“My friend would never sue me”

Hopefully you really don’t believe this statement. As noted by the following actual E&O claim, friends do sue friends and they can win these suits.

A doctor working for a non-profit group was sent overseas to assist in establishing a medical clinic. The agent, aware that the doctor would not be living in the home for an extended period of time, advised the doctor that he should purchase a vacant home policy which would provide him full coverage in the event of a loss while the home was unoccupied. The agent procured a DP-1 for the doctor.  

During the winter, while the doctor was still overseas, the pipes in the house froze causing significant damage. Upon filing a claim, the doctor found out that he had no coverage under the dwelling policy for the loss, contrary to his understanding of the coverage provided. The doctor sued his long time agent friend for the losses he suffered and the case went to trial. The doctor argued that the agent failed to procure the proper coverage and further argued that the agent had advised him that the DP-1 would provide him with “all the coverage” he would need. 

The agent argued that the doctor was very cost conscious and that if offered, a DP-2 or DP-3 policy would have been rejected due to cost. The agent further argued that the doctor had a duty to read his policy.

The verdict was found in favor of the doctor. While the doctor had a duty to read his policy, the jury relied heavily on the position that the agent / friend had a duty to procure the broadest coverage or to at least provide options for the doctor to consider.

Whether the client is a friend or not, they should be dealt with in a consistent professional manner. It is important that agents don’t take their friends for granted or assume that they know the coverage being secured. In the above claim, by providing the client with options to consider with an explanation of the coverage afforded by each of the three dwelling forms, there is a good chance the E&O claim, if it was brought, would have had a different outcome.



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Is every one of your accounts getting a renewal proposal?

As agencies look to gain efficiencies in their processing, it has become very common to use the renewal proposal as the means to include a variety of topics. Some of the issues addressed include additional coverages that the client should consider or the fact that higher limits are available. On the Benefits side, a common issue included in proposals is the notification of other products and services the agency has available. For those accounts getting a renewal proposal, these notifications should serve to educate the client while at the same time adding an element of E&O protection for the agency.

But what if the client does not get a renewal proposal? It appears that more and more carriers are automatically renewing the coverage in advance of the effective date. Essentially, there is no renewal proposal; just the providing of a renewal policy.

So how are these clients being notified of the availability of coverages such as Cyber, Employment Practices Liability, Umbrellas, etc.? How are they being notified that on some of their existing coverages that they can secure limits higher than what they currently have?

If this scenario is occurring in your agency, give some consideration to an annual mailing, possibly 90 days before the renewal of one of their primary coverages, such as the BOP or Package policy. This mailing could include a renewal questionnaire or it may be best to have that document sent in a separate mailing.

One of the goals of this type of an approach is to educate the client. Education has been shown to be a very strong deterrent to E&O claims. The more educated the client, the less likely the client is to bring an E&O action against the agency in the event of an uninsured loss. In addition, the more educated the client, the more exposures they will probably have insured. A true win-win position.

So if your agency has some clients that are not getting a renewal proposal, look for a way to educate them on other coverages, higher limits, etc. With most agency systems, this process of mailing a letter can probably be automated. One other item: your agency system should include an activity indicating that a renewal mailing of some type was sent. This level of documentation could be important to verify that you did what you say you did.

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Reviewing client’s contracts

On any given day, agents are asked to review contracts/leases on behalf of their clients. The objective is to essentially determine how well the client’s insurance program meets the requirements of the proposed contract.  There are a number of areas for the agent to be aware of if they are going to undertake this role. To start with, if the agency has not done this type of work before, it is best that the person(s) to whom this task is assigned receive the proper training. There are many resources available to educate staff on what to look for including your local agent’s association. Some of the key issues include:

The review of the contract/lease should be limited to the insurance requirement of the contract. This is critical.

- When responding back to the client, the suggestion is to deliver the “findings” in writing only. However, if it is necessary for the response to be delivered verbally, a follow up written communication should also be provided. This will allow the inclusion of the proper disclaimers to be stated.

- On the subject of disclaimer language, the following is a sample to consider using:

“We have reviewed the contract for insurance purposes only.  We are not in a position to provide legal advice and thus our review is based on coverage in force at the time of the review.  The comments made in this review are not intended to be a substitute for a review of the contract by your company’s legal counsel and accordingly, it is recommended that your counsel review this contract.  We disclaim any and all liabilities arising from this review and any final contract language.”

