How would you feel if one of your files was involved in an E&O claim?

First, it is important to point out that just because one of your files became the heart of an E&O claim, this does not mean you did anything wrong. An agency can do all the right “best practices” and still have a claim brought against them. As the saying goes “you don’t have to do anything wrong to get sued”. Actually, some E&O carriers openly state that in any given year, 60% or more of the E&O claims are closed for no payment. With the right level of E&O loss prevention, you have a greater chance of winning these cases.

Consider trying this exercise:

At a future staff meeting, access the agency system and bring up a list of accounts for each of the staff. Then for each of the Account Exec level staff in the agency, pick a file at random that was recently worked on. Maybe create a hypothetical scenario that this client has recently suffered a claim that was not covered. If you are in an area where floods have occurred with some degree of frequency, maybe use the flood coverage as an example. Another approach is to have the entire group do an evaluation of the file. Obviously, this exercise needs to be done in the right spirit and used as a learning experience.

Review the file and determine what are the positive elements of the file that will aid in the defense of the agency and what are the negative elements that will hurt the agency’s defense. Look at issues such as the level of documentation, the handling of communication with the client that would have identified new or emerging issues or other coverages for them to consider, and how were rejections of coverages handled. You can certainly include additional items.

With the agency now facing this hypothetical claim, what do you think the chances are for the agency to prevail in the claim? Add to the discussion – what could the agency have done better to enhance their chances of winning the case?

This exercise will hopefully help to identify some weaknesses that need greater attention and get fixed.

The other option is to wait for an actual E&O claim to occur and then be left with the lawyers sorting things out. I think if we were up to me, I like Option #1 the best.

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Do I have enough insurance?

How would you (or your staff) answer that question from a client? Hopefully you have given this issue some thought as your answer can have some significant consequences if a problem develops down the road.

Let’s look at the question from the perspective of the client. They are trying to justify that the amount of insurance (specifically the limits they have secured) are going to be enough at the time of a claim. Can you, as the agent, truly answer that question with any degree of certainty? Let me also ask you, is the client really expecting an answer they can rely on? I don’t believe so. However, if you give them an answer such as “you have more than enough” and they have a claim that exceeds their limits, your response could be very damaging to your defense when a lawsuit shows up at your office. And it will show up at your office.

There is a good chance that the client knows that there is no way to 100% accurately predict that their current limits are enough. Unfortunately, it seems that every day, the world we live in is redefining the “worst that can happen”.

Some agents provide benchmarking data which has value but how much can those numbers be totally relied on? They may provide insight into what other comparable industry specific firms are buying but that is certainly no guarantee that is an adequate limit for your client.

So how should you answer the “do I have enough insurance” question? Asking the client to describe “what is the worst that can happen” might have some value but there is a good chance that the “worst case” is so far-fetched that the client does not see it as a potential realistic scenario.

It is probably best to advise the client there is no way for you to state that the amount of insurance they have will be enough at the time of a claim. In actuality, for the client to purchase the limits they may need for the worst-case scenario may not be possible as the additional cost may have some serious business implications. It is a trade-off of cost versus protection.

The one response I would not suggest you provide is “you have more than enough”. You may be thinking why would anyone say that? Believe me, it happens and it may happen more than you realize. I am very familiar with one CSR advising a client that was looking for a quote for higher limits that the limits they had were plenty.

You can count on this question being posed to any of the agency staff that deal with clients on insurance related matters. This would probably be a good topic to discuss at your next agency staff meeting. You may find out the issue is more prevalent than you thought.

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A key issue in your legal liability standard

Many agencies are apparently not totally aware of the exact legal standard they are going to be held to. Unfortunately, the time they actually become aware of it could be the time that they are facing a claim from one of their clients / carriers.

The subject of the legal liability standard has been heavily determined by case law and the rulings from the courts. Without going into a lot of detail, essentially agents are considered order takers and thus responsible for securing the coverage the client has requested. There are circumstances that could raise this standard to one of a special relationship but that is not what I am looking to address today. I have spoken to this in other blog articles and agents would benefit by knowing more of what those circumstances are.

The issue that I want to address deals with one of the requirements / expectations that agents will typically be held to. As I briefly mentioned, agents are order takers and thus your objective, as the agent, is to secure that coverage requested. What if the coverage the client is requesting is not available in the marketplace or at a minimum, you don’t have a market that will provide it?

