Why is it important to keep “emotion” out of your agency notes / e-mails?

It is probably fair to say that from time to time, conversations between the agency and their customers (whether on the phone or face to face) do not exactly go as planned. There are a whole host of issues that could prompt a customer to become very agitated at an agency staff member such as advising them of a probable uncovered claim, etc. The opposite (agency staff member getting agitated with a customer) could also occur both hopefully those circumstances are few and far between.

As agency staff is aware, it is very important that these conversations be documented in the system. Based on the situation, it may also be appropriate and beneficial to document these conversations in some form of written communication back to the client.

Let’s focus on discussion on the recording of the conversation in the agency management system. Many agency staff are of the opinion that these agency notes are for “their eyes only” or at least only for select fellow agency personnel. In most cases, this is probably true. So the agency staff member records something to the effect of “Just spoke with the insured regarding their uncovered loss. What a real jerk they are. I can’t believe that we insure someone so stupid in our agency”.

Now fast forward the timeline and now that same customer is pursuing legal action against your agency because they thought they should have coverage for their loss. Both the defense attorney (defending your agency) and the plaintiff’s attorney (defending the client) will have a right to see the entire agency file (notes, proposals, e-mails, etc.). As the agency staff member involved, how do you now feel about the agency notes that you entered that you thought were for “your eyes only”?  There is certainly the possibility that these notes (containing the negative comments) will be used against your agency. I would trust that the jury is going to look very negatively on the comments.

There are a number of “rules of thumb” that are used regarding notes entered into the agency management system. One that every agency staff member should honor very carefully is:

Don’t put anything in the agency file that you wouldn’t want a jury to read!

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E&O Insights: How Management Shapes an Agency’s E&O Culture

This is an excerpt from an Insurance Journal article that I authored in the August 17, 2015 edition.

“The phrase “you can’t judge a book by its cover” dates back to the mid-1800s. While that may ring true for the literary world, the opposite is true when it comes to an organization’s errors and omissions (E&O) culture. You can heavily determine its E&O culture by looking at the organization’s management. Sitting down for a discussion with the various levels of management for a few hours would give you a pretty good idea of “the good, the bad and the ugly” of things.”

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Are you learning from uncovered claims?

As much as we would like customers to buy every coverage they should to protect their assets, that scenario is probably never going to happen. Because of this, there is certainly the chance that you may find customers contacting you with claims for which they have no insurance coverage. In some cases, they know that they don’t have any coverage but are merely hoping that the insurance gods are with them that day.

In most situations, it is highly suggested that all claims be reported to the particular insurance carriers, whether you (at the agency level) believe that there is coverage or not. Basically this is because if the claim is going to be denied, it should be the carrier doing the denial.

So when a claim has been reported to the carrier and the carrier denies the claim, is that the end of the story? Possibly for the customer but not necessarily for the agency. Uninsured claims can be a great source of information as well as a potential sales opportunity.

Let’s presume that the customer called to report a flood claim but the customer did not have any flood coverage. Is the reason that they did not have any flood coverage due to the fact that they had been offered it but declined the proposal or was the coverage never even proposed? An analysis of these uninsured claims can help the agency identify opportunities to enhance their E&O culture and commitment. If the customer was offered the flood proposal but chose not to buy the coverage, what is the level of documentation in the file? Does the file simply reflect “flood coverage declined” with no specific mention of when the coverage was declined, who declined it and how they declined it?

Conversely, are there clear notes in the agency management system reflecting the declination of coverage, who specifically declined the proposal and why? If so, while that is certainly a positive step, is there anything that could be done to further strengthen the defense of the agency should the customer allege that they do not remember declining the proposal. How about a letter / e-mail to the customer memorializing the conversation? This level of documentation should keep the matter from going any further.

When reported claims are subsequently denied, a review of the file can shed some light on how strong the E&O culture is in the agency and whether further training or reinforcement of agency practices is necessary. Obviously, it is best to identify shortfalls as early as possible.

Establish a practice in your agency to review uninsured claims to determine opportunities to improve your agency’s E&O culture.

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Social Media – can it get you in trouble?

In the attached article by Christopher J. Boggs that appeared on www.insurancejournal.com on Aug 4th, this issue is explored with an in-depth review of what coverage could be found under the homeowners policy. Mr. Boggs is vice president for education for Insurance Journal’s Academy of Insurance.

Most would readily agree that there is tremendous benefit to agents educating their customers on the proper use of social media and to what extent their insurance (specifically the homeowners policy) would provide coverage.

Continue Reading Social Media – can it get you in trouble?

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Recreational Drones: Do Homeowners’ Insurance Policies Provide Coverage?

While there has been a tremendous amount of press written on the subject of drones for commercial use, it is important for agents to understand that drones are also a personal lines exposure.

