If your trust clients are Politically Exposed Persons (or indeed any other high profile individuals, such as sports stars) then do you need to disclose this fact to insurers in respect of the trust asset insurances? The answer is “Yes”.
An insurance policy is a contract between the insurer and the client (the insured). Most forms of commercial contract are subject to the doctrine of “caveat emptor” (“let the buyer beware”) meaning it is the responsibility of each contracting party to perform their own due diligence. ie. there is no need to disclose information which is not asked for. However this does not apply to contracts of insurance.
The Insurance Act 2015
The Insurance Act 2015 is a new piece of legislation which clarifies responsibilities of anyone applying for insurance. It imposes a strict “duty of fair presentation” upon the insured to make a full disclosure of the risk to the insurer when applying for cover.
Section 3 (1) of The Act states “before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.” It then proceeds to clarify the content of this information which must be of “accurate content” and also must have been after a “reasonable search’ for all material information has been undertaken. Clearly trustees should be aware if trust settlors, beneficiaries or beneficial owners are PEPs, and so it will be difficult to explain why this information was not declared.
You will need to be aware of and identify PEPs from your own compliance perspective, but are these details relevant to the insurance proposal? Is the fact that your ultimate client is a PEP a material fact?
Many insurers would consider this to be the case, as they may view that this could bring added risk exposure to the insurance. It could make the property more attractive to thieves, arsonists or others with a criminal or malicious intent. It could bring additional liability exposures owing to the family, friends, colleagues and acquaintances that PEPs may have.
In recent times, UK MP’s have been castigated by the press and public for the perceived fraud over their parliamentary expenses. The JFSC considers PEPs as higher risk category clients from a corruption, money laundering, proceeds of crime and terrorism perspective. Why shouldn’t insurers?
What should I do?
The best advice is to err on the side of caution and notify your insurance brokers and insurers that the ultimate client is a PEP or a high profile individual. As trustees you have a duty to disclose all material facts when arranging your client insurances. Failure to disclose could lead to insurers declining to pay claims or voiding the insurance contract completely claiming non-disclosure or misrepresentation. This is where it is important that you use the services of an insurance advisor who understands the offshore sector. Many UK brokers may not recognise the concept of a PEP (as such clients would not generally feature in their day-today work activity).
We are a specialist insurance broker to offshore service providers and have a great deal of experience in providing advice and insurance solutions for trust company clients. Please do not hesitate to make contact with us if you have any concerns over your client insurance business. We can assist with advice and guidance to ensure that your position as trustees is fully protected. Click here for contact details.