Are you providing certificates on your E&S business?

Let’s take the scenario that your agency customer asks for a certificate. Most of the business is with your standard agency markets but some of the policies are written through one of your wholesalers. When you complete the certificate, what is the rule /  procedure within your agency for indicating on the certificate the specific policy information for that business placed thru the wholesaler?

Unless you are also acting as a wholesaler, your retail agency is not the official agent on that business. Technically, the wholesaler is the official agent of record. So based on that, do you officially have the “right” to issue those certs? Not really. In addition, if a problem were to develop based on the certificate information, would that certificate even be considered valid? This scenario probably occurs with some degree of frequency yet with little thought given to the potential ramifications.

So what should the retail agent do? There are a couple of options.

One involves advising the wholesaler of the need for the certificate and asking them to provide it. In most situations, this is not a practical approach. The wholesaler is probably not staffed to handle this task. In addition, if they are willing to handle it, what will be the turnaround time be? Most customers want their certs now…not 2 weeks from now.

The best approach and one that most retail agencies follow is to ask their wholesalers for authority and authorization to perform the issuance of certificates on their behalf. Retail agents should insist that this authorization from the wholesaler be in writing. The document should detail any key expectations such as:

- the exact specifics of the authorization

- what agency name should be noted on the certificate

- is there a specific individual that has this authority and thus should review and sign the certificates

- does the wholesaler want a copy of the certificates you have issued on their behalf

- how long is the authorization good for

Very honestly, without this authorization, retail agents are potentially asking for trouble if they are issuing certificates on that business written through wholesalers. If the event of an E&O claim involving certificates (and these are very common), the retail agent could find themselves in less of a defensible position. If you are counting on the support of your wholesaler during these times, think again. Bottom line – secure a written authorization and get it updated each year.


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Do some of your watercraft customers know the benefits of a separate policy?

Now that the warm weather has arrived, your agency will probably have customers looking to get their boats in the water. How are those “toys going to be insured? Even if the watercraft is eligible for coverage under the homeowners policy, make sure that those customers are aware of the benefits of a separate watercraft policy.

Coverage under a homeowners policy can be limited in areas such as:

- the HO policy will provide liability protection but not provide any physical damage coverage.

- under a HO policy, there may not be any coverage for injury to passengers and others as well as any coverage for the trailer and accessories.

There are many benefits to a insuring the boat / yacht with a specialty carrier. Some coverages that are often either automatically included or for a fee with the specialty carriers are:

Roadside Assistance if your vehicle becomes disabled while towing your boat

Coverage for fishing equipment and other personal effects such as water skis

Fuel spill coverage 

Wreckage removal

Medical payments even for water skiers

There have been a number of E&O claims involving watercraft. Among the issues:

Territorial restrictions. This can involve specific territories (such as Cuba). In addition, some watercraft policies have limitations that exclude coverage in certain types of water (fresh water vs. salt water) or sizes of water (rivers and lakes as compared to larger bodies of water such as the ocean).

Hull coverage – Look to write the coverage on an Agreed value basis as this is broader than ACV.

Insufficient limits – major accidents can occur. Be sure to secure high limits and schedule this policy under the umbrella

Not understanding the binding guidelines relating to the age of the vessel – are there any specific survey requirements 

When you complete the application, look to sit down with the customer to review each question and explain the coverages in detail. If the customer does not choose the broadest protection, get their sign off for the coverages they declined.

The agency should be sure to review the policy to make sure that it matches what was requested. Also, when the policy is mailed, include a cover letter advising the client to review it to make sure that everything is in order.

Education of your customer is an important issue. Consider including this as a topic in your next customer newsletter and include it as a topic on your website. Spell out the benefits of a specialized policy as compared to securing the coverage via the HO policy. It is also a great topic to include in your personal lines reviews to ensure that customers know the differences.

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Does “Obamacare” present some E&O concerns ?

There has been volumes written about the PPACA (Patient Protection and Affordable Care Act) but for agents and brokers, I am not sure that there has been a lot written about, what I think is, the increased E&O exposure. First, I will admit that I am, by no means, an expert on PPACA but let’s think about the exposures that the PPACA potentially presents…

- It definitely presents a number of complex new compliance challenges for employers – what role will agents / brokers play in this?

