Associate Insight: Are your partners ready for a perfect storm?

10 Jun 2015Feature

By Worldwide Special Risks

Professional indemnity insurance (PII) is essential protection for any firm, helping to ensure survival in the event of major claim.

As a partner or shareholder in the business, have you ever considered what would happen if your firm's professional indemnity was eroded by a catastrophic claim?

In a general partnership, your personal assets would be next in line and, even in a limited liability structure, there would be much to lose, including the value of your shares in the business.

Asset protection insurance meets the potential gap in cover between your firm's PII policy and the total amount of a third-party claim. It offers far wider and more flexible protection to the partners, members or directors than additional excess layer PII on its own. The policy does not form part of your firm's assets but is held in trust. It offers a ring-fenced financial reserve, which can be called upon to meet the potential costs and financial exposures if the PII limit is insufficient to meet a catastrophic claim.

How does asset protection insurance work?

If you are an equity partner, you would be protected against:

any contribution from your personal assets to recapitalise your firm or to buy off the third-party claimant; and
your loss of investment if your firm is liquidated.

If you are a partner (ordinary or equity), LLP member or an employee, you would be protected against:

any redundancy payment shortfall you may suffer;
your personal assets and legal expenses when at risk due to unlimited liability exposure or personal exposure due to the negligent act; and
your monthly expenses (for example, mortgage repayments, school fees, utility bills) while you are unable to work due to bankruptcy.

Why use a trust arrangement?

Unlike an insurance policy, the asset protection funds do not form part of the firm's assets and are therefore not available to the claimant. The asset protection proceeds remain ring-fenced for your benefit. You may then have greater negotiating power with claimants and potentially use the funds to avoid the sale of property and other assets.

Lloyd's Coverholder Worldwide Special Risks has evolved the simplistic form of asset protection insurance previously available in the market.

The key benefit of the cover is that it steps in to help prevent the financial failure of the firm and/or protect partners' assets from the start of any action, rather than merely providing protection and compensation if liquidation does occur. The trust is only set up in the event of a potential loss and the cost of doing so is covered by the policy, all of which is managed on your behalf.

For information on how you could benefit from greater peace of mind, simply contact Nick Carragher or Chris Westwood at Worldwide Special Risks directly or via your existing Insurance broker.

Email: Nick.Carragher@wwsr.co.uk

Chris.Westwood@wwsr.co.uk

Tel: +44 (0) 1727 843686