What if your client does not want their policies?

I have heard this question asked numerous times over the last year. The client’s policies are received and reviewed by your agency and when you contact the client to arrange a time to drop them off, they advise you that they don’t want the policies and for your agency to hang on to them. Is this ok or is it a potential problem?

Let’s assume that you follow your client’s instructions and hang on to the policies (probably storing them electronically). The client then subsequently suffers a loss only to find out that the loss is not fully or maybe even partially covered. There is a good chance that your client will take the position that they were not aware of the particular exclusions, conditions or limitations applying to the loss since they never saw the policies. They may have some success in using this defense since technically they never did see the policy. In most states, there is a legal liability duty that clients have to read their policy. Whether they actually read the policies in another matter.

So what should you do? The best course of action is to send the policies anyway. A common response might be something such as “I can appreciate that you really don’t see a need to receive the policies but since technically an insurance policy is a contract, it is best that you receive the policy and review it to make sure that everything is in order. Certainly feel free to advise if you have any questions or see areas that are not correct.”

Since an insurance policy is technically a contract, why would someone not want to read a contract that applies to them?

Thus, it is best to send / deliver the policies to the client. If your agency provides clients with a portal to store information such as policies, when the policies are uploaded to the portal, the client should be so advised with a suggestion sent to them to remind them that the policies should be reviewed.

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“I’m the expert on insuring…….”

In my posting of September 5th, the issue of the legal standard was addressed. This is the basic standard that largely shapes the final resolution of most E&O litigation. There is, however, an element entitled “special relationship” that has the potential to elevate the legal standard.

If “special circumstances” are present in the agency relationship, the agent may possibly be under a duty to take some sort of affirmative action, rather than just follow the instructions of the client.

This could involve situations such as 1) intimate knowledge of a client’s personal and business endeavors, 2) where a client has multiple businesses and agency writes all of the exposures, 3) where a social relationship exists and 4) where additional compensation is involved.

In addition to those just mentioned, the words (spoken or written) have the potential to raise the legal standard. As a result, agency sales staff need to be cognizant that they can be held responsible for what they say and what they put in writing.

Statements such as the following:

  “I will make sure that you are properly covered”,

  “this coverage is definitely better than what you currently have”

  “I am the expert on insuring _______”.

Statements such as these can be held against the agency. Thus, caution should be exercised on the words / phrases used during the sales process. Obviously, sales personnel are looking to make the sale but it is critical that they exercise good judgment in not creating unrealistic expectations or overstating the benefits of coverage.

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Are you aware of the legal standard you will be held to?

In Agents E&O, the basic premise in determining “fault” is built on negligence. In other words, the agency would need to be found negligent in performing their duties. Over the years, the various court decisions have largely shaped this doctrine of negligence and what standard the agency would be held to.

Essentially the basic duties owed include the exercising of good faith and reasonable skill, care, and diligence in procuring the insurance requested in accordance with the client’s instructions.

This issue of “procuring the insurance requested…” speaks to a couple of key issues that those individuals involved in sales need to be aware of.

  It is vital the agency sales individual listen to what the client / prospect is asking for. Does the request involve standard form coverage or is there a request to obtain coverage for a specific exposure the client wants addressed?

  The need for documentation of these discussions. The documentation should include who was at the meeting, what was discussed, any specific requests, etc. Confirming back to the client the essence of the discussions is always suggested as it helps to address any potential misunderstandings between the respective parties.

There is one other key element involving the “insurance requested” issue. If the agency is not able to secure the coverage requested, there is a duty for the agency sales personnel to inform the client. Failure to do so could result in the client believing that you secured the coverage they requested.

When advising the client that you are not able to secure the coverage requested, it is okay to advise the client verbally but it is also always suggested that this conversation be documented in some form of written communication between the agency and the client.

There have been many E&O claims where the agency was not able to provide the coverage requested but the client was never advised. The agency is going to have a very difficult time “winning” these cases”. It is probably best not to count on the “duty to read” defense in these situations.


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A key issue every employee needs to know

What is the key one?     

When to report an issue to your E&O carrier.

You will notice that I did not say “when to report an E&O claim”. This is because there are going to be times when you may not know whether the matter will develop to that level.

Let’s look at several scenarios where you may wonder “should I notify the E&O carrier?” or “should I at least, notify my manager”.

