How are you addressing coverages for the customer to consider?

It seems that over the last 5 years, one of the E&O loss prevention initiatives that agents have widely adopted involves the use of a cover letter when the policies are mailed or delivered to the customer. This is definitely something that can help agents in their defense should E&O litigation of some type develop. It is definitely suggested to keep the cover letter generic. In other words, do not restate the coverages.

Something like the following:

Dear “client,”

Enclosed please find the renewal of your Businessowners package written with XYZ Insurance Co. You will be receiving your premium invoice shortly.

It is important that you take the time to read this policy to ensure your understanding of the limits and the coverages. If there are any questions or you wish to make any changes to this policy, please contact the agency promptly.

The limits of insurance have been selected by you and we can’t guarantee that the limit selected will be sufficient in the event of a major loss. Higher limits are available upon your request.

Thank you for your confidence in our agency; we appreciate your business.

Imagine if the customer is alleging that they thought they their GL policy covered the exposures typically covered by an employment practices policy. If the customer would have reviewed the policy, they would have noted an exclusion clearly stating that this exposure (age discrimination, sexual harassment, etc.) is not covered. What would be the customer’s chance of prevailing in an E&O matter? Probably not likely.

Oftentimes, an agency will include in the cover letter (or in the proposal), reference to other coverages that the client should consider. At times, the phrase “recommended coverages” is used. Using this phrase has the potential to cause some problems. While you may want to recommend certain coverages, the concern is that if you do not include one and an uninsured loss happens to occur in that area, the customer could allege that “I did not buy it because it was not one of the coverages that you recommended”.

Since your goal is to highlight certain coverages to the prospect or customer for them to consider, give thought to using the phrase: “Coverages to Consider” or “Coverage Options”. This is generally viewed as more matter-of-fact with less value-judgment attached to it as compared to the phrase “Recommended Coverages”. It is also suggested to include a disclaimer that includes language to the effect “this should not be viewed as a complete list of all possible coverages to consider”.

This will help the customer understand that there are additional coverages available for them to consider for their program. Hopefully this will prompt some discussion resulting in some additional sales.

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Kids going off to college – any insurance issues?

Without wishing the summer away, it does seem like it will only be a matter of time (a short matter) before you have some customers sending their kids off to college. For virtually all parents (and for the kids as well), this can be a very emotional time. Unfortunately, during this time, it is questionable whether the issue of insurance is given any thought. Since “stuff happens”, there is the possibility that the current coverage may not be sufficient with tremendous  ramifications. What are some of those issues?

As most insurance professionals are aware, the HO policy provides typically 10% of coverage away from the main premises. Based on the coverage that the parents have, this may or may not be enough. By the time you factor in clothes, a stereo, a computer, etc., the values can be more than one would initially think. Will the 10% be enough?

Another significant issue deals with exactly where the child is living. If they are living in a dorm or some other type of college housing, coverage under the parent’s homeowners would typically apply. However if the child is living off campus in an apartment or in a fraternity or sorority house (this applies to approximately 20% of all college students), most insurance companies consider these arrangements as a permanent residence. This would then preclude coverage from applying under the homeowners policy. This means no property or liability protection. The child should then consider securing a renters policy to cover their possessions and their liability exposures.

Generally, the person who signs the lease is held liable if someone is injured on their leased premises. Do the parents know who is signing the lease?

When it comes to auto insurance, if the student is taking a car to college, the goal is to make sure that the car is properly insured. If the child is taking one of the family cars, be sure that they are listed as a driver on the policy. Another key issue is to make sure that the insurance carrier is notified of the “new” garaging location. While this may result in a higher premium, the insured can also feel confident that the car is properly covered.

Since at the end of the day, the student is ultimately responsible for the car and what happens with it, a good best practice is for parents to advise their kids not to let anyone else drive the car. If a major accident were to occur, the parents’ underlying limits may not be enough.

Obviously any discussions should be well documented in the agency system as well as with a memo back to the parents memorializing the conversation.

