouncement http://www.sra.org.uk/sra/news/Quinn-insurance.page. The conclusion on that has no bearing on the second point -
2 Will Quinn be able to pay the claims? The press reported that Sean Quinn said the company was solvent, though staff are reported to have said that it has suffered, perhaps inevitably, up to €1.5 million a day loss of business over the ban on writing new business in the UK, while in provisional administration prior to the full appointment yesterday.
Claims made in the period prior to 1 October 2010, claims arising from circumstances notified prior to 1 October 2010, and claims made prior to 1 October 2016 against firms with run off cover under policies incepted this policy year, may take many, many years to reach the point where payment is required. The majority of claims probably settle within 3 years of being made (but an insurer would be better qualified to comment), but that rather depends on when the claims are made.
That is a matter for individual policyholders to form their own assessment, and I would not expect the SRA or the Law Society to take part in it.
I stress - the two issues are completely unconnected. It would be possible to have a qualifying policy with an insurer which was in fact insolvent (because no Insolvency Event as defined in rule 3 of the SIIR had yet occurred), or a non-qualifying policy with an insurer which was solvent.
what?????
actually the primary statutory function of administration in the UK is to sell as a going concern which is exactly what the administrators of quinn are trying to do-nobody wants to see firms fail but equally it is not in your interests to have insurance of questionable worth
Reasoning
You would do well to look at the record of the SRA and the Law Society in looking after partners whose firms have collapsed and who have become insolvent. It doesn't exist because they do nothing for such people. Remember that when you carry on trading and face an OLC/LCS complaint which is not covered by Quinn or even worse a negligence claim both of which can happen even though you are a wonderful and blameless firm. This is all about staunching a 10% drop in Law Society/SRA revenue.
Is the SRA now the insurer of last resort for Quinn firms?
I'm amazed at how bullish the SRA is in defying commonsense and saying that the Quinn administration is not an insolvency event. Consider this scenario:
Nervy & Co are insured with Quinn and worried sick. They've already phoned their brokers about alternative cover and the brokers have told them that AON and the like are already actively seeking Quinn business, and that there will be no problem placing them elsewhere.
Nervy & Co then see the SRA announcement, rely on it and decide not to take out a new policy to cover them till 30th September. They then get a big claim in and Quinn is unable to pay out, forcing the partners to settle it out of their own pockets.
The SRA owed Nervy a duty of care as the statutory regulator.
The SRA breached this duty of care by not telling/warning Quinn solicitors to get alternative cover.
Nervy suffered loss as a result.
If my analysis is correct (and I stand to be corrected by the experts here) then the SRA is the insurer of last resort for 2,910 firms, some of whom are reckoned to be pretty bad risks. Have they made provision in their budget for this?
Have the SRA taken counsel's
Have the SRA taken counsel's opinion on why the appointment of an administrator is not an Insolvency Event within SIIR?
I mean, it's not exactly a Solvency Event, is it?
Also, what about this, and following up Frank Maher's comments about whether Quinn will be able to pay claims.
Aren't an awful lot of lenders going to be taking a great big black felt pen to their lists of panel solicitors?
If you were an institutional lender, would you want to instruct a firm whose insurers may or may not be able to pay out on a lender claim at some point in the future?
OK, it's a matter of risk assessment by the Lenders, but I would expect utter and extreme caution to be the watchwords.
Another scenario
Quinn Insurance may be solvent at present albeit losing €1.5m per week. They are currently prohibited from writing new business in the UK . They say that if this prohibition is lifted they will not write any new professional indemnity insurance policies as this area is loss making. What is to stop them from hiving off the PII policies into a separate business and allowing that to go into liquidation ?
I am an Irish Solicitor
I am an Irish Solicitor (albeit my PII is not with Quinn) and it has been reported in the media that Quinn Insurance ia apparently making €20million profit per month. However, the Irish Financial Regulator had serious concerns regarding cross guarantees that Quinn Insurance had provided regarding debt of companies in the wider Quinn Group (mostly construction related), which had the effect of essentially reducing statutory minimum reserves and ratios, etc. So it is not a case of an insolvent company per se but rather a company that needs recapitalisation.