    A client calls to report a claim and you advise them that they don’t have coverage for that type of claim. (Caution should be exercised as it is heavily suggested that agencies not deny claims – this is a carrier responsibility). The client is obviously very upset and makes some remarks that they are not happy with this and imply they will be getting an attorney. You may feel that you are on solid ground. Should that issue be reported?

–     A client suffers a loss that is not covered or has an issue where they feel your agency did not properly advise them (such as the client alleges that were not aware a WC policy was subject to audit and they are now getting a bill for an additional premium). They send you an e-mail or letter or call you demanding that you take care of this. Should that be reported to the E&O carrier?

Every year, I hear about E&O claims that did not get reported to the carrier in a timely fashion. It is not clear if the agency thought the matter would simply go away or maybe the concern is that the E&O carrier will be raising your E&O premium due to these notifications.

The overwhelming majority of E&O policies are written on a claims-made basis. These policies have specific language that denotes the definition of a claim as well as the reporting requirements. Every agency including the staff should know what the criteria is for the reporting of an issue. Typically, the language will include “demand for money or services”. So, when you receive a demand for “money or services”, whether verbally or in writing, DO NOT IGNORE IT!

Based on your level within your agency, elevate that issue to your superiors. If you are the owner, elevate that issue to your E&O carrier. E&O carriers have tremendous expertise and are there to assist your agency and guide you in dealing with these types of matters. They may advise you to “let’s sit tight for now” or they may want to assign counsel to represent your agency moving forward or some other option.  Let them make that judgment call.

Obviously, the answer to both of the scenarios mentioned above – YES!!

What can happen if a claim is not reported in a timely fashion? The E&O carrier may be able to deny the claim for “late notice”. This will now leave your agency totally responsible for all costs, including defense, judgment, etc. When this occurs, the agency future could be in jeopardy.

Every employee needs to know to take these types of issues very seriously. This would be a great topic to include at an upcoming agency staff meeting.

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Celebrate !

When the subject of auditing comes up, some people frown and are probably thinking “why don’t they trust us?”. Auditing is actually a very healthy initiative towards achieving a greater level of E&O compliance. In addition, the staff that are “doing their job very well” probably won’t mind the process of auditing since it will verify their positive work.

There is however, an important piece of auditing that many agencies fail to capitalize on. When the audit results are positive (over 90% compliance over the course of at least a quarter), there should be some element of celebration.

For individuals accomplishing this result, at least an acknowledgement by management of the result should occur. Other options include a $5 gift card from businesses such as Starbucks, Dunkin Donuts or a retail store in your area. Another option is to allow the employee to wear jeans on specific days. When the results for the entire department are in the 90% or better area, the celebration should be more substantial. Possibly ordering in lunch for that department or allowing them to all wear jeans, etc. Obviously, the options are unlimited.

Having a celebration brings attention to the great result that the individual or team have accomplished. There is a greater chance of the great results continuing when staff can see that there is an incentive for their great results. Some agency management may contend that “why should I reward them – the staff are expected to do their job” and I understand that perspective. Whether the results will continue with this type of approach is questionable.

A celebration for great results (even though they are expected) is a positive motivator and morale booster. If you are not currently rewarding individual staff or the department for their great audit results, give it a try. You may just find the results surprising.

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How many clients are using texting to communicate with your agency?

If an agency were to know this number for each of the last 2 years, there is no doubt that they would be seeing an increase. Whether your agency wants texting to be a way clients communicate with you or not, it is still going to happen. Texting is definitely a mode of today’s communication. A great starting point is to ask the staff how many / how often they are getting texts from clients.

Texting has now found its way into the fact pattern of a number of E&O claims so it is an issue that needs to be taken seriously. It is prudent for agencies to have a stated position on the issue and to dedicate time to educate your staff and your clients.

Every agency should have a procedure to ensure that text messages of a business perspective are documented in your agency management system. They have a position on the documentation of phone calls and e-mails. Why would text messages be any different?

There are different approaches on managing text messages. One approach is to elevate the text messaging to an e-mail platform and to then communicate via e-mail. This should then enable the various communication to become part of the agency file. Assuming that you are able to capture the entire text message with your phone, it is okay to have the entire text “conversation” via your phone and then at the end of the discussion, use the process to get that “conversation” into your agency system. But bottom line, the text message needs to be part of the client file in your agency system. Without it, there is the possibility that the agency file could lack some very important discussion.

