Article first published in Insurance Day
Insurers must beware breaching non-disclosure agreements with insureds following a loss.
Confidentiality is becoming increasingly important in energy insurance. The oil industry is a highly competitive one and the protection of technical secrets or competitive edge entirely legitimate.
The insurer/insured relationship often involves the provision of confidential information by insureds to insurers. On the placing of the risk insureds may be very candid as to the commercial activity they are planning; however, more commonly, confidential information is provided or requested in the context of claims handling after a loss.
Adjusters frequently request technical information to establish cause or detailed production records to consider loss of production income claims. This would almost certainly include confidential material. Historically, there has been an implicit understanding this material would only be used for the purposes of adjusting that claim and not disclosed to third parties.
It has recently become increasingly common for insureds to insist on loss adjusters and insurers entering into formal non-disclosure agreements (NDA). While sensible in principle, in reality the form of NDAs used often fail to take sufficient account of the special needs of insurers, which may need to share that information with other stakeholders such as professional advisers, internal management and reinsurers or have a need to retain it even after the claim has been settled.
The potential misuse of confidential information is a risk to which the market must be alive to. NDAs languishing in a drawer will not protect against the risk of inadvertent disclosure.
Another consideration is the huge interest usually accompanying a large loss. The insurance community is small and information is often shared. However, there are a number of very serious potential problems with unguarded discussion. While speculation on matters in the public domain is no problem, speculation fuelled by disclosure of confidential material is.
Disclosure may be directly commercially damaging to the owner of the confidential information. The owner of the information may sue for damages or an injunction or seek a search and seizure order against the party that originally received the information to establish the scale of the breach against the company and individuals they suspect of being responsible. Such claims are expensive to defend, reputationally difficult and, if proven, might well attract the attention of the regulators.
A leak of confidential information might affect the timing and content of disclosures to the regulators of the market if the insured is listed on a stock exchange. In some countries it may even be a criminal offence; for market abuse or data protection breaches.
Against a backdrop of insureds becoming increasingly sensitive to this issue, it is perhaps time for insurers and their advisers to consider whether they need to take more care in considering what they say and to whom, and warn their staff about the dangers of discussing claims in public.
This includes considering very carefully whether what is being disclosed or discussed falls into the category of confidential information and whether disclosure is appropriate.
If information is being provided to a third party for a legitimate purpose in connection with a claim, insurers should consider the terms of any NDA that may have been agreed and whether the recipient needs to be made aware the information is or may be confidential. It may be essential to obtain corresponding undertakings from the recipient or at least make them aware of its confidential nature.