- Employers may have to now reconsider their health benefit strategies – what role will agents / brokers play in this?

- Employees need to be educated – what role will agents / brokers play in this?

There are some recent survey statistics that bear noting:

Only 27% of employers understand health care reform very or extremely well (2013 Aflac Workforces report)

72% of employers have yet to identify the cost of health care compliance (The Willis Human Capital Practice Health Care Reform Survey – 2012-2013)

Only 13% of companies named “educating their employees about health care reform” as an important issue for their organization (2013 Aflac Workforces report)

These are all opportunities, yet challenges, for agents and brokers in the new world of PPACA.

Add to that, agents and brokers are probably more involved than previously in the role as Benefit Plan Design consultants. They may also have an enhanced  role dealing with  employee benefit communications. Personally, I feel that being more consultative potentially equates to increased E&O exposure.

Compliance is a significant issue and agents / brokers need to be extremely knowledgeable on PPACA and how to comply with its requirements. There is no doubt that employers are going to be looking to the agents / brokers for this knowledge and expertise. Once again, agents and brokers will be more consultative than ever before.

One of the additional issues facing employers deals with the decision to be fully insured or to consider self-funding this exposure. While traditionally self funding has only been considered for the larger employers, many small employers (less than 199 lives) may now look to self-funding as an option. What role will agents / brokers play in assisting employers to determine the viability of this approach?

These are all roles that agents and brokers will probably need to fill…the key is that they need to understand that with these roles comes a potentially increased E&O exposure.


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E&O Insights: How Errors & Omissions Liability Policies Respond When Buying or Selling an Agency

This is an excerpt from an Insurance Journal article that I authored in the April 7, 2014 edition.

“It’s rare to read an industry magazine or attend an industry conference without the topic of mergers and acquisitions coming up. The issues addressed typically include the cost of acquisitions, tax implications, systems matters, when a consultant is needed and when the parties involved should be able to handle the transaction on their own.

Yet a key – if not critical – issue that doesn’t seem to get much attention is how your errors and omissions liability (E&O) policy will address potential liability issues.

Whether you are the buyer or the seller, proper planning and appropriate attention to detail are extremely important.”

Continue Reading: E&O Insights: How Errors & Omissions Liability Policies Respond When Buying or Selling an Agency

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When are your putting the umbrella carrier on notice?

Let’s take the following scenario:

You have an insured that has their auto, homeowners and umbrella with your agency and all of these coverages are with the same carrier. The insured is involved in an auto accident where there are injuries but they don’t appear to be significant. The claim gets reported to your agency. Obviously you report the claim to the auto carrier. Is that enough?

What if the injuries are worse than originally thought?  Are you of the belief that since the auto and the umbrella are with the same carrier that if the underlying claim develops adversely, the umbrella claims division of that carrier is essentially officially on notice? Or possibly you may be thinking that the auto claims person will advise their umbrella counterpart.

Let’s fast forward the claim. The bodily injuries are worse than expected and your agency now decides to put the umbrella carrier on notice. Depending on the degree of the time lapse, there is certainly the possibility that the umbrella carrier could take a tough position and deny for “late reporting”.

If an E&O claim developed due to your agency’s handling of the claim, would the E&O carrier try to argue that the primary carrier is in the best position since they have all of the specific claim knowledge? Probably but to ensure that there are no “claims issues”, it would be appropriate for the agency to take a more active role and to automatically put the umbrella carrier on official notice, especially when bodily injuries are part of the claim.

Many of the E&O carriers are indicating that late reporting to the umbrella carriers is generating a fair number of E&O claims and is a significant trend of concern.  Make it a best practice to put all appropriate carriers on notice on a timely basis. 


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I’ve just been sued…what can I do with the agency file?

Hopefully, this is not an issue that you will ever have to deal with but in the event that your agency is named in a lawsuit, this is one question that you will need to know the answer to.

As most agency staff are probably aware, when an E&O claim is made against your agency, your agency file is probably going to heavily determine the direction and outcome of that litigation. A well documented file should help the agency’s defense (obviously this is heavily based on what is in the file) while a poorly documented file is certainly going to make a successful outcome  much more challenging.

