Part 1 - Assessing insurance risks and cover required by the official receiver

May 2007

Part 1 - Assessing insurance risks and cover required by the official receiver

49.2 Necessity for cover

(Amended June 2012)

Where the official receiver is provisional liquidator, liquidator, interim receiver, receiver and manager or trustee,  he/she has a duty to protect the assets of the insolvent. Where the assets cannot be disposed of or realised quickly, the official receiver will have to consider whether insurance against loss or destruction of an asset or any risk of damage to a third party or their property is necessary, and take into account how much this will cost against the potential value of the asset.

49.3 Official receiver's duty of care

(Amended June 2012)

When the official receiver becomes responsible for the insolvent’s property (which includes unoccupied premises or other assets, e.g. motor vehicles), his/her duty of care is not discharged merely by insuring the property. Insurance only provides an indemnity against monetary liability. The official receiver should attempt to limit the risks of injury to third parties as soon as possible, for example by either improving the security of the premises or by arranging for the removal of the assets. The Willis “Code of Practice on Unoccupied Premises” should be followed in all cases where insurance cover is taken with them and provides good advice on how to deal with any unoccupied buildings.  The latest details of this code of practice are attached at Appendix 5 to the Willis Insolvency Operating Manual which can be accessed on the ORBS intranet page by clicking HERE, or a summary of the code of practice is available at Annex 1 attached to this chapter.

49.3A Public security and liability

(Amended June 2012)

Reference should be made to Chapter 8, Part 6 (Inspection, protection and collection of assets), for the action to be taken to warn trespassers of potential danger. The official receiver must also obtain suitable public liability insurance cover (see also paragraph 49.4A and paragraph 49.12).

49.3B Assessing the cost of insurance against net asset value

(Amended June 2012)

If the cost of insurance, security and environmental hazard precautions (see Chapter 82 - Environmental Legislation) is likely to exceed the net benefit to the estate, the official receiver should ensure that the premises and relevant assets are disclaimed as a matter of urgency as soon as it is possible to do so. The insurance cover must not be extended beyond the date of disclaimer (see Chapter 34 - Disclaimers), and the official receiver should take active steps to cancel insurance where an asset has been disposed of or disclaimed.

49.4 Factors to consider when deciding necessity for cover

(Amended June 2012)

The decision on whether or not to insure will depend on the facts of the case and is at the official receiver's discretion.  Whilst it is generally better to insure than not insure, the official receiver should examine carefully the circumstances of each case, taking into consideration the potential value of the asset concerned, the likelihood of public liability and the existence and validity of insurance already taken out by the insolvent. The following questions should be considered when making the decision on whether or not  insurance is necessary.

a) Does the property comprise part of the insolvent’s estate?
(or is it in fact property belonging to a third party?). The official receiver should not insure the following at the expense of the estate, other than in exceptional circumstances:

  • third party property (see paragraph 49.5),
  • fully charged property (see paragraph 49.6), or,
  • some leasehold property (see paragraph 49.7).

    b) Is insurance already in place? 
    Where the insolvent has insurance cover in place the official receiver should follow the guidance in Part 2 of this chapter.

    c) What is the potential loss to the estate and/or personal liability likely to be incurred where the official receiver does not take out insurance?
    Where the official receiver becomes liquidator or trustee there may be a potential liability
    [Note 1][Note 2] if he/she fails to insure property which is subsequently lost or damaged, the insurance of which would have been reasonably expected to be effected by any prudent liquidator or trustee. 

    The factors at (a) and (b) must also be considered in this context, and the costs of insurance weighed against the potential loss to the estate if an asset is lost which may not have any material value.

49.4A Official receiver’s liability as an occupier of land or premises

(Amended June 2012)

In addition to the insurance of property, the official receiver will need to consider whether insurance is required to cover any liabilities arising from potential negligence on his/her part or as the occupier of premises (see also paragraph 49.3 and Chapter 1 paragraphs 1.43 to 1.44 and 1.54 to 1.55).

There will be times when, especially in respect of mortgaged land and buildings, the official receiver will be unable to establish whether the asset has any realisable value to the estate of the company or the bankrupt. In suitable cases if uncertain, the official receiver should effect cover, such as public liability insurance, which should be obtained pending further enquiries and discussions with the mortgagee or chargee who might be expected to have the priority interest in insuring the property.

