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PI insurer agrees 60% Keydata early settlement discount

A professional indemnity insurer with Keydata exposure has secured a 60 per cent early settlement discount with the Financial Services Compensation Scheme, Money Marketing understands.

Law firm Herbert Smith has been writing to Keydata distributors since October on behalf of the FSCS to recoup some of the compensation paid to Keydata investors.

In February, the FSCS offered Keydata advisers a 50 per cent early settlement discount on claims of less than £50,000.

Money Marketing understands since then a number of firms have made counter offers of up to 80 per cent discounts, which have been rejected by the FSCS. Some firms are refusing to acknowledge Herbert Smith’s letters and are rejecting early settlement discounts.

It is understood that one PI insurer has now agreed to a 60 per cent early settlement discount.

Law firm Beale and Company is acting on claims worth a total of £18m. Partner Damian McPhun says: “There is an ever-hardening core of advisers who do not believe the FSCS will be able to discharge its burden of proof to show individual firms were at fault. A significant proportion are prepared to go down to the wire on this.”

The FSCS says it is confident it will be successful if cases proceed to trial.

Informed Choice managing director Martin Bamford says: “Proceeding to trial puts all advisers in an even worse position as we may have to pay court costs on top of compensation costs.”


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. The story here is not that firms are settling, but that the majority are digging in, and will fight this all the way.

    Unlike the Court of the FSA, where sentence is passed before the Court even sits, the FSCS will be up against the law of ‘causation’, where the Court will expect it to show a demonstrable link between the IFA’s advice/actions and the eventual loss.

    Case law is quite clear here: no causual link, no liability, no compensation.

    Yes, there may well be legal costs in a few years’ time, however, as this is rather speculative litigation, there is every chance that costs will be awarded against the FSCS.

    The important thing is that this avenue is closed off for future reimbursement of FSCS payments – otherwise, a precedent may be set.

  2. One question, who pays the difference between these lower rates and the actual rate? Oh, I do. Why should I pay more to let others have a discount? Either FSCS don’t really have a leg to stand on in court proceedings or they are just giving away more of other people’s money that the rest of will get a bill for in the future.

    Fair? Well I understood counterparty risk and wouldn’t sell it so I made no profit of these yet I will pay for those who did not understand and they will keep even more of their profits!

  3. So what would you suggest Bamford?
    Pay up, guilty or otherwise?
    Or do you believe every adviser who advised on keydata is guilty?

  4. There are other legal tests as well as causation.

    Proximate cause, i.e. which action/cause is closest to the injury/loss? Action of the adviser or the fund manager/ACD?

    Intervening cause, i.e. an intervening event breaks the chain of causation. In which case the person/body causing the new event takes over liability.

    Foreseeability, i.e. you can only be liable for what is foreseeable, not unforeseeable.

    Public policy, i.e. some decisions are made because they reflect ‘public policy’ rather than any solid legal principle.

    None of the above are simple, all are arguable by both sides. The only guaranteed winners are the lawyers.

  5. @ Grey Area

    You are right in detailing the legal tests that could, apply.

    However,the position is quite straightforward in respect of the Keydata SLS case, where the loss was due to fraud (or misfeasance, if you wish to be technical).

    Clearly, the adviser cannot be culpable for this, as the causal action was not foreseeable. And the public policy issue is irrelevant in such cases.

    Without dancing on pinheads, I presume that you agree that on the particular case in action, the precendents and legal arguments are in the advisers’ favour?

  6. @Paul

    Yes, on balance the advisers appear to have a good case and I’d rather be arguing their position.

    However, I assume the PI firms have access to all the facts and they cannot have paid out lightly. I suspect there is a case for concurrent actual causes, and this, coupled with the potential costs, has guided their hand.

  7. Left without trace 2nd August 2012 at 12:28 pm

    I have a few months left of this crazy world of being a IFA, with the FSA taking me to court, for things that were totally out of Advisers control.
    Will they pursue me to my grave maybe, but they will have to find me under my palm tree.

    Mind the Coconuts!

  8. If these cases do go to court, it will be interesting to see what material the FSCS presents in support of its claim that all these sales were defective, given that on most of them it hasn’t even seen the client files.

    Does the FSCS plan to base its case on nothing but a blanket supposition of guilt, unsupported by any hard evidence? And what about the still unresolved issue that investors’ losses have arisen as a result of the failure of LifeMark the provider which, as noted above, was very probably entirely beyond the reasonable ability of any intermediary to have foreseen?

    Then again, what can the FSCS be seen to say other than that it’s confident of success? Were it to say anything else, nobody would take any notice of any correspondence received from Herbert Smith. Many will take this issue to the wire, if only on the basis that they don’t have the means to pay what’s being demanded and therefore they have nothing to lose. That and the fact that they don’t believe themselves to be liable anyway.

    And whatever happened to the due process of the existing individual complaints system? Why has the FSCS taken it upon itself to short-circuit this and pay out willy nilly on the basis that it will then be able to recover such monies from the IFA community with no burden of proof in proper law?

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