These are just some of the insurance issues that come into play when kids go off to college. Unfortunately, fires, car accidents, liability issues do arise from the students as they head off to college. How confident are you that most parents know these issues? Consider dedicating a newsletter / blog / social media message / e-mail blast, etc. to your customers to educate them and encourage them to contact the agency for further discussion. Ironically, you may just find yourselves selling some insurance.


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E&O Insights: Why It’s Important to Review E&S Proposals

This is an excerpt from an Insurance Journal article that I authored in the July 21, 2014 edition.

“Hard market or soft, having an active relationship with at least a couple of excess and surplus lines (E&S) wholesalers is typically required for agencies to be successful. For as long as insurance has been part of our society, the E&S industry has played a vital and significant role. While the benefits of dealing in the E&S market are numerous, unfortunately so are the potential E&O issues. It is critical, for that reason, that agents understand some of the key issues that make this segment of our industry a potential E&O nightmare.”

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Does your documentation “tell a story”?

For many years, the E&O world was filled with the advice of “document, document, document”. After all, nothing determines the direction of an E&O claim as much as the issue of documentation. Unfortunately, taking those three words at face value actually has the potential to spell trouble, serious trouble.

The issue is not just about documentation. Simply documenting a conversation in the file is far from what should be the ultimate outcome. Don’t get me wrong – there have been a significant number of claims where even some degree of documentation would have made a difference in the eventual outcome of the E&O litigation. But conversely, there have been E&O claims where the agent’s position was actually jeopardized because of the documentation. Why you ask?

The key issues involving documentation are:

- Prompt

- Detailed

- Professional

- That any chance of a misunderstanding have been addressed

Prompt – this does not mean “at the end of the day” or “when I get around to it”. It means documenting the conversation when it is happening or immediately after. Have you been to the hospital lately? As you are talking to the doctor or nurse, they are documenting the conversation. No delays. Be sure to get the documentation in the system as quickly as possible. This way, the conversation is fresh in your mind.

Detailedwho did you speak with? The person should not be referenced as “the insured”; their name should be clearly noted. In fact, make it a habit to ask “whom am I speaking with” and then note that in the file. What was discussed? If there was discussion on a specific issue, that issue should be specifically noted. While time is an issue, taking shortcuts in documentation can be a problem. What was resolved? Does the insured need to forward any documents? If so, by when? These issues should all be laid out with an action plan on the next steps. If the insured has been asked to forward a document of some type or contact you back, a diary should be entered to remind you when the document is due and if it has not been received, to contact the customer with a reminder.

Professional – there is a saying “don’t put anything in the file that you wouldn’t want a jury to read”. While this may sound like common sense, not every conversation goes as smooth as you would like and emotions can run high based on how the conversation ended. Keep it professional.

Any chance of a misunderstanding? To address this, it is always best to send the specific person you spoke with a recap of the conversation. Something like: “Per our conversation, you have decided not to move forward with the flood proposal we provided. If this is contrary to your understooding, please contact me immediately”. E-mail is an acceptable means of communication but you may need to prove that the e-mail did go thru and did not get caught in the customer’s spam settings.

While the issue of documentation definitely applies to account managers, csrs, etc., it also applies to producers. As producers interact with customers (answering questions, discussions on exactly what coverage the customer is looking for, what has been ordered, rejected, etc.), these conversations need to be documented using the same principles previously discussed.

Lastly, if you documented a file and for some reason, you were not in the office the next day, if one of your fellow teammates needed to handle one of your files, would your documentation tell the necessary story? If not, then it is probably not at the necessary level.

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What makes a “special relationship” not so special?

In the world of Agents E&O, over the last number of years, there has been a fair amount written and discussed on the issue of a “Special Relationship”. While on the surface, this sounds like something that an agency would want to achieve, in reality, there are some very significant issues and ramifications for agents that achieve this “status”. Many of these ramifications are actually potentially very troubling.

In most states, the agent is essentially an order taker and it generally held responsible for providing the coverage that the client specifically asks for. In other words, if the client asks for auto and homeowners coverage and you honor their request, you are generally okay. If the client suffers a loss that exceeds the underlying coverage and alleges that you, as their agent, should have recommended an umbrella, the odds are probably in your favor for prevailing in any subsequent litigation. There is still the likelihood that your agency may be sued but once again, you stand a good chance of prevailing.