In the attached excellent article written by Tom Schrimpf and Russ Klingaman (both partners with Hinshaw & Culbertson LLP), the issue of coverage for drones under the homeowners policy is explored in depth. This article appeared on www.claimsjournal.com on August 4th.

“The rise in recreational uses of drones (more accurately described as Unmanned Aerial Systems or just “UAS”) has sparked much debate, including concerns over safety and privacy. The scenarios are rather simple to envision: Suppose a person insured under a standard homeowners’ insurance policy uses a small camera-equipped UAS, purchased online for less than $1000, and unexpectedly crashes it into a neighbor’s car, or uses it to take pictures of a neighbor’s children playing in their backyard. If the neighbor pursues a claim against the UAS operator for property damage or personal injury, to what extent, if any, is coverage provided by the UAS operator’s homeowners’ insurance policy?”

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Questions regarding certificates of insurance

As I have cited in the past, certificates of insurance are causing a fair amount of havoc and resulting in E&O claims as certificate holders rely on the contents of an improperly executed certificate form. Some E&O carriers are indicating that between 6-8% of E&O claims involve improperly executed certificates.

In my travels, it is very evident that the handling of certificates is viewed much higher than in the past as agents realize the problems certificates can cause. Oftentimes I am asked questions regarding certificates that show that agents want to be extremely diligent in their preparation. Here are two questions that will hopefully be of value to all.

When an agent issues a certificate of insurance, what is the agent’s duty to verify / indicate the degree of impairment of an aggregate limit?

This obviously applies to those policies listed on the certificate that have an aggregate such as general liability, professional liability, etc. When a claim is paid, technically the aggregate is not what it shows on the policy. In other words, if the aggregate is $1,000,000 and a $300,000 loss was paid under that policy period, the aggregate is actually now only $700,000 (unless the aggregate has been reinstated).

When looking at the ACORD certificate form, there is a phrase (in the middle part of the form) that reads: “limits shown may have been reduced by paid claims”. While I felt comfortable with my position on this issue, I nonetheless decided to pose that question to the claims managers of two national E&O programs. They both agreed that the agent does not have a duty to verify any remaining limits under the policy and the wording on the certificate would be used to support that position in the event of litigation.

If there has been any E&O claims activity involving this issue, it has definitely been minimal.

When an agent is asked to issue a certificate, in regards to the limits, is it okay for the agent to only show the limits required by the specific contract or is the agent required to show the full limits?

My position (which was verified by the two claims managers) was that the agent should show the full limits of the policy and listing anything else does not accurately reflect the coverage that is in place. If a problem were to develop, the agent may be in a poor position having issued a certificate that is technically “incorrect”.

If the contract requires a $1,000,000 umbrella and the agency client has a $5,000,000 limit on their umbrella, the position is that the $5,000,000 limit be shown. If there is no requirement in the contract that the agency client have a umbrella (but they do), the certificate need not reflect the umbrella policy.





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Are you providing loss control services for your clients?

Today, certainly more so than in the past, as agencies look to expand their value added services, they are providing some degree of loss control / risk management services. As one can imagine, this brings with it heightened E&O claim potential.

Here are some suggestions for those agencies involved in or considering providing loss control services.

- Check to see how your E&O policy responds to this activity. This will typically be addressed in the definition of covered “professional services”. While most of the major E&O carriers provide coverage for this activity, they do typically restrict the coverage to apply only for policies written or placed by the agency. Essentially what this means is that if you are providing this service for non-clients, the agency would have no coverage. Also, if you are providing (as an example) some property loss control services for a client but you don’t write the property coverage, the agency would have no E&O protection.

If you are not sure what coverage you have for this activity, check your policy and don’t hesitate to contact the E&O carrier or broker that you went thru to get the coverage.

- If the agency is providing loss control services on a fee basis, this has the potential to raise the legal standard that the agency could be held to. Also, when providing loss control services on a fee basis, the agency should have a document that is provided to the client (and signed by them) that clearly defines what services are being provided and at what fee. The goal of this document is to address any potential misunderstanding between the client and the agency as to what services were being performed. The description of services performed should be as detailed as is necessary and should include the cost of that service.

- The document mentioned above should contain a disclaimer that would protect the agency in the event of an E&O claim. Issues that should be included:

a) That the loss control services of the agency are not to be construed as a total review of any and all possible hazards of the client.

b) The agency assumes no responsibility for the control or correction of conditions or practices existing at the premises, whether reviewed or not in this presentation.

c) The agency does not warrant that the completion of the loss control services will ensure that the operations are safe and healthful, or are in compliance with any laws, regulation, code, or standard.



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E&O Claims – Frequency / Severity

Now that we are in the second half of the year, E&O statistics will have a greater degree of credibility. One area where the results continue to be strong involves E&O claims frequency; in other words, the number of E&O claims made against agencies.