When an agency is initially involved in E&O litigation, essentially the file “is what it is”. Hopefully the file at that point in time speaks to any discussions or issues that have arisen. The file (paper or electronic) is discoverable and admissible. Both the defense attorney (defending your agency) and the plaintiff’s attorney (defending the parties suing your agency) will have the right to examine that file in depth.

It is okay to organize the file and put it in order. However (and this cannot be emphasized enough) nothing should be added or  deleted from the file.  It is safe to say that during the claim discovery process (to determine if there is any merit to the allegations), various agency personnel will be questioned on this issue. This questioning could be done through depositions or in the actual court room while you are on the stand. Admitting to the addition or removal of certain documents can be extremely damaging to the case and to the credibility of the agency.

In addition, it is important that if your agency is going through a periodic destruction or “weeding” of files due to their age, that any file that is involved (or could potentially be involved) in E&O litigation cannot be destroyed or weeded. 

Whether the file helps  your defense or hurts it, as stated previous, the file “is what it is” and this is not the time to make any changes or to alter the file. For the most part, it is too late to do anything about it. Since you probably don’t know which file is going to result in a claim against your agency, this speaks volumes to the need to have all documentation promptly entered in the file.

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Can your customers pay you “after hours”?

This seems to be a common question and issue facing insurance agencies. While agencies are looking to be “user-friendly”, it is imperative they realize that there are some potential E&O exposures associated with this issue that need to be managed.

In my E&O classes, oftentimes, we will get into conversations regarding agencies accepting direct bill premiums and the need to determine the current status of the specific policy in question (typically it is an auto or homeowners) before allowing the customer to leave your office. Failure to check the status of the policy potentially leaves the agency vulnerable if the policy in question was technically not in effect at the time the premiums were accepted.

This issue is further exacerbated when the customer has the ability to “pay the premium” by depositing the necessary monies into a mail slot after the agency is closed for the day. What if the policy had been cancelled and the customer deposits the premium after the agency is closed? Does that mean that the policy is now in effect? Technically no but your customer may argue differently. What if they had a loss…is that loss now covered? Once again, technically no (in my mind anyway).

If your agency is currently allowing this “method of payment”, only you can decide if the value outweighs the risk. A couple of things to consider if you plan on continuing to allow this.

-          Find some way to make the customer realize that any premiums “deposited” will not be handled and applied until the agency opens up on the next business day.

-          Have a procedure that first thing the next business day, any premiums “deposited” are handled promptly and any issues (such as the carrier refusing to reinstate a cancelled policy) are discovered and communicated without delay.

-          If there is a problem, every effort should be made to contact the specific client (phone, mail, e-mail, combination of all three) as quickly as possible to advise them of the issue and current status of the account.

-          Find a way to deliver the message that any monies deposited does not guarantee that the policy is paid for and in effect. Putting a sign by the “mail slot” is probably the best approach.

Certainly due to a variety of factors, customer paying at the very last minute (and potentially after hours) is occurring with some regularity. If your agency allows this, be sure to take all precautions to ensure that this does not become an E&O nightmare.


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Are you completing this years app using an “older” app?

Imagine the following scenario:

You have had a commercial account for a number of years and due to some premium increases, you are in jeopardy of losing the account so you decide to put the account out to the market. One of the “pieces” of the commercial account is an umbrella. To get an umbrella proposal, you would need to complete an application.

As you pursue completion of the umbrella app, is there any chance at all that you would use the last app you completed to complete the current app? What if the last app was at least a couple of years old? Could this potentially cause you to enter certain information on the current app that is no longer accurate?

With the pace that agencies are performing, any opportunities to gain some efficiency are often times pursued. Some of these “gains in efficiency” may involve certain shortcuts to get the job done. Sometimes, shortcuts may not result in the gains you hoped for. Bottom line, it is critical that the information you are presenting to the carriers meets the 3 c’s: complete, current and correct. 

The best approach is to make sure that the application meets these 3 c’s and presents the carrier with an accurate description of the exposures. If you want to “prefill” some of the information, that might be appropriate provided that it is reviewed by the client for verification of the answers to the various questions.

I remember one E&O claim where when the umbrella application was completed, an old app was used. Unfortunately, the named insured on the “older” application was used and did not reflect a new operation and new entity that the client had started (this business was written by another agent). When that entity was sued, the umbrella did not respond since the necessary entity was not noted. The E&O claim was significant.