Many agents do not want to get involved in providing a review of client contracts. However this may not be possible in light of market competitiveness. By following some basic steps, a contract review will not be as scary as one may think.

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Your Agent’s E&O app

As everyone knows, the common means to protect an agency from E&O allegations is through the purchase of errors and omissions coverage. To secure this requires an application. So far, so good.

With virtually all lines of business, the application is a critical piece in the equation. It is the means to communicate to the carriers the “honest and accurate” information required to evaluate the risk and determine the appropriate pricing. 

Recently, in doing a project for one of the E&O carriers that I consult with, I was asked to review a series of claims to assess what the agent could have done better to prevent or at least minimize the potential for the E&O claims to happen. To assist, I was provided with a copy of the E&O application that was completed and signed by the agency principal.

One of the issues that stood out dealt with the agent indicating on the application that they perform an annual exposure checklist. In reviewing the claims attributable to that app, those claims could have been avoided had the agent performed an annual exposure analysis checklist. The other issue centered on policy checking and clearly if the agent systematically performed a policy checking process, the missing coverage would have been identified and rectified. The E&O application indicated that the agent had a process to check policies.

Did the agent mislead the carrier in completing the application? I would like to believe that this is not the case. I would certainly hope so. Possibly the individual completing the app firmly believed that the issues of exposure analysis checklist and policy checking were being completed. But unfortunately, they were not being completed as religiously as was thought. This certainly demonstrates how important each of these processes is in minimizing E&O claims activity. 

The completion of an Agents E&O app is EXTREMELY important and when answering the various questions, it is critical that those answers are answered correctly. Depending on the nature of the specific questions, the E&O carrier may have grounds for a policy rescission if they could allege they would not have written the coverage had they known the correct information. This is not a road an agent wants to travel.

The individual completing the app may want to use that as an opportunity to communicate to the staff that they are advising the carrier that these procedures are being followed and if they are not being followed, now is the time to say so.

Many E&O carriers will after a claim, contact the agent and question them on how diligently the various procedures are being followed. Hopefully the answer isn’t “we must have missed that one”.

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What is communication without documentation?

Google “communication” and you will find a number of very profound quotes. One by Paul J. Meyer read: “Communication – the human connection – is the key to personal and career success”. For the most part, that is a very accurate statement. However, if you are a producer for an insurance agency, the element of communication is only part of the issue.

Let’s use the scenario that an insurance producer communicates to a client a specific issue regarding the client’s insurance coverage. This could involve the binding of coverage, the lack of binding of coverage, an exclusion, an explanation on how coverage would apply, etc. These are probably going to be very important issues and thus need to be communicated.  

A problem then develops and the client alleges that the issue was either not communicated or not communicated the way the producer states that it was. The producer is adamant that the issue was discussed and can state where it was discussed and with whom. Unfortunately, there is no documentation to support the insurance producer’s side of the story.

So what is communication without documentation? Basically it is “hearsay” – information received from other people that one cannot adequately substantiate. In the court of law, this type of information is oftentimes not admissible and is disallowed as evidence. The courts may very well take the position “if it is not in the file, it didn’t happen”. 

For insurance producers, one of the key areas where the communication needs to be documented is producer – client meetings. These can be at the initial stage of the relationship or at the numerous times where the interaction will occur.

It is highly suggested that producers take notes of the discussion and memorialize them not only in the agency system but also through some form of written communication back to the customer or prospect. The documentation should include who was present for the meetings, what was discussed and what was agreed upon. For example, if the client states that they are not interested in a quote for Cyber coverage, this should be documented and then referenced in the written communication back to the client. If the client then suffers a cyber loss and tries to allege that they were under the impression the producer was going to bind coverage for this exposure, this level of documentation could very well make the difference in the outcome of any litigation.

There is no doubt that communication is an essential element in the business world. However, communication without documentation might not be enough to address any future problems.

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How are you handling potential problems?

Many of you have no doubt heard about the problems Delta Airlines experienced earlier this week. Apparently, there was a power outage in Atlanta (hear that there is a lot of finger pointing) that caused the Delta computer systems to go down worldwide.