It is unlikely that the official receiver would insure a property whose value was less than the charges outstanding on it. In the unlikely event the official receiver needs to insure mortgaged or charged property, cover should be obtained on the basis of the cost of reinstatement (see paragraph 49.10 for an explanation of this term). See also paragraph 49.10A regarding insurance averaging clauses.

Willis has advised The Service that with regard to residential properties, premiums are worked out on a flat rate structure, which includes building, contents and public liability insurance, they are not negotiated separately.  This has the effect that for residential properties public liability (and contents) cover is included with buildings insurance at no extra cost to the official receiver.

As a result Willis will provide the official receiver with sufficient insurance cover at the agreed minimum premium rate from the details provided, rather than specifying the type of insurance required.

Reference should also be made to Chapter 31.3 Part 2 and Chapter 31.11 paragraphs 31.11.77 to 31.11.78, also Chapter 31.12.78 to 31.12.80.

49.4B Expense of insurance cover

(Amended June 2012)

Any insurance premium charged in respect of an insolvent's property is an expense charged to the estate account. The official receiver should consider the cost to the estate of obtaining insurance,  against the value of the property and the risk of personal liability on his/her part (see paragraph 49.3).  Matters to consider include the effect of there being no insurance in place in respect of an asset which is subsequently lost or destroyed or where lack of insurance could have an adverse effect on any third party or their property, for example where a property has structural faults or is a danger to the public.  Where the official receiver is unable to effect insurance or the cost of the premium is excessive due to the nature of the asset or its condition,  every attempt should be made to dispose of the asset through early sale or disclaimer (as appropriate), according to the value of the asset and/or any onerous responsibility imposed on the official receiver.  See Chapter 34 for guidance on issuing disclaimers, Chapter 31.3 Part 5 for guidance on disposing of property with no equity, and Chapter 31.2 Part 4 for guidance on dealing with vehicles with no realisable value. See also paragraph 31.0.76 for guidance on the powers of the official receiver to dispose of assets when receiver and manager.

49.4C Meeting insurance premiums

(Amended June 2012)

The official receiver must meet premiums in all cases (see paragraph 49.29). A debit balance may be incurred or increased to pay any necessary insurance premium without specific authority but such balances should be managed carefully where there is unlikely to be a commensurate benefit to the estate. If the risk is of an unusual nature which may result in a high premium, the matter should be discussed with Technical Section in advance (see also paragraph 49.28 to 49.28A).

49.5 Third party goods

(Amended March 2013)

The official receiver when acting as liquidator, receiver and manager or trustee does not have a statutory duty under the Act to protect third party property. The official receiver should not incur expenditure on insuring third party property except to protect himself/herself from any public liability. It is likely that the official receiver will at most only be an involuntary bailee in respect of third party goods that come into his/her possession or control. As such the official receiver owes the owner of the goods a duty to take positive steps not to destroy the goods. However, where the official receiver has agreed to keep goods for a third party, this is likely to constitute him/her as a gratuitous bailee of the goods and he/she owes the owner a duty of care to take reasonable care to protect the goods (see Chapter 31.0, Part 2). The official receiver should notify the owners of such goods of the winding-up order or bankruptcy order as a matter or urgency and make suitable arrangements for their collection (see Chapter 31.0, Part 2 for further details).

49.5A Informing third parties (amended May 2015) 

Where third party goods are not insured, the official receiver should inform the third party that their goods are uninsured and that the official receiver accepts no responsibility for theft, loss or damage. Where the official receiver is unable to contact the owner of the third party goods, consideration needs to be given as to whether the goods should be insured until the necessary contact is made, though cover for acts of terrorism should not be sought (see paragraph 49.15).

Where the official receiver has to insure third party goods or wishes to obtain insurance cover against potential claims that they have failed to exercise adequate care as an involuntary and/or gratuitous bailee of third party goods, such insurance may be obtained under the Willis Open Cover facility (see Part 3
of this chapter), but it must be made clear to Willis the exact ownership of the goods. Where the insurance may result in a high premium or will require a payment of more than £2,500, the guidance in paragraph 1.10e regarding the requirement to obtain the permission of Professional Standards Team should be followed before committing to any expenditure. 

