Let AIG’s multi-billion-dollar write-downs and Aon’s £5.25m FSA fine be a lesson: if it can happen to them, it can happen to you. So you’d better make sure you have the best lawyer, writes Lauren MacGillivray.
Claims are rising, and tougher regulation, insolvencies and restructuring have become bigger threats as the economy weakens. In this climate, more than ever, brokers and insurers must make sure their legal strategies are in order.
James Bagge, legal consultant for Norton Rose, says of the Aon fine: “This is a very interesting but perhaps, in the current climate, not an unexpected use of the FSA’s powers of enforcement in the fight against corruption.”
The legal landscape is changing all the time, he adds. “The director of the Serious Fraud Office (SFO) must surely be a little jealous of the FSA’s ability to deal with these issues as expeditiously as it does, albeit within the regulated sector.” He says the SFO supports the Law Commission’s anti-bribery proposals, published last November, under which companies that do not take enough measures to prevent corrupt activity by their employees or agents can be prosecuted. The Ministry of Justice has said the government is likely to address these proposals in the current parliamentary session.
So, how do you make sure your legal team is the best it can be? Most legal firms do not publish data they consider to be commercially sensitive. Their trade bodies also provide limited information. Your best bet is The UK Legal 500, published by Legalease, or rankings from The Lawyer, the professional journal, and Chambers and Partners, a guide to top lawyers. What follows is a breakdown of The UK Legal 500 for 2008, along with data from The Lawyer. It is intended as a rough guide to choosing an insurance law firm.
City law snapshot
According to The UK Legal 500 report, some insurance products may face tougher regulation – which could increase the risk of litigation. Insolvency and restructuring are also concerns. “Given the turbulence of the markets, some are predicting an increase in this work, although there has been a steady flow of corporate deals in the past year,” it says.
The use of Part VII of the Financial Services and Markets Act 2000 – under which a portfolio of contracts transferred between insurers – is expected to continue. A recent example cited in the report is AIG’s restructuring of its UK general business, which was handled by Freshfields Bruckhaus Deringer.
Clifford Chance, Lovells and Reynolds Porter Chamberlain are highlighted in the report for their regulatory work, while Barlow Lyde & Gilbert, Clyde & Co and Ince & Co are singled out for their expertise in insurance and reinsurance litigation.
Irwin Mitchell, Hempsons and Barlow Lyde & Gilbert are key players in product liability, professional negligence and personal injury.
Insolvency and restructuring
Legal firms that make The UK Legal 500 top tier for insolvency and restructuring include Clifford Chance, Clyde & Co, Freshfields Bruckhaus Deringer, and Lovells.
The report describes Clifford Chance as a “very good restructuring and insolvency team” and singles out Philip Hertz as “an exceptionally good lawyer”.
He led the advice to Equitas on the reinsurance transaction between Equitas and the National Indemnity Company, which is owned by Berkshire Hathaway. David Steinberg also receives a mention.
Clifford Chance has recently announced that up to 80 London lawyers are to lose their jobs, however.
“Our clients and their legal services needs have undergone significant change over the past year. We need to reflect that in the London office, and that includes ensuring that our level of staffing is appropriate for today’s economic realities,” said Jeremy Sandelson, London regional managing partner, in a statement.
Clyde & Co advised City General on the transfer of general insurance business from Generali under Part VII. Juliette Stevens is heralded as particularly strong on these schemes.
The partners at Freshfields Bruckhaus Deringer are described as people who “adopt a pragmatic approach and have high intellectual ability”. Neil Golding and Matthew Cosans particularly impress.
Lovells, which has worked on a spate of Part VII transfers, is the final firm to make the elite tier. Robin Spencer and Joe Bannister are singled out for praise.
Spencer, head of business restructuring and insolvency at the firm, believes recession-linked claims from direct policyholders are not usually enough to bring an insurer to its knees. More likely, he says, it would be losses on credit default swaps and other derivatives – insurance-like financial instruments used to cover losses on securities such as mortgage securities – in the event of a default. Excessive losses on this type of business can lead to ratings downgrades, which themselves have significant adverse consequences for the insurer.
“There will also be a number of companies that will have got their asset management wrong,” he says. “Insurers sit on a lot of premium money which they need to invest to produce income to pay claims. So they have that money, plus a fresh stream of new premium income.
“Companies that stop writing new business just have their existing capital and investment income from which to pay claims. With interest rates becoming so low, some may struggle to produce enough income to pay claims. There’s no rhyme or reason to it, it will just depend on their capital base and their liabilities. AIG, the largest insurance company in the world, got into difficulties.”
Reinsurer insolvency, catastrophes and internal company fraud are other threats to survival.
Negligence and personal injury
Barlow Lyde & Gilbert is the only firm to make the report’s top tier for professional negligence.
The UK Legal 500 report says it “provides pellucid advice regarding the merits of a claim and the commercial realities on how best to resolve a dispute”.
The firm suffered a knock when Clare Canning, Simon Willis and Matthew Lawson defected to Mayer Brown International, and Chris Warren-Smith left for Fulbright & Jaworski International. But the report says the expertise of Sarah Clover and Julian Randall has kept the firm centre-stage.
The group acts for three of the Big Four accounting firms, as well as insurers such as Zurich Professional and Ace.
