Claims Trends Update by Natalie Graham, Head of GBC Claims Advocacy - Financial, Professional & UK Specialty
Law Firms

Residential property - frauds

There has been an increase in fraudsters (i) pretending to be the owners of residential properties and absconding with the sale proceeds; or (ii) intercepting the transfer of funds in genuine sale/purchase transactions. Despite heightened awareness – and the risks to law firms highlighted in the case of Dreamvar v Mishcon de Reya LLP , there is no sign of this trend slowing down.

Matrimonial - and litigation - based claims

Amongst other contributors, there have been reports of increases in claims arising from under/over settlements. This may be a result of ‘post-settlement remorse’ but in addition it is not uncommon to see allegations of poor advice raised as defences/counterclaims to disputes regarding unpaid fees. Those cases can and do lead to negotiations with professional indemnity insurers, as policyholders may be reluctant to forego (potentially significant) fees whilst insurers wish to avert avoidable litigation.

EPL

Mental health

It has now become the norm for employees – particularly those working in professional services – to work extended hours, both in and out of the office. Many employees feel pressure to be ‘always on’, including at evenings, weekends and during periods of annual leave. This normalised working environment is giving rise to more claims relating to stress and mental health (it is estimated that one in four solicitors have experienced ‘severe’ stress).

As well as the increased likelihood of EPL claims, stress in the workforce is a huge contributor to mistakes being made, and thus has a direct impact upon a firm’s susceptibility to negligence claims.

Sexual misconduct (#metoo)

Post-Harvey Weinstein and the #metoo movement, there has been a significant increase in claims involving allegations of sexual misconduct, discrimination and harassment, including (in the US) what has been described as a ‘deluge’ of class actions (including securities class actions pertaining to corporations’ failure to adhere to ethical standards and policies). The trend began in the US but the knock-on effects are already being seen in the UK and in other jurisdictions across the globe.

Cyber / data privacy

Cyber

There has been an exponential rise in tech and cyber incidents affecting financial and professional services, ranging from small-scale (no obvious harm or loss to corporations or their customers) to catastrophic. As both the technology and the fraudsters become more advanced, it is difficult to keep pace with the risks posed, but one of the most common sources of insurance claims is also one of the most preventable: phishing and/or social engineering. Unfortunately, despite increased awareness and employee training, a significant number of these incidents succeed because simple precautions to ensure that fund transfer instructions are genuine are not implemented or followed.

Data Protection

In the UK, data protection complaints have almost doubled year-on-year from 21,019 to 41,661; and In July 2019, the UK’s Information Commissioner’s Office (ICO) for the first time used new GDPR powers to fine British Airways and the Marriott hotel chain a combined sum of £300m.

Although there is much debate about the insurability of GDPR fines and penalties, companies and their D&Os are exposed to regulatory action and claims from individuals or shareholders if sufficient steps are not taken to protect the vast amount of private and sensitive data that is held. For example, in the recent case involving WM Morrison Supermarkets Plc, Morrison was held to be vicariously liable for the actions of a disgruntled employee who posted the personal and financial information of almost 100000 employees on line. Perhaps anticipating the potential effects of its decision, the court directly addressed the ‘many instances reported in the media in recent years of data breaches on a massive scale caused by either corporate system failures or negligence by individuals… [which] might … lead to a large number of claims … for potentially ruinous amounts’. The court’s proposed solution was to ‘insure against such catastrophes’.
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