There are however certain circumstances that could change the legal standard from that of an order taker to “an advisor”. While this may sound like the role that you want to achieve, this status carries with it some increased potential for liability.

In the vast majority of the E&O cases that I have seen over the years, especially in the last 5, the plaintiff’s attorney has alleged a relationship between you and your client of more than just an “order taker”. Comments such as the following are common:

- The agency has been their agent for over 20 years

- The agency writes all of their personal and commercial business

- The plaintiff relied on the advice of the agent and always secured the coverage that the agent recommended

- The agency website stated that they are “experts” and “specialists”

- The agency website stated that they will make sure that the property values are updated each and every year

- The agency producer made various verbal comments on their expertise and that they will make sure that the customer is properly insured

- The agency website and the proposal indicated that they provide a wide variety of risk management services

These statements are many of the key “buzz” words that are “alleging” a potential “special relationship” that could elevate the standard of legal liability of the agency. This is not automatic and the E&O litigation will typically be decided on the actual facts of the case. In other words, there is no magical formula that “A + B + C = special relationship”. However, if you think of your various clients, how many have you insured for over 20 years? Is there more of a possibility for the plaintiff attorney to allege a “special relationship” if a problem were to develop on those accounts?

Some key best practices:

- Take a look at your website and all promotional material. Is the information accurate? Are there any words or statements that could be used against you?

- Educate the staff on the importance of choosing their words very carefully when interacting with the clients.

While many agencies probably want to be viewed as more than just an order taker, essentially this is the standard that you will be held to. That is, unless you have achieved “special relationship” status. A status that may not be as special as you hoped.

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Time for a semi-annual reality check

First and foremost, I hope you had a great holiday weekend.

It is hard to believe that the year is half over but since it is, this is a great time for agencies and the great folks like yourself that work in the agencies to do a reality check. A reality check from an E&O perspective essentially looking at the goals and objectives that you planned to achieve in 2014.

For the agency, take a step back and assess what progress you have made so far. Some things that you might want to look at:

- Are you having staff meetings on a regular basis and do each of those staff meetings have an E&O component? These are great opportunities to enhance the agency E&O culture.

- Are the staff receiving the necessary training? That training might involve technical knowledge, sales tips, system functionality, E&O awareness, etc. As the agency staff grows in their capabilities, the agency grows. Also, as the staff feel more appreciated, this should translate into better customer service and customer appreciation.

- What strides has the agency made to educate your customers on the coverage they have and how it works? Also what exposures do your customers have that potentially are not insured? For the last 30 years plus, the overwhelming majority of E&O claims arise from uninsured exposures. For the producers, the effective use of Exposure Analysis Checklists is a great E&O goal that will help to identify the client’s exposures. You will also definitely find yourself selling more business.

- How is the account rounding program progressing? The average number of personal lines policies per customer is right around 1.65. Do you know your number? Is your average better than the national average?

For the agency staff, how do you feel about the progress you have made so far in 2014 from an E&O perspective?

- Is your documentation being handled in a prompt, detailed and professional manner?

- Are you ensuring that all applications are reviewed and signed by the applicant?

- As the agency conducts audits, are you “scoring” higher on those audits?

The areas mentioned above are just some of the areas for agencies and their staff to look at when doing a semi-annual reality check. If you are making the progress you planned for, great – keep up the good work. If you are not, there is still time to hit those goals but don’t delay, the year will be over before you know it.

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Consider having each of the staff do a mini self audit

Most E&O classes speak to the value and benefit of agency management performing a periodic audit, either monthly or quarterly. The goal is to verify that the staff is meeting the agency’s expectations in areas of documentation, system process / management and cross selling initiatives, to name a few.

For many of the staff, they probably don’t know how they will “score” until the audit is officially done. After all, they are so busy trying to keep up with their workload. One solution to consider is for each staff member (at least the CSRs / Account Managers / Producers) to do a mini audit of their own work. The benefit is that each of these staff members would be able to “take a step back” and objectively look at their work and determine whether it meets the standards of the agency.

Some “rules” that need to be in place (or at least considered):

- The agency needs to ensure that the expectations of each of the positions are well documented and accessible for the staff.