Recently I was advised that some agency management systems contain a feature for the handling of text messages. Agencies should explore this to determine how they want the issue handled.

Since text messaging is probably here to stay, it would be beneficial to talk thru the issues to ensure everyone in your agency is on the same page.

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Trusting your clients – what’s the worst that can happen

Your agency has a customer that owns a number of dwellings covered under a master policy. One day, your client contacts your agency to cancel coverage on one of the covered locations since the property had been sold. The coverage request was made by phone and as the account exec, the coverage is cancelled as requested.

Or so you thought.

This customer was a long-time client of the agency and had made numerous changes to their property policy over the years. The agency account exec, trusting the client, did not see a need to request the client send a confirmation e-mail. Nor did they see a need to send the client an e-mail memorializing the conversation. As previously noted, this transaction had occurred numerous times in the past.

Six months later, the property in question, sustains a significant fire loss. The client contacts the agency to report the claim, only to be advised that there is no coverage for that location on the policy. The client advises the account exec that there should be property for this location; it was the dwelling next door that was to be cancelled. An E&O claim is brought against the agency seeking damages of $100,000.

Did the client give the agency account exec the wrong address? Possibly.

Did the account exec misunderstand the instructions from the client? Possibly.

There is no doubt that agents want to show their clients a high degree of trust. However, mistakes do happen. Will the client admit their mistake? Probably not – ask any agency that has had an E&O claim and they will advise you that it is amazing the story the client will tell when they are facing an uninsured loss.

It is certainly okay to trust your clients, especially those that have had their insurance coverage with your agency for some time. Former President Ronald Reagan coined the phrase many years ago, “trust but verify”. How does that translate into the insurance world? What should the agency account exec have done?

The key issue that was lacking in this agency transaction was documentation. The agency management system was documented but there was no documentation back to the client to confirm the change request. Without a document that memorialized the conversation, any testimony in E&O litigation is going to be viewed as “hearsay” which is not going to have the same degree of credibility. The agency should have sent the client an e-mail essentially restating the coverage change request including the date of the change.

Another option for the agency to consider is to mandate that the coverage will not be modified until the agency receives a written request (e-mail is acceptable) and agrees to the change. It is vital that any documentation clearly detail what coverage is being changed and when.

If either one of these approaches had been used, it is doubtful that an E&O claim would have developed. Could the above scenario occur in your agency?

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Who is your focal point to improve your E&O culture?

Without a doubt, life at the agency side of the business is very challenging and very fast paced. It seems like there is never enough time to get everything done. Taking on an additional project is probably not something staff are going to be too excited about.    

However, to enhance the agency’s E&O culture, continuous improvements are needed. But when agency management brings up an initiative to implement, are they asking the staff to “just get it done”? If so, what will probably happen? A half-hearted effort by some and a minimal effort (if an effort at all) by others. For all agency personnel, there is always work to keep them busy. What do the staff hear – “I can’t keep up with what I have and they want us to take on more”. Their emotions kick in before they really think through the process.

In many agencies, the problem is that there is no one that has the role of really driving the E&O initiative. No one is accountable for whether the project is completed or not. As a result, odds are that the project will probably get started but never get finished.

Is this reality in your agency? A good best practice, employed by many agencies, is to develop a structure that increases the odds of a successful outcome. That structure includes a point person in each of the respective areas (Personal Lines, Commercial Lines, Benefits, etc.) that has the responsibility to “manage” the project. “Managing” the project does not necessarily mean that this person is going to do all the work. They may actually not do any of the work. Their role is to map out a strategy that includes the key steps and key processes. Let’s look at an example.

A key initiative in E&O loss prevention is to periodically (annually is suggested) reach out to your clients to get an update on their exposures. So, if the objective is to develop a process and procedures for this, what would the “focal point person” do?

They would break down the initiative into steps such as:

  • What should the form look like?
  • When should it go out?
  • Can we automate the process?
  • Should we communicate via letter or e-mail?
  • Where in the system should this questionnaire be stored?
  • What is our procedure for when the questionnaires are returned?
  • When do we want to roll out this new procedure?

In some of the areas just mentioned, assembling a team of key players is heavily suggested. This should help to ensure that the final product and process has been vetted.

As with any significant project, breaking it down into pieces helps to move that project along.

