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Insolvent legal expenses insurer disclaims ATE policies

[1]

Gibraltar: Elite placed into administration a year ago

The joint administrators of former legal expenses insurer Elite Insurance – which worked with over 200 law firms – have disclaimed all but two of its active after-the-event (ATE) insurance policies.

As a result, Elite will not be entitled to collect any premiums or make any pay outs that were not due before 11 December.

Elite was based on Gibraltar, and under its Insolvency Act, policyholders, and any other person whose rights are affected by the disclaimer, can submit a claim in Elite’s administration for any loss or damage they suffered as a consequence of the disclaimer.

In letters to solicitors, brokers and policyholders, the administrators at PwC stressed that any premiums which were payable before 11 December should be paid as usual.

Elite launched in 2005 to write legal expenses insurance in the UK. In the following years, it diversified into other lines of general insurance business and other countries in Europe, establishing branches in the UK, France, Spain and Italy.

The company – one of whose owners was well-known businessman Nigel Wray – stopped writing new business in July 2017 and at the time said [2] it was expecting a solvent run-off.

However, after its main reinsurer went into liquidation and reserves deteriorated, Elite was placed into administration by the Supreme Court of Gibraltar a year ago.

The PwC letter said: “Elite is insolvent and it will probably be a number of years before it can make any payments to policyholders or other creditors by way of a dividend distribution.

“While it is too early to estimate the timing or value of any distribution to creditors, it is unlikely that any policyholders or other creditors will be paid in full.”

PwC asked solicitors to “promptly inform” affected clients and said policyholders “should try to minimise any loss they might suffer as a result. This may include seeking alternative insurance cover for their case and we encourage you to assist your clients in finding such cover where appropriate”.

It added that the administrators were working with the Financial Services Compensation Scheme (FSCS) to determine the availability of protection for claims by UK policyholders arising before 11 December as well as for damages caused by the disclaimer.

A report from the administrators published in August – for the period to 10 June – said that around 860,000 of Elite’s 931,000 policyholders were based in the UK.

These mostly related to ATE insurance policies placed via delegated authorities, construction-related policies, motor, professional indemnity and other warranty type products produced via a series of coverholders.

The report said Elite’s delegated authority ATE portfolio featured over 200 firms of solicitors that placed large volumes of individual ATE policies, mainly for road traffic accident legal cases and noise induced hearing loss cases.

PwC explored the possibility of transferring the book to another insurer but concluded that it was not feasible.

“Given the significant asset value reported in the directors’ statement of affairs, the joint administrators have commenced a contact exercise in order to ascertain where premiums have been collected by delegated authority firms but not passed on to Elite.”

The administrators said they were also liaising with the FSCS “to confirm the eligibility of these claims for FSCS protection on a case-by-case basis”.

PwC had collected £8,000 from solicitors’ firms in respect of successful cases where they had recovered the premium, and £275,000 from a broker with a “significant” delegated authority relationship with Elite.

There is also a small portfolio of around 60 large rate-based ATE policies for “complex litigation cases”, and PwC said it was still investigating selling some or all of them to other insurers.

“Additionally, where certain cases have experienced unsuccessful outcomes resulting in claims during the period, policyholder protection eligibility has been reviewed with the FSCS, resulting in settlement of a number of claims to individual policyholders.”

The administrators recovered £628,000 in premiums on these cases, with a further contingent sum of £1.5m due if a specific case was successful.

They said the FSCS expected to protect “most UK policyholders meeting their eligibility rules”, and by 10 June had paid out a total of £6.9m to 190 policyholders.