Investors in Madoff’s funds will inevitably face action from disgruntled clients, says JLT
Bernard Madoff's alleged $50bn fraud could potentially have a huge impact on the insurance market, warned Jardine Lloyd Thompson.
Paul Towler, partner, JLT, said: ‘The litigious environment that prevails means that its inevitable that Financial Institutions who invested clients' assets in Madoff's funds will face actions from disgruntled clients seeking to recover lost monies. The likely focus of clients will be the level of due diligence performed by the Financial Institutions. A range of insurance cover is available to protect firms and their clients from incidents such as this; however, the worry is whether they have sufficient limits and the right type of insurance that will protect their clients.’
The alleged fraud committed by Madoff highlights the need for financial institutions and, in particular, hedge funds, to purchase suitable professional liability limits, said JLT. ‘In these situations firms can mitigate their financial loss to some degree had they purchased the Institutional Investor Protection Bond (IIPB),’ added the broker.
Paul Towler, concluded: ‘The sheer size of this case means it is hard to predict the volume and value of claims that can be expected in the insurance market. This in turn is likely to impact on price at a time when many may wish to review and increase their insurance protection.’