Interestingly, Sean Quinn who along with his family owns the Quinn Group is estimated to have lost at least €1billion on a failed investment in the now nationalised Anglo Irish Bank. That little misadventure certainly wouldn't have helped. The Group also owes over €2.8 billion to that bank.
Reply to What???
Finding an additional premium for another policy is undoubtedly not a situation that any firm wishes to find themselves in, particularly in this economic climate. However, having lived through the fiasco that followed the demise of the Independent, trust me, you would not want to be put into a position whereby you receive a claim (and these are on a steep upward curve) and find your Insurer is unable to pay out. Even for those firms that are eligible for FSCS compensation - finding 10% of a large claim is not an easy challenge and the Independent situation brought many a firm to its knees. There are clearly concerns over Quinn's solvency for this situation to have arisen and on the basis that they are now losing money on a daily basis as a result of the situation, the solvency position must be on a downward spiral.
Whether they will be able to fund the full extent of claims going forward is not known but I'm not sure I would take that risk on my business.
industrial injury claim
Quinn are dealing with an industrial injury claim on behalf of my former negligent employer who has now sold the firm. Where does this leave me and what are my rights given the current situation?
They have ignored a request for an update.
The latest advice from the
The latest advice from the Law society is to be welcomed in that it at least recognises the need for firms to consider their position instead of the previous absurd assertion that they should do nothing.
However there is still no convincing expalanation of why this is not an Insolvency Event The fact that the heading of the relevant statute refers to Insurance rather than Insolvency is a novel approach to statutory interpretation.Apart from that there is only the statement that the SRA do not consider it to be one. Surely the Society have taken advice not only from Irish lawyers on the Insurance Act but also from english lawyers on how that impinges on the definition in our rules.the repeated references by the society and the SRA to "it is not clear that this is an insolvency event" suggests that the advice received is somewhat less than assertive that it is not such
Insolvency Event
In a speech made on 14 April 2010 (the text of which is published of the website of the Irish Financial Regulator), Matthew Elderfield stated that "we are faced with a serious and persistent breach of solvency requirements of a major insurance company and...are determined to take action to protect the interests of its policyholders".
With that in mind, the appointment of administrators, at the suit of the relevant Financial Regulator, is clearly an Insolvency Event within the definition contained in the 2009 Rules; and the SRA's attempts to persuade itself otherwise are unedifying.
If the SRA has satisfied itself that no action needs to be taken at present, the correct course of action is to acknowledge that an Insolvency Event has arisen and to issue a general waiver to all affected firms under Rule 19 of the 2009 Rules (so that affected firms are not obliged to obtain alternative cover or seek entry to the ARP until such time as the waiver is withdrawn). That would preserve the status quo and would be no more damaging to affected firms than the situation which already exists. The SRA must retain credibility as a regulatory body, whose job it is to enforce rules. In order to do that, it should set an example by complying with rules - especially ones which it wrote itself.
Tim, guess what? The SRA has
Tim, guess what?
The SRA has no credibilty as a regulatory body-just like the FSA.
Indemnity Rules Commentary
Indemnity Rules Commentary (written by SRA):
It is important to be aware that the arrangements for professional indemnity insurance put in place by the Solicitors Regulation Authority do not seek to protect Firms against the insolvency of a Qualifying Insurer. If an Insolvency Event occurs in respect of an insurer, that insurer will cease to be a Qualifying Insurer for the purposes of these Rules. This is because, in such circumstances, the insurer may not be in a position to pay claims in full. Any Firm which has qualifying insurance with a Qualifying Insurer which is the subject of an Insolvency Event must therefore obtain replacement cover as soon as possible, and in any event within four weeks of the Insolvency Event occurring. Having done so, a Firm should cancel the policy with the insolvent insurer and, if entitled to do so, seek a return of the premium relating to the balance of the Indemnity Period from the insurer which has become the subject of the Insolvency Event.
