Personal insurance indemnity policy

Report: 6
Date: 7 December 2004
By: Treasurer and Commissioner

Summary

MPS Management Board have agreed the principle of MPS personnel being indemnified by the MPA in certain tightly defined situations where their own personal life and accident insurances do not provide an indemnity. This includes situations where life and accident insurances are invalidated through non-disclosure of material information relating to high-risk duties that cannot be disclosed to their insurers for operational security reasons.

The indemnity policy does not cover terrorist events where the potential financial liabilities could far exceed MPA self-insurance limits.

A short description of the key elements, including differentiating features, of life and accident insurances is included to assist an understanding of the position.

A. Recommendation

1. To approve an indemnity to MPS police officers and police staff engaged in high-risk duties as set out in the Personal Insurance Indemnity Policy Statement at Appendix 1;
2. To note that a potential solution to the exclusion of terrorist events from the indemnity policy is under consideration; and
3. To note that a communications exercise will be undertaken to bring the indemnity policy to the attention of all personnel.

B. Supporting information

1. The development of a personal insurance indemnity was prompted by recent covert Specialist Operations ‘new business’ which placed a focus on the risk of police officers’ personal insurances being invalidated.

2. There will be occasions when police officers and police staff are engaged on covert activity where secrecy requirements prevent them from informing their own personal life and/or personal accident insurers of the nature of the activity which may in turn result in them being in breach of insurance terms and conditions. Alternatively, the nature of the activity notified to insurers may be such that insurers refuse to provide or maintain the insurance the individual reasonably requires. Previously it was felt that such matters were an individual’s own responsibility however, in the light of ‘new business’ and the organisation’s overriding wish to protect its personnel, it is now thought that an intervention is required to protect them under certain circumstances.

3. Occupational death benefit is provided under pension arrangements and certain insurance cover is provided to union members. However, most personnel will arrange their own life and/or accident insurances to cover their personal financial circumstances, including mortgage protection, protection for other loans, and protection for dependants. A short description of the key elements, including differentiating features, of life and accident insurances is included within Appendix 2 to assist an understanding of the position.

4. It is viewed as unreasonable of the MPA/MPS to place officers or staff in a position whereby their own personal financial circumstances are prejudiced through involvement in duties classed by insurers as ‘high-risk’ or where compliance with MPS operational security requirements places them in breach of insurance policy terms and conditions requiring disclosure of duties.

5. It might be possible for the MPA to arrange insurance to cover all personnel against the risk of personal insurances being invalidated but the cost would be prohibitive. [As a temporary measure various personal accident insurances have been arranged to cover certain high-risk police officer deployments. The provision of an indemnity will enable us to discontinue these insurances.]

6. The preferred, cost effective alternative is for the MPA to provide an indemnity to personnel from its self-insurance funds subject to the necessary safeguards – Recommendation 1.

The indemnity policy

7. The indemnity policy at Appendix 1 is designed to put the person concerned in the position they would have been in had they been entitled to claim under their own personal insurance but only if they had made every reasonable effort to arrange the appropriate insurances for themselves. The responsibility for arranging adequate insurance coverage must remain with the individual but with an indemnity scheme to operate as follows:

• Person’s insurance invalidated through innocent non-disclosure or misrepresentation of high-risk duties – the MPA indemnity applies;
• Person fails to insure – it would be an inappropriate use of its funds for the MPA to be anything other than the insurer of last resort and essential that individuals retain the responsibility for insuring adequately;
• Person fails to insure adequately – in the event of invalidation of an insurance the indemnity would only pay the amount of cover actually arranged, there being no question of the Authority making up any shortfall in coverage due to an individual’s failure to insure adequately;
• Person claims that they cannot arrange insurance at all – it is unlikely that insurance cannot be arranged however if personnel experience difficulties in providing coverage the MPS, through its insurance advisers, Willis, will provide assistance (the MPS is also considering introducing an insurance facility for high-risk Met duties);
• Insurance only available at an exorbitant cost – the MPS will consider reimbursement of the ‘excess’ cost where appropriate.

8. The MPA Treasurer has given ‘in principle’ approval to the design and implementation of an indemnity policy subject to confirmation that the Authority has the necessary legal powers and to the policy being tightly defined. The MPS Management Board subsequently gave ‘in principle’ approval to an indemnity giving authority to the Deputy Commissioner and Director of Human Resources to finalise the necessary arrangements in conjunction with the Authority without further reference to Management Board.