Personal injury – defendant
Beachcroft, Berrymans Lace Mawer, and Greenwoods Solicitors all make the top rank.
Beachcroft’s 24-strong team is seen as having an “unrivalled client base for defence work”, with clients including Zurich and RSA. Tania Sless, head of department, is described as personable with the ability to explain things simply.
Berrymans Lace Mawer is a growing firm of more than 400 fee earners, with growth in occupational disease, abuse and catastrophic injury cases. It was recently appointed to Norwich Union’s panel. One of its claims to fame is the successful defence of one of the first deep vein thrombosis claims in the UK. Michael Pether heads a team that includes Jenny Moates, Terry Renouf, Nick Pargeter and Boris Cetnik.
Greenwoods Solicitors is considered the “best in the field for catastrophic injury” and is currently handling cases with a reserve of more than £500m. Malcolm Henke heads the department and Steven King leads the firm’s liability insurance group. Charles Ashmore is also highly recommended. Clients include Direct Line, Churchill and NIG.
Clinical negligence – defendant
Capsticks and Hempsons stands apart from the competition.
Capsticks has acted for more than 200 NHS trusts and other healthcare bodies across the UK.
It also has a solid private client base with a big rise in work for medical insurance underwriters. Alison Morley, the firm’s managing director, leads a team of 26 people.
Hampsons has nine partners and is led by the “eminent” Bertie Leigh. One of its main areas is the National Health Service Litigation Authority’s portfolio of cases and it has been appointed to the two new NHS hubs in the South East.
It also specialises in private cases against dentists.
Product liability – defendant
The law firms in the first tier are Arnold & Porter (UK), Davies Arnold Cooper and Lovells.
Arnold & Porter’s speciality is regulatory product liability law, focusing on pharmaceuticals, biotechnology and medical products and devices. Ian Dodds-Smith is at the helm of a group that boasts six dual-qualified medical lawyers. Leaders include Alison Brown, with doctors Adela Williams, Lincoln Tsang and Elizabeth Driver.
Davies Arnold Cooper is expanding its client base from pharmaceuticals and healthcare into the energy, chemicals, food, automobile and telecoms sectors. Simon Pearl heads a team that also includes Alison McAdams and Michael Goldberg.
Lovells deals with pharmaceuticals, food, tobacco, cosmetics, electronics, transport and telecoms. The practice head is John Meltzer.
Insurance litigation and corporate/regulatory law
Insurance and reinsurance litigation is an area that thrives during a downturn. Clyde & Co once again makes the top tier of the 500, along with Barlow Lyde & Gilbert and Ince & Co.
The team at Clyde & Co advised on the widespread flood damage to the national motor industry archive at the Heritage Motor Centre in Gaydon, Warwickshire. Among the names highlighted are Jane Andrewartha, Nigel Brook, Victor Rae-Reeves and Rob Smith.
Meanwhile, Barlow Lyde & Gilbert is recognised as a leader in insurance dispute resolution. It advised Lloyd’s on the recovery of a large claim against an insurance/reinsurance broker. Top names at the firm are John Hanson, Colin Croly, Clive O’Connell and Tim Hardy, along with Roger Doulton, Mike Munro and Tim Taylor.
One of the most compelling cases for Ince & Co involved advising underwriters on liability and business interruption claims after a fire at a large factory. The firm’s leaders include Jan Heuvels, Peter Rogan, Iain Anderson, Chris Jefferis, Rebecca Axe and Ian Cranston.
Corporate and regulatory law
After working in this area of law for more than 20 years, John Young, global senior partner at Lovells and head of the firm’s financial institutions group, knows a thing or two about the impact of economic trends.
Usually, he says, insurance law “marches to a different tune” from the economy.
But he adds: “When there’s a danger of companies suffering on the capital resources side, [the FSA is] ever more vigilant. They want to make sure no companies are going bust on their watch.
“I don’t think we’re seeing specific regulatory changes as a result of the state of the economy, but possibly a more vigilant stance by the FSA in pursuing its regulations.”
Competition is tight in this category.
Seven firms make the top tier in the report, including Clifford Chance, Freshfields Bruckhaus Deringer, Herbert Smith, Linklaters, Lovells, Norton Rose and Slaughter and May.
Hilary Evenett and Claire Swirski of Clifford Chance are noted for their technical expertise, while Robert Stirling of Freshfields is singled out for complex acquisitions involving multiple parties. Herbert Smith’s Geoffrey Maddock, Malcolm Lombers, Michael Shaw and James Palmer are heralded for their “technical mastery”.
It has become increasingly important to keep an eye on which law firms are best placed to weather the storm, and which are taking positive action to develop new recession-based areas of activity.
Earlier this month, Lovells set up a cross-border task force, made up of dispute resolution partners, to handle bribery issues.
Steve Hutchings, head of legal services for Allianz, says he has not noticed any problems arising in the legal field. “We have always received an excellent service in the non-claims arena from our principal advisers, Pinsent Masons and Beachcroft,” he says.
However, Lovell’s Robin Spencer advises potential clients to be wary of firms that focus entirely on mergers and acquisitions, capital markets and real estate – all of which will struggle in the current climate.
“You can hedge by having a strong litigation group, which always has increased activity in a downturn, and a strong business restructuring and insolvency group. Also, reinsurance and insurance work increases. Certain areas are neutral, such as employment or intellectual property,” he says.