The key to the above is that the 'insolvent' insurer MAY not be in a position to pay claims in Full. This is a massive judgement call by the SRA to say that they do not consider Quinn to have suffered an insolvency event. If they do go under and cannot meet existing claims obligations then the SRA have opened themselves up to massive liability.
The SRA/Law Society are in an unenviable position because they should have heeded the warnings from Insurers & Brokers to follow the stance of RICS on the financial security of insurers. Whichever way you look at this now they have failed their membership/profession. To advise the 2900 policyholders that a new policy IS required would cause complaints/claims against both organistations. But this has got to be better than doing nothing and suffering the public and professional wrath when claims go unpaid in the future. The indemnity rules are not in place to protect the firms or their partners, it is a public protection policy. Something the SRA may have lost sight of.
The only plausable explanation to their stance is that they consider that the 2900 firms with Quinn policies are technically already in the ARP. It is entirely possible that Quinn (or a new owner) could argue in the future that they were in fact insolvent and as such breached the qualifing agreement. If they cease to be a qualifying insurer, they may be able to repuidiate liability on notifications after the insolvency event - as they were no longer 'qualified' to provide indemnity cover and under the RULES firms should have arranged alternative cover.
The Law Society, in whatever
The Law Society, in whatever guise, has never been able to organise PII properly.
It sets out levels of cover which are totally unsuited to the modern commercial world but cannot get an effective competitive market to provide such cover.
The entire system should be scrapped and a lesser cover allowed. This would, in any event, discourage many "junk" claims.
quinn
bring back the Solcitors Indemnity fund all is forgiven
Quinn to re-enter UK market
see http://www.irishtimes.com/newspaper/breaking/2010/0421/breaking55.html
Quinn restrictions relaxed
The Financial Regulator has modified the restrictions placed on Quinn Insurance Ltd (QIL) last month that prevented it from issuing new motor insurance cover in the UK.
The regulator said today it would allow the firm to write new insurance cover for provisional licence holdersin the United Kingdom, including Northern Ireland. The office said it had taken the decision after "careful consideration and analysis" of information provided by the administrators of QIL and consulted the UK's Financial Services Authority.
Although I would be surprised if Quinn re-enters the legal pi market, this is good news as regards Quinn solvency
Law Society response
As we made clear in our statement on Friday, 16th April, (reported in the Gazette and elsewhere), the Society's view is that the taking of the Administration by the High Court in Dublin is not an insolvency event for the purposes of the Solicitors Indemnity Insurance Rules. Quinn policies remain in effect. Solicitors are not required to replace those policies.
The Irish administration order and English law provisions are set out in the Law Society’s statement. The aim of this administration order is to see the company being carried forward as a going concern. This view has been confirmed by the SRA.
Clearly neither the Society nor the SRA can crystal ball gaze and predict the ability of Quinn or any other insurer to meet its liabilities in the future, but the news from the Irish regulators and the administrators is that Quinn can meet its liabilities.
Individual firms must decide whether or not to stay with Quinn or to seek alternative cover. Solicitors need to consider what is in their best interests and take advice. They should not, however, take action hurriedly or be panicked by storied from those with vested interests, when there is no regulatory obligation for them to change.
-Desmond Hudson, Law Society Chief Executive.
Please refer to the full Law Society statement here:
http://www.lawsociety.org.uk/newsandevents/news/view=newsarticle.law?NEW...
Mr Hudson's statement
Mr Hudson's comments are reassuring.
As appears from its Prospectus for Listed Insurers (available at www.rics.org), the RICS only permits insurers with specified credit ratings (at least B+ from AM Best or at least BBB from Standard & Poor's) to be listed insurers and reserves the right, in its absolute discretion, not to confer listed insurer status on any insurer. Perhaps Mr Hudson can confirm that, in order to minimise the risk of a situation like this occurring again, the SRA will liaise with the RICS to establish the advantages/disadvantages/practical consequences of the RICS's approach and will then consider whether there is a case for amending the relevant Rules.