Establishing a structure for the implementation of new E&O initiatives should play a significant role in seeing that the project is completed and well thought out. The focal person should be responsible for reporting to management on the progress of the project.

Without a doubt, this approach will achieve more success than management just asking the staff to “get it done”.

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What is the value your agency puts on staff education?

When one thinks of the key pieces of a quality agents E&O prevention program, typically topics such as documentation, exposure analysis checklists, confirmation of client insurance decisions (purchases and rejections) and policy review all come to mind. And they are all very important if an agency truly looks to minimize their E&O claims potential. However, there is one area that could get overlooked or taken for granted. This deals with educating the staff regarding the areas of insurance they handle.

There is no doubt that multiple times every day, your agency clients are asking questions on their insurance program. Questions such as the following:

1) What does co-insurance mean?

2) Mom and Dad are in a nursing home so the house is vacant – what do I need to know?

3) What is the difference between ACV and Replacement Cost?

4) Should I get an umbrella? – I don’t have any real assets

And there are many more with many being much more complicated. Obviously, the manner in which these questions are answered is key as your clients are probably making decisions based on what you advise them. In addition, in virtually all states, agents will be held accountable for what they say and what they put in writing. Thus, if “incorrect” information is provided and a problem develops, your agency may be found liable.

Based on this, clearly education of the agency staff should be at a very high level. There are multiple ways to do this. I know of several agencies that have a training department or at a minimum, staff dedicated to instructing the agency staff on a whole host of important technical insurance issues. For many agencies, this type of approach may not be feasible.  

A good place to start is to do an evaluation of each of the staff and what areas they need further training on. Posing this question to staff might actually be a good approach. In addition, agencies should look to their state agents’ association for technical training. There are also designation courses (CIC, CPCU, etc.) that provide some technical information. One area that is often overlooked is insurance periodicals. Personally, I feel that the insurance industry is blessed with some great periodicals that cover technical topics on a monthly basis.

Bottom line, education of agency staff is a key element in a quality E&O loss prevention program. Dedicating the time and resources should ensure that when the staff are asked the various questions that they are able to respond with confidence and accuracy.

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Moving a book of business to new carriers – a potential HUGE E&O issue!

Virtually every day, agents will move an account to a new carrier. Typically, the basis for the move is due to the desire to get a lower premium for the client. This issue has developed into one of the bigger issues / concerns for E&O carriers. The concern is that when you move an account to a new carrier, there is the possibility that the “new” coverage is deficient in some areas. The best practice is to proactively advise the client (in writing) those areas where the coverage is not as broad as the expiring policy.  

There are other times where the agent is forced to move an entire block of business to a new carrier. Possibly the agency was not meeting the volume requirements of the carrier, prompting the carrier to terminate the relationship or the carrier may have had a major issue with the agency (such as a history of misrepresenting the risk on applications). Also, quite possibly the agency had some issues with the carrier such as their claims practices, their strict underwriting, etc. The possibilities could go on and on.

This now results in the agency needing to move the entire book of business with that carrier to one or multiple carriers. Whether one account or an entire book is moved to a new carrier, the issues are largely the same.

The best approach is to proactively strategize how the agency is going to handle this. The prior carrier may have had excellent rates and thus when moving the account to a new carrier, the client could potentially wind up paying a higher premium. Whether the premium difference is major or minimal, it is probably best to notify the client of the need to replace them with a new carrier and any potential premium issues. If there will be some coverage issues, the client should be advised of these coverage issues in writing (definitely for any reductions in coverage).

When moving an entire carrier book, there is the possibility that multiple carriers will be considered. For each of the carriers under consideration, an analysis of the coverage should occur comparing the coverage to the “expiring”. Some of the coverage differences might be “subtle” due to a difference in the edition dates of the forms. This is especially true for homeowners’ accounts. The analysis needs to be performed. In addition, extreme caution should be exercised on how the message gets delivered. A statement such as “we need to move you to a new carrier and the coverage will be even better than what you had” could come back to haunt you.

Moving an entire block of business to new carriers will certainly be a lot of work involving the completion of new applications, etc. Determining the key steps should make the process go smoother with one of the key steps involving what premium and coverage differences the client will face. Without this degree of strategizing and premium / coverage analysis, there could be a significant number of E&O headaches waiting to occur.    


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