Bailment is the delivery of goods by one person to another for some purpose, under a contract, express or implied, that after the purpose has been fulfilled, the goods shall be either returned to the bailor,  kept according to the bailor’s directions or until reclaimed by the bailor.  See also Chapter 31 paragraphs 31.0.24, 31.0.25 and 31.0.53 for additional information concerning bailment.

49.6 Property subject to a charge

(Amended June 2012)

Where an insolvent’s property is subject to charge(s) and it is unlikely that there will be any benefit from the property for the unsecured creditors, it will usually be appropriate for the mortgagee to arrange insurance. The official receiver should notify the mortgagee of the making of the winding-up order or bankruptcy order, as soon as possible, and inform the mortgagee that he/she does not intend to arrange insurance of the property; it will then be for the mortgagee to insure its interest (if it has not already done so). If the charged property may produce a surplus for the benefit of the estate, the official receiver should contact the mortgagee to confirm that the property is adequately insured and that the official receiver’s interest is noted. See also paragraph 49.10A regarding under-insurance and averaging clauses.

Where a mortgagee is in possession of the premises it will normally be responsible for any public liability insurance. However, if the official receiver considers that there is any residual occupation by the insolvent, or if he/she is concerned about particular risks inherent in the property, he/she should ensure that public liability insurance is effected.

49.6A Fully charged assets not insured by the official receiver

(Inserted June 2012)

The official receiver should not normally insure fully charged assets, although consideration should be given to public liability where the official receiver is not indemnified by the mortgagee.  See also Chapter 8 Part 7, in particular paragraphs 8.103 and 8.104 regarding action to minimise the official receiver’s risk of liability and his/her duty to visitors and trespassers, including where a mortgagee is involved.

Where the official receiver considers it is necessary to effect insurance cover, this cover should be effected on a short term basis pending disclaimer of the asset or the other interested persons agreeing to be responsible for the insurance.

49.7 Leasehold property

(Amended June 2012)

Where the insolvent has leasehold property, the official receiver should examine the lease document to determine whether it is a condition of the lease that the insolvent should insure the property, or whether this is the responsibility of the landlord. Where the insolvent is required to insure the property the official receiver will need to decide whether the lease has any value to justify insuring the property. Where leasehold property is of no value to the estate and the lease contains covenants to insure, the official receiver as liquidator or trustee should disclaim the lease, but he/she should also inform any person affected by the lack of insurance of their liability to arrange/continue insurance cover. Reference should also be made to Chapter 31.3 regarding leasehold property, including information on obtaining insurance on leasehold properties contained at paragraph 31.3.58.

49.8 Insolvency practitioner in office

If a receiver or administrative receiver is in office when the winding-up order is made, the official receiver should only insure any assets which come under his/her control, i.e. those assets not covered by the fixed or floating charge(s). The official receiver should also effect cover for third party liability (see paragraph 49.12). Any assets held by a voluntary liquidator should be passed to the official receiver when the winding-up order is made (see Chapter 56, Part 3, section 5), similarly any unencumbered assets will be passed to the official receiver following an administration (see Chapter 56, Part 1, section 9), and the official receiver should consider the need for insurance of those assets in accordance with paragraph 49.2 to 49.4.

Where a case is handed over to an insolvency practitioner the details of all insurance cover effected by the official receiver should be included in the trustee or liquidator's record book (form IPROH). The insolvency practitioner should also be given details of any premium paid. Any cover effected with Willis (see Part 3 of this chapter) should be cancelled shortly after handing over the estate, usually after 5 working days have elapsed, to allow the insolvency practitioner to arrange any replacement insurance. The official receiver will have to pay any premium in respect of insurance effected by him/her and any resultant debit balance transferred to the insolvency practitioner.

49.9 Recommended minimum insurance requirements

The following paragraphs outline the recommended minimum insurance requirements available under the Willis Insolvency Open Cover Insurance Facility (see Part 3 of this chapter) and it is recommended that this level of cover is also the minimum requirement if the official receiver decides to continue the insolvent’s existing insurance.

