Attend an E&O seminar in 2017

There are a variety of opportunities to enhance the E&O culture of individuals and the agency as a whole. Most of the industry magazines have a column dedicated to the topic and with few, if any exceptions, the articles are well done and have a very specific message.

Personally, I feel that the best approach that really makes a difference involves live E&O classes, either performed at a public place, association office, at an annual conference or in the agency itself. The advantages of this approach are twofold:

The E&O issues / topics discovered are significant. While documentation is obviously going to be discussed, other issues such as renewal questionnaires, policy checking, system management, etc. will also be covered. After all, a solid E&O culture involves many different areas.

- The session is going to be interactive with the ability to ask questions or at least hear and understand the answers to questions that other folks are raising. At times, a particular issue that someone may have may not get addressed. However, most instructors are very good at encouraging additional topics either in the session or at the breaks.

A suggestion that I hope agency managers will respect: if one were to profile the attendees in an E&O class, it would be common to find that the majority are in a management / ownership position with the agency. Without a doubt, this is very important as a strong E&O culture starts at the top. However, it is heavily suggested to have the staff represented in these classes. While it will probably will not be possible to have all or even half of the staff attend, if possible, have 25% of the staff attend. They should be advised that they will be required to discuss the topics at an upcoming agency staff meeting.

Without a doubt, attendees at E&O sessions always leave these sessions with a better understanding and appreciation for the variety of issues involved in a strong E&O culture and commitment.

Now is good time to contact your state agents’ association to see what E&O classes they will be running in your area in 2017 and make it a point to have some staff attend. Many of the E&O carriers provide a credit on the E&O insurance based on a certain percentage or number of staff attending so while you are enhancing the E&O culture of the agency, you may be just saving some money.

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When buying E&O, limits should be the primary focus

Imagine the scenario, your agency has just been advised that you are being sued in an E&O matter. Would you rather have $1,000,000 limit of liability and a $1,000 deductible or a $2,000,000 limit and a $5,000 deductible? I would trust that most would prefer the higher limits but with the higher deductible. This is very sound thinking. Unfortunately, this is not always the case. In fact, if this issue were to be surveyed, I would imagine a significant percentage of respondents would choose the lower deductible as opposed to a higher limit when securing their E&O.

The advantage of focusing on the E&O limit is that this is the “unknown”. When an agency is sued, the potential dollars at stake are an unknown, more so if the underlying coverage involves liability coverage of some type. One of the more significant trends that E&O carriers are experiencing is an increase in severity which is a measure of the final settlement of the claim. Overall, Agents E&O claims are being settled for bigger dollars than in the past.

In looking at the deductible side of the equation, if one were to take a $5,000 deductible as opposed to the $1,000 (in my scenario above), the potential impact to the agency is “known”. Essentially it is a $4,000 difference. Most agencies can absorb a $4,000 difference as opposed to a $250,000 difference when they find out they did not have enough E&O limits.

A common scenario is to buy a higher deductible and “invest” the savings by securing a higher E&O limit. This issue is one that should get a lot of attention when securing your initial coverage or at renewal time. Do not hesitate to ask the underwriter / broker / association (whoever you are dealing with in the securing of coverage) for options. Look at a couple of higher limit options with some corresponding higher deductible options. This will enable you to make an educated decision.

A word of advice, especially for smaller agencies: One of the deductible options may involve going from a loss only deductible (where the agency only pays their deductible if a judgment has been made against them) to a combined deductible where the agency will now have an obligation to incur part of the defense costs. The suggested approach, once again for small to medium size agencies is to stick with the loss only deductible. You might pay a couple of dollars more but it is the more conservative approach.

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Record Retention – what’s the right number ?

How long should an agency retain their records? While this seems to be one of the most often asked questions, it is also one of the most debated. I have seen articles written expressing opinions that due to current technology, an agency should keep their records forever. More about that in a minute.

One of the key underlying issues associated with this topic is that due to the various privacy laws (among other things) and laws regarding notification in the event of a breach, it is not really possible to pick one record retention number and have that number apply to all agencies of all types. There is no “one size fits all” approach.

While many in the E&O prevention side of the business are asked the question about record retention, this is a question that is best posed to legal counsel. Each state has potentially different laws and statutes that will come into play when determining a record retention position and legal counsel should be consulted to ensure the necessary details are known and factored in.

Probably at the end of the day, the real key issue applying to this topic is that the agency develop a record retention position, implement it and stick to it. The record retention schedule should be determined and communicated to the staff. It is important the position be heavily monitored as deviations from a set record retention schedule could cause problem issues if key information / information pertinent to a potential E&O matter was destroyed prematurely. This would arise allegations of “spoliation of evidence” which is not an issue you want to be involved in.

On the issue of keeping records as long as you can, personally, I feel that this is not a prudent position to take. There are a variety of issues:

What is the credibility of a client decision made 15 years ago? The more records that an agency has in the system would probably expose that agency to more potential issues in the event of a data breach. Also is there the possibility that keeping records longer than necessary could actually damage the defense if the agency were to become involved in E&O litigation? It is important to remember that at the time of an E&O matter, all of the agency’s file information (documentation, e-mails, proposals, etc.) are now admissible and discoverable to both the attorney defending the agency but also the attorney suing the agency.