Hopefully this did not affect any of you…..it did effect me. Upon arriving at the Syracuse airport at 4:45 Monday morning, I saw hundreds of folks in line waiting to get to the Delta ticket counter (the kiosks were down). To ensure that everyone understood the reason for this, there was a Delta ticket agent going thru the line to explain the reality of the situation. The computers were down but they could check us in via another system. Actually, they were very upfront in commenting that they could not guarantee that our flights were going to take off that day. Everyone seemed to take it in stride.

Upon arriving at my gate, I noticed well over 500 people milling around. From the minute that I arrived at my gate, the Delta gate agents were in constant communication letting us know the reality of the situation (there was no sugar coating). In fact, it was mentioned that we would have at least a 5 hour delay, if not longer, in the airport. But in the meantime, they (Delta) was going to provide us with coffee, sodas, juices, water, snacks (obviously all at no cost), coloring books and puzzles for the kids, etc.  They called the Corporate Offices in Atlanta every half hour and then immediately advised us of the latest.

Well eventually I did catch my flight, 3 hours later but that is not the issue.

The issue is that I am not sure that Delta could have handled the situation any better (and many of us told Delta exactly that). They had bad news but they were very empathetic and apologetic; they communicated, frequently and honestly.  Quite candidly, while I have always liked Delta, I have never been a total loyal customer to them. That will probably now change. They have won me over.

When you encounter a problem situation in your agency, how do you handle it? The way you do could very well determine whether you lose a customer or gain a new one.

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Are you providing your clients with their own portals?

In my travels across the country meeting with agents, I have noticed that more and more agencies are providing their clients with portals. These portals are a password protected site that can not only house the client’s insurance policies / other key documents but they may also serve as a means of communication between the respective parties. The use of portals has become popular for the client as it is an efficient method to access their key insurance information and policies.

As with any type of technology, there are some key issues to consider. Obviously there is a need for security of the information, including but not limited to PII and PHI information. Agencies might want to consider some type of a security audit to ensure the protection (firewalls, etc.) are at a very high level. Also, there is a definite need for system safeguards to be in place.

Training of the client on the proper use and management of the portal is a must. Some agencies have actually recorded a webinar to provide an efficient means of delivering the proper information and message.

Typically when the agency posts an item to the client portal, there is an automatic e-mail notification to specified client users alerting them to the “new” posting. Let’s assume that the new posting is telling the client that one of their insurance policies has been posted. If the agent were to have delivered this policy or send it via the mail, there is a good chance that the client would have been advised of the need to read their policy.

The fact that the policy is being posted to the portal does not diminish the need to advise the client the importance of reviewing their policy. Agencies should consider the inclusion of a disclaimer either in the e-mail notification or when the client signs onto their portal advising them of this same message: to read their policy. A disclaimer statement such as the following is suggested:

“By opening up any of the documents, the client acknowledges that they have read and agree to the disclaimer”.

This essentially serves as a reminder for the client to review the attachment / policy and advise of the need for any corrections.

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Why having the customer sign a blank app is a real bad idea

40 years ago in my days at an insurance agency in the Utica, NY area, from time to time, one of the producers would ask the customer to sign a blank app. Apparently the customer would not be able to meet with the producer after the app was completed. So the scenario essentially was “just sign the app and I’ll fill it in later”.

Personally, I thought that having a customer sign a blank app was not occurring at all in today’s world; especially with the use of e-signature technology. I was wrong. I recently reviewed an E&O claim where the customer signing a blank app was a part, and actually a huge part, of the fact pattern of the E&O matter.

The producer had met with the customer to gather the necessary information to secure a quote. For some reason, the producer did not use the app to secure the information. They opted to just take notes with the intention of transferring the information to the app. When the quote was accepted, the producer then transferred the information from his notes to the application. The application was submitted and the policy was issued. It is important to note that a copy of the “final” completed application was never at any time provided to the client.

During the first year of the coverage, the client suffers a loss and the claim is submitted to the carrier. The carrier identifies a problem. During the investigation of the claim, the carrier discovers that the client had previously filed for bankruptcy. Although it appears that the client provided the producer with this information, the producer never provided it to the carrier.

The final outcome: the carrier paid the claim and brought an E&O action against the agency and won.

