23 Aug 2019

We know from the almost daily television adverts that the deadline for consumers to make PPI claims is 29 August 2019.[1] Payment Protection Insurance ("PPI") is a policy of insurance intended to cover repayments of certain credit products (for example: mortgages, personal loans and credit cards), upon the borrower's default.

The Financial Conduct Authority ("FCA") estimates that as many as 64 million PPI policies were sold in the UK, mostly between 1990 and 2010. The Financial Services Authority (the then relevant body) found that many of the PPI policies were mis-sold to consumers, or the financial product provider earned a high level of commission from the sale of PPI, leading to a flurry of successful claims by consumers against the financial product providers. The FCA estimates the amount paid to consumers from January 2011 to June 2019 to be around £35.7 billion.

Therefore, although the public are about to lose their first bite of the cherry to recover PPI compensation, those in the professional indemnity world know that claimant solicitors are already preparing for a second bite of compensation through claims against professionals who have lost their clients the chance to pursue successful PPI claims.

Although it is currently unclear whether there is likely to be any merit to those claims, this article considers the more immediate question of how professionals (and in particular, probate solicitors acting as executors on behalf of deceased estates) deal with notification issues arising from an alleged failure to pursue PPI claims prior to the 29 August 2019 PPI deadline, which may lead to potential claims against them.

Notification of circumstances – Euro Pools revisited

In our June 2019 article (available here), we discussed the Court of Appeal decision of Euro Pools Plc v Royal and Sun Alliance Insurance Plc [2019] EWCA Civ 808, and the guidance it provides in relation to notifying circumstances in professional indemnity insurance policies that "may" give rise to claims.

The Court of Appeal confirmed a number of key principles that apply when considering the notification of circumstances that may give rise to potential claims. These include:

  1. Where a notification provision in a policy has the "undemanding test" of notifying an insurer of circumstances that "may" give rise a claim, policyholders are able to notify a "can of worms" or "hornet's nest" type of issue where the scale and consequences of the issue giving rise to potential subsequent claims are unknown at the time (distinguished from the situation where an insured is provided with a more precise description of the potential claim/s that may arise from any given known circumstance).
  1. If a proper notification of circumstances is made, any claim arising from those circumstances will be deemed to have been made during that period of insurance, but there must be some causal, as opposed to some coincidental link, between a notified circumstance and the later claim.

While the Euro Pools decision did not represent new law, it served as a reminder to the professional indemnity insurance market that where a notification provision in a policy contains the "undemanding test", policyholders may effectively notify their insurers of the circumstance that may give rise to potential claims even if the circumstance is vague and does not provide insurers with any meaningful idea of the scope of the claims that may arise from the notification.

Probate solicitors and potential PPI claims

In light of the imminent PPI claims deadline, UK probate solicitors may well be asking themselves if PPI claims were made on behalf of the estates they administered in the last decade. In light of the significant amount of PPI sold in the UK, it is possible that a number of PPI claims may not have been captured during the probate process and will shortly become irrecoverable.

The Minimum Terms and Conditions (MTC) of professional indemnity insurance for solicitors also has the "undemanding test" of notifying an insurer of circumstances that "may" give rise a claim.

Regardless of the merit of any future claims against the solicitor profession, probate firms are therefore now left in the unenviable position of having to decide whether they now know enough to notify a hornet's nest informing insurers that they administered a number of estate administrations over a period of years and did not make enquiries in relation to potential PPI claims in the course of those administrations before the 29 August 2019 cut off date.

Commentary

The issue for insurers is that a notification in the above form provides little certainty in terms of insurers' exposure to future potential claims ahead of 1 October 2019 renewal period. However, given the low threshold as to what constitutes a notification where an undemanding "may give rise to a claim" notification clause is used, there are likely to be good grounds for an insured to be able to establish that it notified the insurer of a valid circumstance, and the insurer may therefore be obliged to extend cover for those claims, if they eventuate.

The issue for solicitor insureds is that the 1 October 2019 policy renewal date is on the horizon and they potentially risk arguments of prejudice to the insurer and non-disclosure issues if they fail to notify the circumstances giving rise to the potential claims.[2] On the other hand, insureds may be reluctant to disclose those circumstances given that doing so may cause an increase to their renewal premium and/or policy excess in an already hardening market. Seeking the experienced views from one of the well-established brokers in the professional indemnity market at this stage is therefore essential for affected policyholders.

Irrespective of how brokers, insureds and insurers handle this delicately balanced issue, the inevitable next step will be to prepare to defend a potentially large influx of lost PPI professional negligence claims with the inescapable television adverts that will follow. 

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[1] FCA Handbook section 2.8.8 – 2.8.9.

[2] However note clause 4.1 of the MTC prohibits an insurer from avoiding the insurance on any grounds, including non-disclosure.