Take the following situation: The client requests a personal umbrella that includes the client’s two kids. The problem was that the two kids were not the best of drivers and the umbrella carrier agreed to provide an umbrella but with an exclusion for any auto claims involving either of the two kids.

The policy is delivered to the client but apparently with no mention of the exclusion. While client’s do have a duty (in most states) to read the policy, apparently the client took the position that since the agent did not tell him otherwise, it was presumed the umbrella policy provided the coverage requested.

One of the kids causes a horrific accident resulting in extensive injuries to the occupants of the vehicle they struck. When the claim was submitted to the umbrella carrier, they denied the claim because the son involved was excluded from coverage. The agency was subsequently sued.

A key issue of the trial involved the question of whether the agent advised the client of the exclusion. Part of the legal liability standard is that if you cannot secure the coverage the client has requested, you, as the agent, need to advise the client, preferably in writing. Counting on the client’s duty to read the policy should not be presumed. This duty of the client will probably come into play but it will probably, at best, just minimize the award.

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E&O, D&O, Cyber and EPL – what do they have in common?

The one major issue they all have in common is that there is no uniformity in the various carrier policy forms. Each carrier has their own issues which makes them different. The difference could be a good thing…it could be a negative thing.

When dealing with these various management liability coverages, extreme caution needs to be exercised especially when an agency producer is presenting the carrier proposals. Obviously, the last thing the client should focus on is the premium because there is certainly the possibility that the client will get what they pay for. There is a good chance that the premium is less because the coverage is less.

What should a producer do? A couple of suggestions to consider.

A good starting point is for the producer to make every effort to understand the actual coverages. If the agency is looking to aggressively market any of these coverages, they should consider asking one (or more) or their main markets to provide them with some solid product knowledge. In other words, what makes one form better than the other. If they are using wholesalers to access some of these markets, look for wholesalers that have a solid level of expertise. Many carriers are willing to come to the agency to do some product education.

Review the various policy forms. Yes, that means actually read the policy forms – a lost art among many in the business. You can count on the client asking some questions. Having some more in-depth knowledge of the form is certainly recommended. However just because you read (and think you understand) the coverage form does not mean that you should be giving your opinion on whether a particular scenario would be covered. These forms can be difficult to truly understand. If the client has a question, consider asking the carrier underwriter for their opinion.

When you present the various carrier proposals, include 1) any carrier marketing material for the coverage being presented and 2) the applicable specimen forms that would essentially mirror the coverage if the client orders the coverage. Give them time to read and digest the coverage. This may very well prompt some additional questions. Once again, get the carrier underwriter or carrier claims person involved. It is important to understand that they may not want to give an opinion either. Typically, carriers shy away from addressing hypothetical claims questions.

These coverages can be very complex. In addition, to properly answer a claims questions requires the facts and that is difficult with hypothetical questions.

Bottom line, exercise caution when dealing with these coverages. Another thing that is common with these coverages – the claims when they happen can be fairly large. The last thing you want is to make a mistake that results in an E&O claim against your agency.

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Are your clients vulnerable to social engineering claims?

With few exceptions, most businesses are vulnerable. What exactly is “social engineering”? In the context of information security, it is defined as “the use of deception to manipulate individuals into divulging confidential or personal information that may be used for fraudulent purposes”.

Social Engineering claims are occurring with greater frequency, so this is an exposure clients should be concerned about. But are they? Are they aware of the potential for some of these claims to be covered through insurance? Let’s look at a recent claim that became an E&O claim:

This claim involved a supplier of packaging for the electronics industry. An unknown tortfeasor hacked into a claimant’s email account and sent phony emails to the agency client’s employees instructing them to wire transfer $50,000 to an elderly gentleman in need of an operation. The next week, the hacker sent another email to the employees instructing them to wire transfer $100,000 to a business entity. The company did not have enough money in the account to cover this transfer, so an employee contacted the fraudulent company and asked if it would be okay to wire only $75,000 for the time being. The hacker agreed and the money was transferred.

The first activity in this claim is referred to as “Spear Phishing” – the fraudulent practice of sending emails ostensibly from a known or trusted sender in order to induce targeted individuals to reveal confidential information.

It appears that endorsing Social Engineering Coverage to a claimant’s commercial crime policy would provide some degree of coverage although it is important to note that there are exclusions. One is referred to as the voluntary parting exclusion (there is no insurance coverage for money lost when you voluntarily give it away).

It would be prudent for agencies to better understand the coverages and limitations of providing social engineering coverage. In addition, this should be a discussion with clients to determine their interest in getting a proposal for consideration. Agencies should consider adding this coverage as one of the various “coverages to consider include but are not limited to the following”.

