Woodina Underwriting Agency (Woodina) recently partnered with Ivory Insurance to increase its capacity in the professional indemnity (PI) space and boost coverage that targets financial planners and solicitors. Woodina said this insurance is unique in the market for including legal costs which underpins its approach to third-party claims against clients. The agency fights these claims where possible, rather than settle them.
Michael Wood (pictured above), Woodina’s CEO, said this approach is appreciated by brokers and their clients and contrasts with other insurers. He said big insurers in Australia and other markets have tended to settle third-party claims, rather than fight them.
In an increasingly litigious environment which is driving up insurance costs, how unique is Woodina’s approach and can it help keep PI costs down?
Wood explained his firm’s model in an interview with Insurance Business.
“What makes it different is we handle the defense of claims on our policies through our own in-house law firm,” he said.
A key motivation for fending off rather than settling lawsuits is “to protect the important reputation of those professionals that we insure,” said Wood.
“Rather than just throwing money at something,” he said. “As used to be the case by particularly big insurers, who would say, ‘It's going to cost us in legal costs to defend this’ – No! if it's unmeritorious, I like to get in there and defend that professional’s record.”
Wood said this means the case doesn’t appear on the client’s claims record.
IB asked if some clients prefer to settle quickly rather than potentially end up in court.
“There are some exceptions,” said Wood. “If that's the case, we're happy to help them out.”
The CEO said, in these cases, often the client covers the cost of settling themselves.
“Once it starts being our money, then we are concerned ourselves to protect insurers’ positions,” said Wood.
He said if there's no potential liability and there’s a strong case for the defense of their client, “we'll fight that so that the insurer doesn't have to pay for it.”
Wood said his firm’s model supports this by not charging the client legal costs unless the case gets inside the courtroom and barrister and expert fees become necessary.
“A lot of other markets will incur defense costs and then obviously that quickly erodes the deductible, so you've already got something on your claims record,” he said. “Brokers really appreciate that Woodina steps in and defends them [their clients].”
IB approached legal insurance firms for context around the differences between PI offerings available to brokers, including Woodina’s, and the approach of insurers to third-party claims.
“Any measures that promote the effective and successful determination of third-party claims, particularly claims that are assessed to be wholly unmeritorious, would be welcomed by insurers and insureds alike,” said Dean Carrigan (pictured below), a consultant with Clyde & Co.
“The model mentioned does not seem in principle to be different to the approach usually adopted by insurers in responding to third-party claims,” he said. “That is, if a claim made against the insured is assessed to be weak or there's a very strong defence case, then – and unless there are good reasons to do otherwise – an insurer and their insured would customarily fight.”
Carrigan said many liability policies that cover defence costs allow the insurer to conduct the insured’s defence and run the litigation on the insured’s behalf.
He agreed that the “interesting angle” in Woodina’s model is the legal defense being run and the costs borne by the agent.
“At first blush, this is an attractive feature, although some considerations arise,” said Carrigan.
For example, he said issues could arise if the insured and insurer have different views on the merits of the defence case, or if there’s disagreement as to whether the claim should be defended rather than settled.
“Some policies contain a mechanism which enables the question to be referred to an independent senior lawyer such as a QC/SC for an opinion and determination,” he said.
He also flagged the complexities of cases of this kind and the often very significant costs of losing a legal battle.
“In addition to providing an indemnity for the amounts awarded against the insured under an adverse judgment, a liability policy will also usually cover the insured’s liability to meet an adverse costs order, including the litigation costs incurred by the successful third-party claimant,” said Carrigan. “The consequences and costs of running an unsuccessful defence would need to be agreed and recorded between the agent, insured and insurer at the outset.”
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