9. An indemnity has been designed to cover the circumstances set out in paragraph 6 above. In situations where standard insurance policy war and terrorism exclusions apply (e.g. Aircraft Protection Officer deployment) it would be unfair of the MPA/MPS to place personnel in situations where their own personal insurances would not provide appropriate cover. However, there is a need to protect the Authority’s budgets from an accumulation of claims under the indemnity policy (however unlikely) exceeding MPA self-insurance limits in the event of a terrorist event (e.g. chemical, biological or dirty bomb attack on London). The indemnity policy specifically excludes terrorist events.

Terrorist events

10. MPS Management Board is shortly to consider the exclusion of terrorist events from the indemnity policy. Dialogue is being entered into with the other emergency services and the military whose personnel clearly could also be involved in such an event. A possible solution may be a Central Government indemnity along similar lines to the high-risk indemnity set out at Appendix 1. The Authority will be consulted before any action is taken in this regard.

Communication

11. If the indemnity is approved, the intention is to undertake a communications exercise to raise awareness and understanding of insurance matters amongst all personnel. We would also allow the temporary insurances to lapse (leaving certain insurance in place until the terrorism risk issue is resolved).

12. An outline Standard Operating Procedure (SOP) is attached at Appendix 2. The SOP will be drafted in ‘plain’ English.

13. Communications to MPS personnel on insurance matters may result in an influx of enquiries to the Accident Claims Team that handle such matters for the MPS. The MPS must not provide financial advice to personnel in view of the associated regulatory and professional liability risks. We shall therefore outsource the insurance advisory function to Willis.

C. Race and equality impact

To avoid any equality issues it is proposed that the policy should apply to all MPS police officers and police staff.

D. Financial implications

1. Insurance is likely to be very expensive, an indemnity being by far the better value for money solution. The risk of the indemnity being triggered is very low. In the unlikely event that the indemnity is triggered the potential costs involved would fall within current MPA self-insurance limits with one exception, a major terrorist attack on London. Alternative arrangements are required to cover this scenario as the potential financial liabilities could far exceed MPA self-insurance limits.

2. As a temporary arrangement pending approval of the indemnity policy various insurances have been arranged. With an indemnity in place we can allow certain insurances to lapse, saving the annual premium costs.

E. Legal implications

1. The Deputy Clerk and Solicitor and MPS Director of Legal Services have been consulted at all stages of the development of the indemnity policy.

2. The Deputy Clerk and Solicitor has confirmed that the Authority has the necessary legal powers to grant the indemnity. This confirmation has subsequently been affirmed by counsel instructed by Birchams Solicitors.

3. The indemnity has been crafted carefully on the basis of input from counsel (obtained via Birchams) and from the MPA’s external insurance advisers, Willis. Birchams have ‘signed off’ the indemnity policy wording from a legal perspective. Although Willis are unwilling to sign off a legal document, their having been able to raise objections and make improvements provides assurance that the policy is robust from an insurance perspective.

F. Background papers

None

G. Contact details

Report author: Nick Chown, Director of Risk Management

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1: Personal insurance indemnity policy

Protective marking

Not protectively marked

Publication scheme (Y/N)

Yes

Title

MPS/MPA Personal Insurance Indemnity Policy

Version

Eighth draft

Summary

A policy to protect the personal financial position (life and accident insurances) of MPS police officers and police staff engaged in high-risk duties

Branch/OCU

Corporate Risk Management Group

Author

Nick Chown

Date created

2 November 2004

Review date

2 November 2005

Introduction / purpose

This Policy Statement and associated Standard Operating Procedure provides reassurance to Metropolitan Police Service police officers and police staff engaged in certain high-risk duties that their personal financial circumstances, as regards provision of life and accident insurances, will not be prejudiced as a direct result of the duties being of a high-risk nature or due to operational security requirements where:

1. an insurance company refuses to pay a claim under a qualifying insurance due to certain non-disclosure of “material information” in relation to high-risk duties or to certain misrepresentation in relation to high-risk duties before (or, in certain limited circumstances, after) the date of this policy statement;
2. a claim under a qualifying insurance is refused by reason of the individual’s high-risk duties (for example, where the nature of their activities is such that war and/or terrorism exclusion clauses in a qualifying insurance apply);
3. an individual is unable to arrange a qualifying insurance proportionate to their personal circumstances that covers their high-risk duties; [1]
4. an individual is unable to arrange a qualifying insurance proportionate to their personal circumstances that covers their high-risk duties at a reasonable premium.

“High-risk duties” are those that an insurance company may regard as requiring the payment of a substantial extra premium over and above normal premium rates. High-risk duties include, but are not limited to, the examples listed below. The MPA has sole discretion to determine whether duties not listed below are high-risk duties for the purpose of this indemnity policy.