A number of E&O carriers have advised that their claims frequency results continue to be positive, down significantly from 2005 and in some cases, showing a reduction when compared to 2014. To help put this in perspective, E&O claims frequency back in the early 90’s was approaching 15% for some E&O carriers. This translates into one claim for every 7 agencies. Thru 6 months of 2015, E&O frequency, for some major E&O carriers is in the 6% area, essentially one claim for every 16 agencies. A reduction that is directly attributable to the strong focus that agencies have on E&O loss prevention. Even New Jersey, historically among the higher frequency states, is showing solid improvement.

It is extremely interesting to note that of those E&O claims reported, approximately 2/3 of these claims are closed for essentially only defense costs. From my perspective, that is a very impressive number that speaks to a couple of issues. One is the fact that the defense position of agencies has been enhanced by their E&O loss control focus. Another reason for the positive “closed for no pay” number is that quality E&O carriers will fight aggressively to protect the professionalism of their agent customers.

Severity is an area that is causing some concern. Severity speaks to the size of the claims when they are paid. This number continues to go up with E&O carriers seeing many multi-million dollar demands and experiencing sizeable payouts. This is an area where agencies definitely need to be aware of when securing their E&O limits. Agencies should not hesitate to ask for limit options at their next renewal. Higher limits may cost less than you think.

For the past 50 years (E&O policies seem to come to existence in the US in the mid 60’s), the #1 cause of claims has been “Failure to provide the proper coverage”. Basically, the more that is covered, the less of a possibility of an E&O claim. This is one of the main reasons why E&O carriers strongly advocate the use of an Exposure Analysis process, both initially and on an annual basis.

Bottom line – a strong E&O prevention program within agencies is making a difference. For those agencies with a solid E&O culture and commitment, keep up the good work and continue to look for opportunities to strengthen your culture even further. For agencies that don’t have this strong culture, it is time to catch up. There are many resources available and a good place to start is your E&O carrier.

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Do the producers know what is expected of them?

Often in my travels to many of the great agencies in the United States, I have the opportunity to sit down with the agency staff, consisting of the internal support staff, the producers and the agency management.

As we talk thru the issues that play a key role in the E&O culture of the agency, it is common to find that there are some various procedures and practices that producers are not following. This can involve initiatives such as the effective use of exposure analysis checklists, the documentation of producer / client discussions, the use of a standard proposal template, the review of policies, etc. All of these, and there are others, are extremely important for an agency to make some significant strides to reducing the E&O exposure of an agency.

Taking a step back, when one reviews the E&O claim frequency of some of the leading E&O carriers, typically year after year, producers are generating over half of all E&O claims. In other words, when a client takes some form of legal action against an agency, over half of the time, the client is alleging that the producer failed in their duties to the client. This is certainly not meant as a knock against producers. In some respects, it shows how important the producer is in the agency’s success.

While not all agencies have a procedures manual, most have established procedures for the numerous tasks that need to be performed. These documented procedures typically highlight who is to perform what procedure and when that procedure is to be performed. In many cases, the procedures involve multiple levels within the agency. If these procedures are not documented, they should be!

I recently encountered a situation where the agency support staff were very frustrated with the production side of the house (how rare that is!!). The agency had adopted a new procedure and it appeared that the support staff were doing their part but when it got to the producers, the process fell apart. Sometimes, this can be due to the producer not wanting to perform the task or not understanding the task, etc. In this situation, when management was asked how they communicated the new procedures for the staff, it was clear that the support staff had received their training but after further questioning, it was then clear to all that communication of the new procedure to the producers was never conducted. Obviously, it is hard to hold someone responsible for following a procedure if they were not aware of it.

This could be an isolated situation and by no means am I giving producers a “Get out of Jail free” card. Many of the great agencies that I interact with are great because everyone knows the procedures and how their role is key to the overall success of the procedure and the agency as a whole.

When agencies have established procedures, it is vital that everyone be aware of those procedures and be expected to follow them. This includes producers. Requesting that staff sign off stating that they are aware of the procedure and agree to follow it is not uncommon. Just because they might be a successful producer does not give them the excuse to not follow the procedure. Producers are not bigger than the agency.

Bottom, communicate and enforce. This is one of the key areas where performing audits helps to identify how well existing procedures are being followed.

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Insurer May Rescind Policy From Inception if Issued Based On False Answers to Insurance Application Questions

As hopefully every agent realizes, the answers to the various questions on applications are extremely important. When those answers are not correct, the insurer has some options that can be very worrisome for agents and clients alike.

The attached article written by Richard B. Wolf (a partner in the Los Angeles office of the nationwide law firm of Lewis Brisbois Bisgaard & Smith LLP) addresses many interesting perspectives that agents need to clearly and totally understand.

Continue Reading Insurer May Rescind Policy From Inception if Issued Based On False Answers to Insurance Application Questions

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