These types of coverages can be somewhat complex with exclusions that could come into play so agency producers should exercise caution when discussing the coverage with the client. It is probably best to include specimen policy forms with the proposal to assist the client in better understanding what is and what is not covered. Also, it would be wise to include any marketing material the carriers provide to avoid misstating the coverage.

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What are your 2019 E&O goals?

As we start the month of October, this is the time where most agencies are giving serious thought to their goals and objectives for the upcoming year. While this will most certainly include those goals dealing with premium volume, new business, income and expenses, serious consideration should be given to the setting of E&O goals; issues and initiatives that will play a role in minimizing the potential for the agency to face an E&O claim.

Some initiatives to consider:

Client Education – based on various industry prognosticators, this is going to significantly grow in importance over the next 5-10 years. In fact, many are predicting that this issue will largely determine which agencies succeed and which ones don’t. If your agency is not where it should be in this area, 2019 is a great time to ramp up your efforts.

Staff Education – your clients are looking to your agency for knowledge and expertise. To provide that, the applicable staff need to possess that knowledge. The education objective should be customized for each staff member.

Advise clients of other coverages to consider – this definitely serves as an education tool. It is suggested to include a list of other coverage to consider on your agency proposals. Since it is not possible to list them all, a statement such as “other coverages to consider include but are not limited to the following” should be noted.

Securing customer signatures on applications – this issue is key as most courts will hold the customer accountable for the contents of the application if their signature is on that application. With electronic signature capabilities, there really is no excuse for not getting the insured signature on the app.

Confirmation of rejected coverage – every agency should have a procedure that requires all rejected coverages to be memorialized in some written form of communication back to the client.

Getting updates at renewal time on any change in exposures – To “keep up” with your client’s changes, design a form that is automatically sent to each personal and commercial lines customer 60-90 days prior to the expiration of coverage. The goal is to secure an update of any changes in exposures so that insurance discussions can take place.

For many agencies, the development of a strong E&O culture takes time. By establishing and accomplishing E&O goals each year, your agency will be closer to achieving the desired level of E&O commitment.

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Quality Customer Service can help your E&O loss prevention culture

Think back to a recent situation where you encountered a problem in your personal life. Possibly the issue involved the product you purchased or the service you were provided. Now think back to how the person you were dealing with handled the matter. Hopefully, they made the matter better. Unfortunately, more often than not, they made the situation worse.

On a recent drop off from a food service I subscribe to, I noted that one of the bags was split, exposing the food within. I immediately called to advise the company of this and was advised that someone would call me back that day. A week went by and no phone call, so I called again. Again, I was advised that someone from the customer service department would be calling me back by the end of that day. It is now over two weeks later and still no response. There is a good chance that I will be going with another food delivery company. If I would have received a phone call within hours on the first day, I would have been impressed but now, virtually totally the opposite.

Bottom line, the way you handle these situations will determine whether you keep that customer and whether the situation (possibly a client with an uninsured claim) decides to take the manner to the next level (E&O claim?).

One of the more popular customer service quotations is from the great Theodore Roosevelt – “People don’t care how much you know until they know how much you care”. How well are you showing how much you care?

When customers call to complain, the best response would be to thank them for taking the time to call. They could have just gone away and you never would have known why.

In most situations, look to show just some empathy / compassion. When this happens, there is a good chance that the customer will be impressed and will appreciate your level of concern. By showing an empathetic side combined with a solid level of customer service, the customer is probably going to respond in a positive manner. There is a good chance that you did not cause the problem, but you now must deal with it.

Does good customer service reduce the potential of an E&O claim? It would probably be difficult to prove it but there is one thing for sure – it sure doesn’t hurt. Always strive to provide a level of customer service that you can be proud of.

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Does the staff know the expectations for documentation?

Let me ask you a question: Has your agency experienced periodic issues with the timeliness and quality of documentation? Is there inconsistency among the staff (including the producers) in when and how some things get documented? This is a very common issue with many agencies.

What is essentially the problem and what would help to solve the problem?

Most often, the issue is that no one really knows exactly what the documentation expectations are. Possibly the expectations are verbalized and passed down from one staff member to another. In other words, if I came to work for your agency, how would you advise me of what those expectations are? How would I know the standards that you are asking me to achieve? If I had previously worked in another agency, you might expect that I would know the importance of documentation. This is an “error or omission” you don’t want to make.