- The staff should be required to use the same audit form that management uses when they perform their review

Each staff member’s results are for “their eyes only”. The goal is to encourage the staff member to honestly and objectively evaluate their work without any fear of retribution.

This concept should be discussed in a meeting to explain the desired goal which is to identify any deficiencies before a problem develops. Consider having a theme for each quarter such as “for this quarter, the focus is on documentation”:

- does it identify by name the customer involved.

- is the documentation detailed (does it tell a story)

- was it done promptly (within 1 hour of the discussion)

- is it professional (how would a jury view it)

- are there any open items and if so, has a diary been set up

For producers, also consider a focus on increasing the number of applications where a customer signature was secured or enhancing the proposal to assist in educating the customer / prospect.

Hopefully this will enable staff members to realize that they are either doing the job or they have some work to do. If they have some “work to do”, this might result in their making a stronger commitment to hitting the various expectations of the agency.

As most agency staff are aware, at the time of an E&O claim, the entire file (agency system notes, e-mails, correspondence, etc.) are all discoverable and admissible by both the attorney representing the agency as well as the attorney representing the plaintiff that is pursuing legal action against the agency. Discovering any shortfalls or weaknesses before a problem develops is definitely the preferred approach. A self audit by the staff on their own work is a step in the right direction.

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Customer Accountability – a great E&O goal !

“Why is it always our fault when a customer has a loss that is not covered? They knew that they didn’t have that coverage”. It seems that in virtually every conversation that I have with agencies, this is one of their bigger frustrations. If you are truly serious about minimizing the potential of your agency facing an E&O claim, achieving a high level of customer accountability is a great goal to strive for.

Documentation is a key part of the equation. A good starting point is a realization that when an E&O claim happens, the E&O carrier will look to secure the actual file in question (paper or electronic) to see what it looks like and what is included. Solid documentation (that is prompt, accurate and professional) will make the E&O carrier’s job much easier.

When customers are asking questions, modifying coverages, etc., obviously these questions (and the answers provided) should be documented in the agency management system but also with documentation back to the customer. The objective is to have documentation that confirms / memorializes the discussion. Such as:

“per our conversation of (date), you are declining the personal umbrella proposal we recently provided. If I misunderstood you or this is contrary to your understanding, please contact the agency immediately”.

The goal here is to attempt to address any potential misunderstandings between what the customer told you or thought they told you and what you heard. By simply documenting the conversation in the agency management system does not help to identify a misunderstanding.

If your agency provides a proposal and the customer advises you that they want to “think about it”, it is advisable to send the customer some form of written documentation reflecting the customer’s decision. A document stating “at this time, per your request, the umbrella coverage has not been placed” really does not take that much time to produce yet it can have such a profound impact on an E&O claim if one develops.

The importance of the customers signature. Since the best type of documentation involves something with the insured’s signature on it, holding customers accountable is enhanced when an agency can get the customer’s signature on a document. This is why getting customers to sign applications is so important. A solid best practice is to require that the customer review the application and if everything looks in order, to sign it.

Enhancing the agency proposals can be a great way to hold customers accountable. The insurance proposal is one of those “discoverable” documents that at the time of a claim can play a huge role. Three great approaches include:

- Offer a variety of limit options.

- Include definitions of key insurance terms. Also consider including claim examples to help “make the point”.

- Include specimen policies / endorsements.

So if your agency is looking to enhance your E&O culture in 2014, enhance the degree of customer accountability. Ironically, you may just find your agency writing more business along the way.

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Does Automobile Insurance Follow the Car or the Driver?

The following is an excerpt of an excellent article authored by Gary Wickert, an insurance trial lawyer and a partner with Matthiesen, Wickert & Lehrer, S.C., that appeared on on June 5th.

“There are a few questions in life that are more confusing than their answers. The blanket query into whether or not insurance follows the car or the driver in a particular jurisdiction is such a question – one we see regularly. It isn’t a dumb question. It is more like a MENSA brain teaser than a legitimate insurance question, and it is usually the wrong question to ask.

The answer to whether insurance follows the car or driver depends on many variables, most notably the kind of insurance coverage being referred to.”

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