Each case must be looked at on its merits and where there are unusual risks e.g. petrol stations and building sites or particularly valuable assets e.g. artwork or precious stones, advice should be sought from the insolvent's existing insurers or Willis as to how those risks should be covered.

49.10 Basis of valuation

(Amended June 2012)

Where insurance is effected it is important that the sum insured is adequate to cover the potential losses. Any underinsurance will reduce the amount that will be paid in any claim in proportion to the amount by which the asset/risk is underinsured. 

Buildings and other physical assets should be insured on a "reinstatement" basis. This means insuring a building for the cost of rebuilding or repair,  or the replacement or repair of any other asset as new (without deduction for wear and tear).

Guidance on the valuation of assets generally is provided in Chapter 31 - Realisation of assets and Chapter 32 Employment of agents.

49.10A  Under-insurance and insurance averaging clauses

(Inserted June 2012)

When considering insurance and the cost of insurance official receivers should be aware that it is standard practice in the insurance industry to apply an averaging clause where the risk to an asset has not been insured to its full re-instatement value, leaving the asset under-insured.  This means that insurers are entitled to reduce any claim payments by scaling the payment downwards, in direct proportion to the under-insurance.  The insurer is entitled to make this reduction as the policy holder has paid a lesser premium on the item where it is under insured.

An example of how insurance averaging clauses work is as follows:

  • A property is insured for a rebuild value of £175,000, but the true cost at the date of the claim for the rebuild value is £200,000.
  • The property becomes flood damaged and a claim is submitted for £20,000.
  • As the property is only insured for a rebuild value of £175,000 the effect of the averaging principle is that the £20,000 claim is scaled down by the insurer to a payout of £17,500.

In the same way, if the liquidator or trustee insures only his/her beneficial or equitable interest in a property, rather than the total value of the property, insurance averaging will reduce the value of any claim,  relevant to the amount insured.

An example to show the effect of insurance averaging where the liquidator/trustee has insured only his/her beneficial or equitable interest is as follows:

  • The liquidator/trustee insures his/her beneficial interest of £20,000 equity in a property valued at £200,000.  As a result of averaging being applied, an insurance payout might only recover as little as £2,000.

This illustrates that an insurance policy, which allows the liquidator/trustee to insure only the beneficial interest in a property, needs to exclude any averaging clause, to prevent a substantial reduction in the amount of any claim paid out.

49.10B Insurance cover provided by Willis and averaging clauses

(Inserted June 2012)

Willis, the insurance company currently employed by The Service (see Part 3 of this chapter for more details of the policies provided), has confirmed that there is no averaging clause on the household policies it supplies, and public liability is also included where insurance is provided by them for a residential property. Inflation cover up to 125% is also included to prevent the property being under-insured.

Averaging as described in paragraph 49.10A does apply where Willis is instructed to insure a property where there is commercial use, e.g. a block of flats or a buy-to-let property where there is more than one separate rentable space.  Willis automatically allows a 15% “buffer” or margin to account for cases of underinsurance, before applying its averaging clause. This is to allow for the fact that it can be difficult to accurately assess the exact amount required to adequately insure a property in the event of its needing to be substantially repaired or rebuilt at some unknown point in the future.

 

49.11 Buildings and Contents

Cover is required on all physical assets of the insolvent excluding motor vehicles (see paragraph 49.13). Cover should normally be on an "all risk" basis. That is cover for the physical loss, destruction or damage of the asset by most causes. The limits and exclusions to the insurance cover will be detailed in the policy.

49.12 Public Liability Insurance

Public liability insurance is cover for claims resulting from accidental damage caused to a third party by property in the official receiver's custody or control. An example of this would be a tile falling from the roof of a building owned by the insolvent and injuring a passer by. This cover should be obtained whenever insuring any buildings belonging to the insolvent except the residential home of a bankrupt.  The Willis buildings cover for residential properties includes public liability insurance, see paragraph 49.4A.