One of the common defenses in an E&O matter is that the customer will be held responsible for the contents of the application “provided” the customer signed the application. Since the app was blank at the time of the signature, the customer could not be held responsible for any misstatements.

What could the producer had done better? How about some of the following?

-     Always provide the customer with the completed application and ask them to review it and if everything looks in order, to then sign the app. This should be the practice even if the app does not require a signature.

-     When securing information, use the questions on the app to secure the information. The questions should be asked “verbatim” and the information noted exactly as it was presented.

-     Don’t use the information from last year’s app to complete this year’s app.

-     Never sign a customer’s name to an application.

 So having the customer sign a blank app really is a bad idea.

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Add Auditing to your E&O culture

As President Ronald Reagan was quoted many years, it was very important to trust but it was equally if not more important to “trust but verify”. This is where auditing comes in.

Auditing is actually one of the top 5 initiatives agencies should implement to strengthen their E&O culture and commitment. After all, for agencies that have documented workflows and procedures, how else can management have a comfort level that the staff are meeting the expectations? Unfortunately, if you were to mention that your agency was going to start “auditing”, you might hear a groan or two.

So maybe the key question is that if an agency were to start auditing, how can they ensure that their staff embraces it for the value it provides?

First off, regardless of who is going to actually be doing the auditing, it is important that management explain the reason, the value and projected benefit. Some staff may feel that auditing is a “gotcha” and that the staff member is going to get dinged for not doing the job. Yes, that could happen but it is important that it not happen during the first year or so of the implementation of the auditing process.

There is certainly the possibility that there is a misunderstanding of some of the procedures. In addition, there may be a need for further training. These are all valid outcomes from auditing and should be handled as such. If a staff member does not do a procedure properly, it is important that the “auditor” or management take the time to meet with that staff member and explain why they did not “pass” the audit on that specific question. Possibly the issue is that the employee posted an item (example a checklist) to the agency system; just not to the right tab in the agency system. Meeting with the employee and explaining the proper procedure and expectations is important. Obviously, while the employee may get a “get out of jail card” on this year’s audit, they need to know the proper spot in the system in the future to ensure they get the credit.   

By approaching it in this way, it shows the staff the importance of auditing but that it will be implemented fairly and openly. Auditing really is that important but the way it gets introduced could determine if it achieves the desired results.



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An opportunity to enhance your renewal process

If one were to survey insurance agencies, it is a fair bet that the process for evaluating a client’s exposure is pretty good on new business. While the initial step of securing a copy of the client’s current policies seems to be the norm, agencies typically will then take the time to evaluate the current coverage to try to find uninsured exposures. After all, this is an effective way to increase the chance of the “new agent” writing the account.

Unfortunately, for many agencies, this is where the process often ends. Renewals get “renewed as is” and there is not a real concerted effort to identify uninsured exposures or to even mention coverages that were discussed during the new business process that the client did not purchase. In fact, it is probably fair to say that on renewals, the agency does not even communicate with the client except to mail the policies. Is this how things are done in your agency?

Whether the account is a personal lines customer or a small commercial lines customer, there is a process that agents can follow to encourage their customers to notify them of some insurance issues. Large commercial accounts normally get some specialized handling but this process could certainly be considered for larger accounts as well.

Agencies should mail (or e-mail) a renewal exposure questionnaire to the customer on an annual basis; this mailing is typically done 60 days prior to renewal. A cover letter should be attached that will explain the process and objective. The questionnaire should address exposures the customer should be aware of that are not insured. When referencing coverages for the customer to consider, use language such as “Other coverages to consider include but are limited to the following”. This lets customers know of some coverages but it is not possible to list them all.  

FYI, it is not necessary for the agency to follow up on the mailing. If the customer does not respond, language similar to the following is suggested: “Please note if you do not complete and return this questionnaire, your coverage will continue based on the information you previously provided.” Obviously for questionnaires that are returned, they should be promptly acted on.

 The questionnaire should include some “disclaimer type language” such as:

- “Higher liability limits may be available”   

-  “Please review your coverage and limits and contact the agency with any questions or changes”.

Many agencies also include a reference to some common exclusions such as flood, earthquake, employment practices, etc.  

With most agency management systems, the mail merge capabilities should allow this process to be implemented quickly and efficiently.

This is a very proactive loss prevention measure and hey, you may just find your agency writing more business!

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