The potential possibilities are numerous and this issue applies to more than just umbrella applications. So when completing an application using an older application, it is best to question the quality and accuracy of the information from that older application. Exposures can change quickly so even a one year old application may not be accurate as you may believe.

Bottom line – work with your account to ensure that the application meet the 3 c’s and presents the carrier with a complete, current and accurate description of the risk.


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“Let me see the certificate you issued in 2012″

In the event of some type of E&O litigation where the certificate you issued is a key issue, these could very well be the words you hear from either of the two attorneys. Will you be able to honor their request?

For the last 5 years or so, E&O claims alleging improperly executed certificates of insurance have been on the rise with most E&O carriers reporting at least 5 – 10% of their E&O claims involve this piece of paper. This is actually one of the leading causes of E&O claims.

The situations are numerous although it is reported by a number of E&O carriers that the additional insured issue is the most frequent. Typically this would involve the agency noting coverage for an entity as an additional insured but where the actual coverage form did not provide the coverage.

Insurance agencies need to ensure that they have the ability to produce the certificate today as it exactly looked when it was originally issued. Typically this document is electronically stored or for some agencies, may actually be in paper form. Being able to produce the “original” certificate is key. Why?

Actually, as surprising as this may be for some of you, named insureds have been known to “modify” the certificate after it was provided to them. During one of my seminars, one agent advised me that they found a certificate where the named insured added coverage on the certificate when in actuality, it didn’t exist. The certificate was “doctored” to add coverage for a umbrella complete with carrier and fake policy number. Is this case “one of a kind”…I doubt it.

When the agency was able to provide the original certificate without the umbrella coverage, obviously the named insured (believe that it was a contractor) certainly had some explaining to do.

So if one of the attorneys says “let me see the certificate you issued in 2012″, hopefully you will be able to say “here you go”. 

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Does social media present some E&O risks?

Recently at a NetVu conference, I “hosted” a session on this subject and was very pleased with the number of attendees and the great participation. It certainly appears that this is an issue on many agents’ minds.

Most agents agree that Social Media is a very powerful tool and has tremendous power. The power can serve your agency in numerous ways including marketing and education. Whether this “power” serves your agency in a positive or negative manner is up to your agency.

With any type of media that your agency may use, there are definitely some issues to be on the lookout for.

One of the first things is to have a written plan. This should include what you want your site to look like and what you want it to do. 

Develop a guide that spells out the various issues that the agency and all of its employees need to be aware of. The guide should include the do’s and don’ts addressing issues such as who has the permission to use that specific media on behalf of the agency and what is considered acceptable and conversely unacceptable behavior. This guide will let the staff know what you are trying to accomplish and the role that they play in helping you reach your goals. Absent a guide, you run the risk of employees doing what they want or think you want.

Be sure that the guide includes a very strong statement that employees are not to reveal secrets about the agency or to speak ill of the competition. Not following these rules could pose some very significant legal issues for your agency as well as result in some other business implications like loss of reputation or loss of business.

It is important that employees understand that correspondence via social media exists forever. If a problem were to develop down the road, any social media transmissions would be discoverable and could be used against your agency. Professionalism must be adhered to at all times.

In the development of a social media presence, education is a common objective. Social Media can be a great vehicle to educate customers on various issues or how their coverage would respond. It is vital that the information is carefully constructed and proofed for content, accuracy, professionalism and legality. It is a good idea to have a point person in the agency that has this as part of their responsibility. Inappropriate / defamatory comments involving specific people / organizations must be avoided at all costs.

Also take the time to educate your prospects and customers on their use of social media when interacting with the agency. It would be appropriate to prepare something for your customers to educate them upfront on the do’s and don’ts when communicating with the agency.

Marketing your agency using social media (such as blogging) is considered by many a form of advertising. Managed professionally, this can give your agency a very positive brand and can be very effective. As you would with any advertising material, paper or electronic, it is critical that the content be accurate, truthful, professional and positive. In the field of advertising, there are various statutory and regulatory guidelines that need to be complied with. Be sure to comply with these guidelines. Oftentimes, you may find an article that you would like to post on your website or in your blog. If so, make sure that those articles are from reliable sources and a sign off is secured.

Bottom line: with the proper planning and execution, social media can have a positive impact on your agency and hopefully keep you out of any E&O problems.

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