Bottom line at the end of the day – each agency should determine their record retention schedule / position and then comply with it.

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Court Finds No Coverage for Credit Card Breach under BOP

The following cited an interesting legal case that was noted in the IRMI newsletter of Nov 16th.

Demonstrating the importance of liability coverage for cyber-claims, an Alabama federal court found that a grocery store was not entitled to a defense under a businessowners policy (BOP) for a lawsuit brought by credit unions seeking costs related to a credit card breach. There, the store’s computer network was hacked, compromising credit/debit cards. The credit unions filed suit, seeking costs they incurred for fraud losses, reissuance of cards, and various administrative expenses.

The insured sought a defense under its State Farm BOP. However, State Farm denied coverage, and a lawsuit ensued [Camp’s Grocery, Inc. v. State Farm Fire & Cas. Co., No. 4:16-cv-0204-JEO, 2016 U.S. Dist. LEXIS 147361 (N.D. Ala. 2016)].

The court addressed whether a duty to defend exists under the BOP’s liability section, “Coverage L.” This section stated that State Farm owed a duty to defend the insured from damages “because of ‘bodily injury,’ ‘property damage,’ or ‘personal and advertising injury.’” Significantly, “property damage” was defined not to include “electronic data.”

The insured argued that covered “property damage” was alleged because the credit unions replaced physical debit and credit cards due to the hack. The court sided with State Farm’s argument that covered “property damage” did not exist. The court found that the insured’s lax network security “allowed the intangible electronic data contained on the cards to be compromised … causing purely economic loss flowing from the need to issue replacement cards with new electronic data.”

Editor’s Note: The credit union’s lawsuit follows the trend started by the Target data breach litigation, which allowed banks to bring lawsuits for the costs they incur. That is why it is important for insureds to obtain Insurance Services Office, Inc. (ISO), forms BP 15 04 or BP 15 05, which are designed for data breaches and would have likely afforded coverage for the store. Also, form BP 15 08 covers lawsuits by acquiring banks (i.e., Visa, MasterCard), as well as any contractual penalties in the merchant agreement.”



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Want to sell more insurance while reducing your E&O exposure?

This sounds like as close to a true “win-win” scenario as one could get. Ironically, the more focused an agency is on minimizing their E&O exposure, the more insurance they will sell. Here is an example…

When you provide your clients with a proposal, include a statement that references some exclusions for that specific line of business. For example, when you are addressing the general liability coverage, note exclusions such as employment practices liability or professional liability coverage and then bring these to the attention of the client during your proposal presentation. This is almost guaranteed to prompt some further discussion (and possibly a proposal to address the exclusion). When noting exclusions, there are a couple of key issues to note.

There should be a reference to the noted exclusions that the list of exclusions is not a total list. Thus, a statement such as “exclusions include but are not limited to the following” helps to educate the client on some of the exclusions while bringing to their attention, this is not a complete list.

- There should be a disclaimer on the proposal. An example:

“This information displayed is intended to be a brief review of limits and coverages. It is not intended to be a complete description of all coverages, exclusions, limitations, terms or conditions. Please refer to the policy for a complete explanation of the coverage provided”

To note some of the exclusions requires that the exclusions in the policy in question to be reviewed. I am not sure how many producers actually perform this type of review but it is definitely time well spent. As the exclusions are reviewed, one should be looking to determine if the exclusion is a possible potential exposure for that client.

This approach works! Among the examples I am aware of involved a wholesale food distributor account. Among the products they sold was live seafood (crabs, lobster, claims, etc.). However, in the property section of the policy is an exclusion for “live animals” that would have come into play if a loss had occurred for the live seafood. By bringing this exclusion to the client’s attention, it accomplished at least two things:

- If the client suffered a loss involving the live seafood and tried to claim that they were not aware of the exclusion, they would not have much of a case.

- The second thing it accomplished was that the agency wrote the account, taking it away from one of their competitors.

So at the end of the day, educating your client through the inclusion of some of the policy exclusions certainly helps to minimize the potential for an E&O claim. And guess what:

You might just sell more insurance !!


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The Election from an E&O perspective

Election Day has come and gone (hallelujah) and there has been an analysis of the results and the impact from virtually every perspective. However, in reviewing the various news and media reports, I am disappointed that I have yet to see an analysis from an E&O standpoint. So here goes….

Overall, it appears that there were a number of “foul-ups” resulting in a significant number of complaints alleging aggressive behavior on the part of some individuals at the polling places, laptop problems resulting in the inability to verify registration, voting places running out of paper voting forms, etc. Sounds like some real “errors and omissions” but did they have any E&O coverage? Enough about that.

