PINS S6.10 What is legal risk?

(1) Legal risk is the risk of an insurer being exposed to losses, penalties or reputational damage due to breaches of laws or regulatory obligations, inadequate reinsurance or other contracts, or changes in the laws affecting the insurer.

Example of inadequate contracts

Reinsurance contracts that expose the insurer to significant legal risk because:
(a) the contract is not valid, binding or enforceable;
(b) the contract does not clearly set out the respective rights and obligations of the parties; or
(c) a policy document inadequately sets out what exclusions apply.
(2) Legal risk includes risks arising from:
(a) fines, penalties or punitive damages from supervisory actions or civil litigation;
(b) legal costs from litigation; and
(c) expenses arising from private settlements.
Inserted by QFCRA RM/2013-1 (as from 1st January 2015).