• Police officers engaged on undercover work in relation to drugs gangs;
• Deployment of police officers abroad to deal with anti-terrorist enquiries;
• Deployment of a mixed team of police staff and police officers abroad to deal with war crimes;
• Deployment of a mixed team of police officers and police staff to the scene of a terrorist attack overseas;
• Deployment of a mixed team of police officers and police staff to assist in examination of premises in the United Kingdom where terrorist suspects are believed to have been living;
• Police officers travelling abroad as protection officers/close escort for VIPs.

Duties associated with chemical, biological, radiological, nuclear and other potentially catastrophic events are excluded from the definition of high-risk activities and hence from the scope of this indemnity policy. [Other arrangements to apply in the event of a terrorist event occurring.]

“Material information” in an insurance context is any information that may affect the judgement of an insurance company in providing or continuing to provide insurance cover and/or in setting the amount of the premium. The onus is on the policyholder or individual proposing for insurance to determine whether a fact is or is not material. The fact that an individual is presently or may in the future be engaged in a high-risk activity is likely to be material information. Where full disclosure is not made because of operational security requirements, then the person concerned should not sign any declaration that he/she has made full disclosure and should inform his/her insurer that full disclosure has not been made. A person who is proposing to take out a policy of insurance should seek professional advice as to the duty of disclosure from their insurance broker. They should assume that if they are or may be engaged on any covert activities that this will be material information and inform the broker.

“Operational security requirements” means any requirement of the MPS to keep secret anything in connection with any MPS operation including any operation undertaken in conjunction with or on behalf of any other party or organisation.

A “qualifying insurance” means a life insurance or personal accident insurance policy arranged by or for the benefit of the person concerned, their family and other dependants.

Responsibility for insurance

Individuals are personally responsible for insuring adequately and for complying with insurance requirements. Neither the MPS nor the MPA condones deliberate failure to insure and the MPA will not indemnify personnel where there has been a failure to discharge their personal responsibility to insure adequately.

The MPS and the MPA expect their personnel to make full and accurate disclosure to their insurers in compliance with the general law applicable to insurance and the terms of any relevant insurance policy other than where this would contravene operational security requirements and always in accordance with any applicable Standard Operating Procedure. Neither the MPS nor the MPA condones non-disclosure of material facts or misrepresentation of such facts. Where full disclosure cannot be made without contravening operational security requirements and as a result an individual is unable to arrange insurance or only at a high premium the following are provided:

1. guidance on what to say to insurers to ascertain if cover can still be provided despite the absence of full disclosure;
2. access to advice in arranging alternative insurance where required;
3. an indemnity as set out elsewhere in this policy where all these avenues have been exhausted.

This Policy Statement will ensure best use of public resources.

Application

All MPS personnel who are or may be engaged in high-risk duties have the benefit of this policy. References to personnel are to MPS personnel and references to one gender include the other. The policy applies on a 24/7 basis irrespective of the nature of the duties and wherever in the world duties are being performed. It also applies when an individual is off duty. [2]

Subject to its provisions the following are entitled to claim under this indemnity policy:

• MPS police officers and police staff
• The administrators of the estate of MPS police officers and police staff
• Persons who would have been entitled to indemnity under a qualifying insurance had it not been voided as a result of innocent non-disclosure of the fact that the individual was or might be engaged in high-risk duties or misrepresentation to the effect that the individual was not or would not be engaged in high-risk duties
• Where paragraph (c) below applies, persons who would have been entitled to indemnity had a qualifying insurance providing cover for high-risk duties been in force.

This policy will be implemented from the date of publication.

Scope/policy statement

MPS police officers and police staff engaged or who may be engaged on high-risk duties where:

1. an insurance company refuses to pay a claim under a qualifying insurance due to certain non-disclosure of “material information” in relation to high-risk duties or to certain misrepresentation in relation to high-risk duties before (or, in certain limited circumstances, after) the date of this policy statement;
   1. a claim under a qualifying insurance is refused by reason of the individual’s high-risk duties (for example, where the nature of their activities is such that war and/or terrorism exclusion clauses in a qualifying insurance apply);
2. an individual is unable to arrange a qualifying insurance proportionate to their personal circumstances that covers their high-risk duties; [3]
3. an individual is unable to arrange a qualifying insurance proportionate to their personal circumstances that covers their high-risk duties at a reasonable premium.

will be indemnified by the MPA subject to the following conditions:

• The indemnity provided is only:
  1. in the case of paragraphs (a), (b) or (c) in respect of claims which would have been recoverable under the relevant person’s qualifying insurance but for the invalidation of such insurance, the non-availability of cover or the exclusion of such claim in the circumstances described above (i.e. such invalidation, non-availability or exclusion must be solely due to the nature of the person’s duties for the MPS and the person must have taken all reasonable steps to discharge his or her own personal responsibility to insure adequately and to comply with insurance law and/or insurance terms and conditions); or
  2. in the case of paragraph (d) the difference between the actual premium and a reasonable premium (as determined by the MPA in its absolute discretion).
• The individual must have complied with any MPS requirement or authority to disclose information about any high-risk duties of that individual (referred to below as “an authorised disclosure”) in accordance with the relevant Standard Operating Procedure.
• No indemnity will be provided to any person whose qualifying insurance has been invalidated (or “avoided”) by insurers for non-disclosure or misrepresentation, where such non-disclosure or misrepresentation was intentional unless either the Pre Statement Exemption or the Standard Operating Procedure Exemption referred to below applies.
• The Standard Operating Procedure Exemption applies where after the date of this policy statement, a person in order to comply with operational security requirements, and in accordance with the applicable Standard Operating Procedure, does not disclose all material information to his or her insurer. To the extent that any policy is avoided on the ground that any authorised disclosure made by the individual is insufficient disclosure or amounts to a misrepresentation the individual will be treated for the purposes of this policy statement as having made an innocent and not intentional non-disclosure or misrepresentation.
• The Pre Statement Exemption is that a person will not be excluded from the benefit of this indemnity by reason only of their, on or before the date of this policy statement and in order to comply with operational security requirements (regardless of any Standard Operating Procedure coming into force on or after the date of this Policy Statement), not disclosing material information relating to the nature of their high-risk duties or making a declaration to the effect that all material information has been disclosed.
• No indemnity will be provided to any person guilty of dishonest conduct in advancing a claim under a qualifying insurance, dishonest conduct in making a claim to indemnity in accordance with this policy statement, or serious misconduct in the course of their duties where the claim under this indemnity policy arises directly from the misconduct. The MPA will obtain advice from its external insurance advisers before responding to any claim.
• The maximum amount of the indemnity recoverable under this policy statement will be £500,000 in respect of any one accident, occurrence or incident giving rise to a claim or claims under a qualifying insurance and in the aggregate in respect of all claims under a qualifying insurance. Personnel who are concerned that the above maximum limits may be inadequate should consult with their line managers. In appropriate cases higher limits may be agreed but this will only be done prior to a claim arising. Any such agreement will not be effective unless recorded in writing (see Standard Operating Procedure for further guidance on this issue).
• If the amount of the insurance coverage arranged by the person concerned is excessive in relation to their personal financial circumstances in general the indemnity provided will be restricted to a reasonable amount (see Standard Operating Procedure for further guidance on this issue).
• It is the responsibility of personnel to decide what insurance protection they require in the light of their personal circumstances and to purchase such insurance protection, providing whatever information to insurers as is possible in the circumstances subject to the terms of the Standard Operating Procedure and without contravening operational security requirements. If personnel are unsure as to insurance disclosure requirements they should consult with the MPS/MPA insurance advisers via their line manager.
• If for reasons of disclosure (or non-disclosure) of material information personnel are unable to purchase the qualifying insurance they reasonably require to cover high-risk duties, or are quoted significantly higher rates, no indemnity will normally be payable unless they have discussed with their line manager the basis for requiring such cover, and any options which may be available to them. The MPA may waive this condition in its discretion if in the circumstances it is unreasonable to expect an individual to consult with their line manager.
• No indemnity will be payable under this policy statement unless the person concerned has first taken all such steps as the MPA may reasonably require to obtain the payment of the relevant claim under their own insurance arrangements, [provided always that the concerned person shall not be required to pursue legal proceedings against his or her insurers unless a Queen’s Counsel (to be mutually agreed upon by the person concerned and the MPA) shall advise that such proceedings should be pursued].
• No indemnity will be payable under this policy statement unless the person seeking the indemnity first provides all appropriate evidence as may be required by the MPA in support of the claim to indemnity within a reasonable period of the event giving rise to the claim.
• Having indemnified the person concerned, the MPA will become subrogated to all relevant rights of that person in relation to the relevant claim, including, for the avoidance of doubt, the right to require that person (or his or her estate) to pursue, at the expense of the MPA, any right of recovery they may have against insurers and/or other third parties in relation to the claim the subject of such indemnity. The MPA shall also be entitled, where it has provided an indemnity, to require the person concerned (or his or her estate) to assign to it any relevant rights of recovery or causes of action against insurers or other third parties in relation to the claim the subject of such indemnity
• Any dispute arising in relation to a person’s entitlement to an indemnity under this policy statement and/or any of the above provisions shall be referred to arbitration by a single arbitrator to be agreed between the Parties. If the Parties are unable to agree upon the arbitrator within 14 days of a party proposing arbitration to the other party, the arbitrator will be appointed at the request of either party by the President for the time being of The Law Society of England and Wales having due regard to any representations made to him as to the appropriate qualifications of such arbitrator. The arbitration shall take place in London and shall be in accordance with the Arbitration Act 1996 or any re-enactment or modification of such Act for the time being in force.