49.13 Motor vehicles (amended October 2013)

Motor vehicle insurance is a statutory requirement [Note 3] that extends to any vehicle using the public highway.  Willis provides a Certificate of Motor Insurance to each official receiver's office on an annual basis. This provides blanket comprehensive coverage in respect of any motor vehicle in the official receivers' custody or control or that of any company or firm of which the official receiver is the office holder. The insurance covers any authorised licensed driver using the vehicle for the business of the insured. Details of the cover provided are given in the Willis motor vehicle insurance certificate under “Employers’ Liability & Motor Insurance Certificates” available on the intranet HERE. This insurance is only activated when the official receiver has advised Willis of the details of the vehicle and the need for the insurance.

49.14 Employers’ liability

(Amended June 2012)

Employers’ liability insurance is a legal requirement if you have employees including part-time casual staff [Note 4]. Willis provides blanket coverage for all cases where there are employees and provides every office with a Certificate of Employer Liability on an annual basis.  A copy of the Willis employers’ liability certificate is available under “Employers’ Liability & Motor Insurance Certificates” on the ORBS intranet page HERE.

Full details of the cover provided are given in the Willis Insolvency Operating Manual at the Claims Procedures section, paragraph 3 on page 17.  A link to this Manual on the ORBS intranet page is available HERE.

49.14A FSA publication requirement for Employers’ Liability Policies

(Inserted June 2012)

Willis has advised The Service that with effect from 1 April 2012, the Financial Service Authority (FSA) Regulations requires all insurers to publish all current Employers’ Liability Policies on a website in a searchable format.  This is to assist in identifying relevant insurers where claimants who have suffered injury or disease in the workplace wish to claim against the insurance held by their employer or former employer.

All insurers are required to publish this information either on their own website or to become a member of a tracing office, such as the Employers Liability Tracing Office (ELTO). The ELTO website can be accessed HERE.

The information is stored by ELTO on a central database called the Employers’ Liability Database (ELD). This will be available on the ELTO website for claimants to trace Employers’ Liability Policies for both current and historical employers.

In order to uniquely identify each employer, the Employers’ Reference Number (ERN) (more commonly referred to as the Employer PAYE reference number) will be used as to assist claimants in tracing Employers’ Liability insurance details. 

49.14B Information required by Willis where employers’ liability insurance is required

(Inserted June 2012)

Since March 2011, in anticipation of the required changes introduced from April 2012, on all appointments under the Willis Open Cover Scheme where Employers’ Liability insurance is required, Willis requires the following information to be provided:

(i) ERN/Employer PAYE Number (including any known changes

(ii) Full names of all the policyholder’s subsidiary companies

(iii) Notice of all changes to the ERN/PAYE reference during the official receiver/liquidator/trustee’s appointment whilst Employers’ Liability insurance is required under Willis’ Open Cover Scheme.

The changes to the information required will primarily affect trading appointments.

Any queries should be directed to the Willis Client Service Director relevant to your area.  See the ORBS Willis intranet page available HERE for the Technical Bulletin on Employer’s Liability insurance and the Willis Contact List.

49.15 Terrorism (amended May 2015) 

Following repeated bomb attacks on mainland Britain UK insurers stopped providing even limited insurance cover against terrorism in 2003. A pool of insurers has been set up to provide full cover against acts of terrorism on the UK mainland and this may be obtained through Willis (See Part 3). The cover is subject to strict rules, must be specifically requested and cannot be backdated. 

Where the location or type of assets suggest a particular risk, e.g. a city centre department store, or the insolvent had such cover under a policy that had recently lapsed, the official receiver should ask Willis the terms (if any) under which full cover against acts of terrorism might be granted. If the additional premium is significant (i.e. £2,500 more than standard cover) the cover should only be extended with the agreement of major creditors. 

The estate should not incur any costs for insuring third party goods against terrorist acts.

Payment of the premium for any cover against acts of terrorism must be made within 21 days of the cover being arranged.

49.16 Assets held at official receivers’ offices

(Amended June 2012)

on the rare occasions that it is considered necessary to store an insolvent’s assets at the official receiver’s office, adequate insurance cover must be obtained. This will be available on a case by case basis with Willis provided that they are specifically informed of the risk. Adequate security of the asset(s) must also be arranged. The official receiver may consider storage of a computer at his/her premises when access to the insolvent’s records on a computer is required (see Chapter 66 Computerised Accounting Records Part 2 for specific instructions regarding handling and storage of computers and computerised accounting data). The asset(s) should be stored at the official receiver’s office for the minimum period possible and Willis must immediately be advised of any changes in circumstances and when cover is no longer required.

