|There is actually an interesting dynamic in the world of Agents E&O. Every day, agents are writing business. Obviously there are times that the customers do not secure all of the coverages that have been discussed or possibly do not understand the coverage they have and how it works. Whether those conversations regarding the denial / explanation of coverage are documented is very much a key issue.
Obviously, from time to time, there is the potential for your customers to experience a claim. If those claims are insured and the insured receives a settlement that they feel is reasonable, then life goes on. When the claim is denied or not settled to the degree the customer is hopeful of, that then raises the possibility of some form of E&O litigation.
Since it is likely that customers don’t purchase every coverage they need to protect their personal or business exposures, those uninsured exposures are essentially the major issue. But if the customer does not suffer a loss dealing with that exposure, then it could be argued that there really is no problem. For example, co-insurance is a term that many, including myself, feel is a very misunderstood (yet key) issue when dealing with property insurance. Are customers properly insured to value to satisfy the co-insurance requirement? Fair to say, that many are probably not. Yet if there is not a property loss, then the issues of co-insurance / insurance-to-value never really come into play. So essentially, if there is no loss then there really is minimal potential for an E&O claim.
Oftentimes, agencies will reference that they have never had an E&O claim and using that statement to imply that this means that they don’t make any mistakes. Every agency has mistakes in their files but basically it is only when those mistakes surface at the time of an uninsured claim that there is potential for E&O litigation. I remember a number of years when I was at the agency side of the business that my boss improperly advised one of his customers regarding aviation insurance. When I corrected him on it, he mentioned that it will not be an issue unless they have a claim. While he was right, his line of thinking left a lot to be desired.
Since there is really no way for agencies to know which account is going to have the next claim, this helps to explain why audits / account reviews really are key elements of an effective loss prevention culture.
You can take the chance of being “lucky” or find a way to be “good”…from an E&O standpoint, I would suggest shooting for “good”.