Benefits

The benefits of this policy are:

• Reassurance for MPS police officers and police staff engaged in high-risk activity that, as regards life or accident insurance, their personal financial situation will not be prejudiced because of the nature of the activity and/or the need to meet MPS operational security requirements.
• A consistent approach across the MPS to the issue of invalidation of officers’ own insurances due to the nature of activities engaged in.

Responsibilities

This policy is owned by the Corporate Risk Management Group [DCC2(7)].

Application of the policy will be the responsibility of Human Resources under guidance from Corporate Risk Management Group.

Appendix 2: Indemnity policy standard operating procedure (outline)

The operating procedures and guidance will be promulgated in a ‘plain’ English version after discussion with the Federation/unions and prior to publication.

It applies to all MPS police officers and police staff on a 24/7 basis.

Outline problem relating to high-risk activity and covert and other security sensitive activities that cannot be declared to insurers for operational reasons.

Define terms (material information, (non)disclosure, misrepresentation etc).

Explain the key differences between the two types of insurance – see below.

Scope out the extent of the problem in insurance terms (long term life insurance and annually renewable accident insurance).

Then provide guidance on disclosure of material information to insurers in the problem areas in the following sequence:

1. Existing policies

1.1. Term life insurance – essentially no problem whether the individual concerned was undertaking the problematic activity when they first proposed for the insurance or not, provided that all material facts were notified to and accepted by insurers at the time of the initial proposal

1.2. Accident insurance – requires notification of material information before commencement of the problematic activity otherwise a claim may be refused – ‘partial disclosure’ should be made to insurers immediately (should not be left to next policy renewal)

2. New policies

2.1. Term life insurance - requires notification of all material information relating to current and known/likely future activity otherwise a claim may be refused - ‘partial disclosure’ should be made to insurers when proposing for the insurance cover

2.2. Accident insurance – same as 2.1) above

Insert advice on ‘partial disclosure’ omitting problematic activity at this point and including draft partial disclosure template wording

Then deal with the various elements of the problem under the headings referred to in MB(04)77 and in paragraph B6 of the MPA Finance Committee paper:

1. Person’s insurance invalidated through innocent non-disclosure or misrepresentation of high-risk duties

1.1. If the policy is one that pre-existed the effective date of the indemnity policy the invalidation

1.1.1. Refer to outsourced insurance adviser (Willis)

1.1.2. Adviser to check circumstances relating to disclosure to validate claim

1.1.3. Either activate indemnity or refuse claim.

1.2. If the policy is one that was arranged after the effective date of the indemnity policy

1.2.1. Refer to outsourced insurance adviser (Willis)

1.2.2. Adviser to check if MPS guidance on partial disclosure was followed and otherwise validate claim

1.2.3. Either activate indemnity or refuse claim.

2. Person claims that they cannot arrange insurance at all

2.1. Refer to outsourced insurance adviser (Willis)

2.2. Adviser to seek evidence of attempts to arrange insurance to form a view as to whether sufficient efforts have been made

2.3. If appropriate, seek insurance cover via adviser’s contacts

2.4. Either arrange insurance via adviser, activate indemnity, or refuse claim.

3. Insurance only available at an exorbitant cost

3.1. Refer to outsourced insurance adviser (Willis)

3.2. Adviser to seek evidence of attempts to arrange insurance to form a view as to whether sufficient efforts have been made, whether the premium is excessive, and if so by how much

3.3. Either activate indemnity or refuse claim.

4. Person fails to insure

4.1. Refuse claim - it would be a derogation of an individual’s personal responsibility to insure themselves adequately and an inappropriate use of MPA funds to cover failure to insure

5. Person fails to insure adequately

5.1. Refer to outsourced insurance adviser (Willis)

5.2. Adviser to seek evidence of attempts to arrange insurance to form a view as to whether sufficient efforts have been made

5.3. Either activate indemnity (limited to the amount of the insurance) or refuse claim.

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