49.17 Goods in transit or in control of agents

(Amended June 2012)

The official receiver should generally rely upon (and hence will need to have details of) the insurance cover of agents where they are removing an insolvent’s assets. If the official receiver is concerned as to the availability/adequacy of insurance arrangements to cover the transporting of an insolvent’s assets, he/she should discuss the matter with the agents. Willis can provide insurance cover for goods in transit if required.

With regard to assets being held by the official receiver’s agent(s), depending on the terms of the agents’ contract with the official receiver, these will normally be covered under the agents’ insurance cover.  Willis has confirmed that, where the official receiver’s contract with his/her agent shows the official receiver maintains the requirement to insure the assets, there should be no issue in paying out in the event of a claim under the Willis Insolvency Open Cover Facility. 

Willis employs expert risk managers and uses specific risk assessment tools relating to health and safety and fire risks.  If the official receiver has any concerns regarding additional risks or cover required, he/she should contact the relevant Client Service Director.  See the ORBS Willis intranet page available HERE for the Willis Contact List.

49.18 Stay of proceedings 

(Amended June 2012)

Where insurance has been effected prior to a stay of proceedings, it should be left in force. The official receiver should exercise care in effecting insurance during the period when a stay is in force. During the period the stay remains in force, it would appear there is no power/duty for the official receiver to insure the insolvent’s property.  If the official receiver is aware that there is no cover in force, or existing cover will expire during the period that the stay is in force, it would be wise for him/her to notify the directors/bankrupt that the property is uninsured, so that this can be addressed.

Alternatively, the official receiver should agree with the directors/bankrupt the terms of the insurance or the official receiver may seek directions from the court [Note 5].  The official receiver may also seek the directions of the court concerning the insurance and protection of assets where the insurance will expire whilst a stay is in place or the court has granted a general "stay of advert” requiring the official receiver to do nothing to further publicise the insolvency order.  See also paragraph 6.26.

49.19 (amended February 2014)

When a bankruptcy order is annulled (see Chapter 6A), the official receiver should arrange to cancel the insurance cover from the date of the annulment (see paragraph 49.27B) and inform the bankrupt of the position. Enquiries should be made of the insurance company in advance of any hearing to establish the amount owed and the exact date that insurance cover will expire. Premiums paid or cancellation charges incurred should be recovered as part of the official receiver’s costs and expenses claimed at the annulment hearing. The official receiver should also arrange to return any keys to the former bankrupt as soon as possible, in order to avoid any liability for the loss of the former bankrupt’s property.

 

In particular the official receiver should ensure that any keys are handed back when requested and that appointments for this purpose are kept [Note 6].

49.19A Individual voluntary arrangements- cancelling insurance (Inserted June 2012)

Where an individual voluntary arrangement (IVA) is entered into following the making of a bankruptcy order, any asset(s) included within the IVA cease to be assets comprised in the insolvency estate. As a result the official receiver should ensure that insurance provision relating to those assets is cancelled, as soon as practically possible after the IVA is agreed.  No further premiums should be incurred in relation to these assets after the approval of the IVA. 

Any assets remaining under the control of the official receiver but not included in the IVA should continue to be insured as necessary pending the annulment of the bankruptcy order or other court order as to their disposal. See Chapter 20, paragraph 20.36 regarding the handover of assets to the IVA supervisor following approval

With regard to companies and company voluntary arrangements after the commencement of compulsory winding-up proceedings, see Chapter 20, paragraph 20.11.

49.19B Reviewing property insurance decisions (amended February 2014)

Whilst property should be insured to protect assets and prevent loss through events such as fire and water damage, theft or public injury, the official receiver and LTADT should ensure insolvents’ estates are regularly reviewed, to check whether insurance premiums incurred for estate assets are still sufficient or required and promptly cancel the insurance (see paragraph 49.27B) where no longer required.. 

For further information on dealing with property insurance, reference should be made to Chapter 31.3, Part 2 regarding Protection of Property by the official receiver, particularly paragraphs 31.3.58 to 31.3.60.

 

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