How will the results affect the insurance landscape, more so on the benefits side? This is certainly yet to be determined so this is obviously strictly from my crystal ball. Since the advent and implementation of the ACA, there have been many challenges for employers to come to grips with what impact ACA would have on them. Obviously, there were the compliance issues that employers were going to be expecting to understand and meet. On top of this, many agencies have advised me that many of their clients reduced their Human Resources Department as a cost saving measure. This then seemed to have put extra pressure on agencies / brokers to fill that void and to provide more assistance to ensure the client meeting the compliance requirements.

In addition, there has been the pressure on the various markets (which are limited). This seems to have resulted in some markets withdrawing from the marketplace in one form or another.

Ironically, in looking at the E&O claims coming from the benefits side of the industry over the last couple of years, the results continue to be very positive. It appears that employers have a decent handle on what the ACA is all about and what impact it has had on their business. But what if the ACA gets repealed as President Elect Trump has indicated that he intends to pursue? Is this a good thing from an E&O perspective?

I am not sure. I guess this will depend on to what degree the market gets thrown “upside down” and now has a new set of regulations and requirements to meet. How well will clients meet those requirements and what role will agents and brokers play in assisting clients to understand those requirements?

Will the ACA get repealed or simply modified? Will it change at all? If it is modified, hopefully they will keep the good from ACA (and many contend that there has been some real good) and retain it while finding a way to fix the “bad”.

Bottom line, I guess that time will tell but then again, neither Trump or Clinton asked my opinion.

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How easy is it for you to locate “all” of the information on an account?

A problem has just occurred and your boss indicates that they want to see you in their office right after lunch with all of the information pertaining to the file. How easy will it be for you to locate “all” of the information?

First of all, when the boss says “all” of the information, they mean “all”. This includes among other things all of the e-mails that have been sent back and forth with that customer.

For many agencies, this is not a problem because detailed procedures and expectations were developed regarding documentation and where the various documentation is to be stored including under what system tab. Unfortunately, for some agencies, this becomes a nightmare!

Very honestly, this need for “all” of the information is a reality. When a problem develops, the last thing you want to be thinking is “I know that I sent them an e-mail but where did I put it? Why can’t I find it?”. Quite literally you want to be able to locate quickly and efficiently the necessary documentation. In addition, if this is your file and you are not in the office on the day that the “problem” develops, will your colleague be able to locate “all” of the necessary information or do you have your own “special” place where you keep things?

To ensure that “all” of the information is readily available, every agency should have established procedures for document management. This should include issues such as:

There should be only one place where the information is stored, whether that is in the agency management system or in a document management system,

- E-mails should be attached to the customer file,

- There should be clear definitions on each of the naming conventions and exactly what should be included within each.

Document Management is a critical piece of a strong E&O culture. If your agency is somewhat lacking in this area, take the time to develop the necessary procedures so that the next time a problem develops and the boss says they need the entire file, you can feel confident that you are providing the “entire” file.

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The importance of ATTITUDE in E&O Loss Prevention

Ask 100 agency folks today about E&O loss Prevention and it might not be a surprise to get at least half of them stating “it’s a necessary evil”.  For someone that has spent the last 30 years involved in helping agents avoid E&O claims, this might sound like a terrible number. However, if one were to go back 20 years ago, it is fair to say that that the percentage of agents thinking “evil” thoughts on agents E&O would be at least 80%. So I guess you would say that progress has been made.

In actuality, personally I believe that a tremendous degree of progress has been made on individual’s attitude towards E&O. If one were to think back 20 years ago (we were probably just starting to think about Y2K), as procedures were developed within agencies, how often was the following question raised “is this a good procedure from an E&O standpoint”? Probably minimally. But today, this is virtually always a question that is involved in determining the final procedures and processes.

For some E&O carriers, the E&O claim frequency going back to 1990 was in the 14% area. Stated another way, this correlated to 1 agency in 7 across the country being faced with an E&O claim. Today, for some of those same E&O carriers, the number is 1 agency for every 20 (between 5% and 6%). Yet, when factoring in the legal climate, we are probably in more of a litigious society today than we were 25 years ago. Now that’s progress!

There is no doubt that Senior Management heavily determines the E&O culture of an agency by the manner in which they operate. Do they “walk the walk” and “talk the talk”? However at the end of the day, it is the agency staff that truly makes the difference since they are the ones that are, for the most part, handling the daily account servicing and sales activities.

Agents E&O is not an issue to be feared. As I have stated many times over the career, if after an Agents E&O class, the agency owner goes back to the office and puts a “For Sale” sign up, then I have failed. My goal is not to scare you (ok…maybe just a little bit). It is to hopefully enlighten you that Agents E&O is to be respected and embraced and that with the right culture and commitment, the vast majority of Agents E&O claims can be avoided.

“Agencies don’t make mistakes, people do”. This is a phrase I have used thousands of times…maybe I should patent it. Thus the E&O culture of an agency is going heavily based on the attitude of the staff. Do they fight the E&O process or do they embrace it? Developing a stronger E&O culture means having more staff each day understand and embrace the importance of E&O loss prevention.

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