Bottom line, documentation is one of the most fundamental and important aspects of a quality E&O loss prevention program and to ensure consistency, the agency standards should be actually documented in writing for all employees to know, understand and honor.

The documentation standards should include items such as:

– How deletions of coverage are handled and when the customer declination of a specific coverage or limit should be memorialized in a written document back to the customer. What should be included in the document back to the customer?

– The expected time period for when telephone conversations should be documented in the agency system. Probably best to avoid statements such as “as soon as practicable” as the meaning of this phrase could vary by agency staff member.

– The expected level of documentation of a phone conversation. This should involve a requirement that the actual name of the customer be included (as opposed to “insured”) as well as sufficient detail of the exact essence of the conversation. Ideally, the documentation should be such that another member of the agency staff could read the documentation and know exactly what was discussed and any next steps or open items. Also, another good rule for documentation is “don’t put anything in the system that a jury could read”.

– Regarding documentation in the system, what abbreviations are acceptable and which words need to be spelled out.

To the extent that the agency has an active audit process in place, by having your documentation expectations spelled out enables the “auditor” to measure the actual documentation against the standards.

Documentation is too important to leave it to chance or to believe that the staff knows what is expected of them. Put it in writing – it is easy to do and will pay huge dividends down the road.

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Claims handling – watch what you say

Now that Hurricane season is upon us, there is certainly a greater likelihood that Mother Nature could cause a more significant number of your agency customers to suffer a loss of some type. As the old adage goes “nothing brings out an agent’s mistake as quick as a catastrophe”. Unfortunately, with this potential for a larger number of claims, there is also the potential for some of these claims to not be covered. As the calls start coming into the agency, tremendous care and attention should be given to how the agency staff responds to these calls.

When a customer calls to report a claim, a variety of scenarios can occur. They include:

There appears to be coverage for the loss. While the agency staff handling the matter may feel certain the claim is covered, caution should be exercised when commenting. Why? Technically, the agency does not have the authority to approve or verify coverage; that is a carrier duty. A response such as the following is suggested – “While I am cautiously optimistic that this claim is covered, I do not have the authority to make coverage determinations. That is the role of the carrier. I will report the claim and advise you as soon as I hear anything further”.

The loss does not appear to be covered. A denial of a claim is also not within the authority of the agency. These claims should be reported and let the carrier make that determination. I am sure there have been claims that technically were not covered where the carrier decided to honor the claim.

The agency staff member feels “responsible” for the claim not being covered. This scenario can certainly occur. Imagine a client that has suffered a loss and is in dire straits. The agency staff may clearly see that if the agency had recommended that the client buy some specific coverage, the loss would probably have been covered.

First, the agency does not make the buying decisions for the client; that is the client’s responsibility. During many weather-related events, when the claims were being reported to the agency, the agency staff member responded with a statement similar to “what you are reporting is a flood claim. How did we not offer you a flood proposal?”. This clearly borders on an admission of liability; not something you want to do.

How the agency responds to these type of scenarios has significant potential to be a key element in the litigation process if the matter rises to the level of an E&O claim. Oftentimes, during a hurricane event, numerous staff are asked to take on the responsibility of taking claims from customers. This is a common time where problems occur. It is suggested that the agency develop a document detailing the “do’s and don’ts” of taking customer claims and then discuss this issue in sufficient detail to educate everyone that may be involved in the taking of those customer claims.

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Do you have established written procedures for your E&S business?

For as long as the insurance industry has been around, the Excess and Surplus Lines (E&S) marketplace has played a key role in helping agents place a wide array of coverages. But with that value certainly comes some uniqueness and with that uniqueness comes some E&O risk.

To minimize the risk, it would be prudent for agents to include in their procedures manual specific references to the E&S industry. For those agents that don’t have a procedures manual, it is highly suggested that procedures still be established and submitted in writing for all agency staff to reference when handling this type of business.

Some key issues that should be referenced:

The app. While many carriers will accept an ACORD app to provide a proposal, there is the definite possibility that they may need their own app to bind coverage. Agents should look to determine this issue as early as possible. Often times, if the carrier is going to require their own app to bind the risk, this will be referenced on the proposal from the wholesaler.

When to submit the app. The timeliness of when the wholesale / E&S market can provide a proposal can vary based on the status of the marketplace. It is suggested to allow sufficient time (45 – 60 days is suggested) and then follow up for the status.

Review of the coverages proposed. Is the coverage what you asked for? This is one of the more common key issues that agents need to be aware of. There is a good chance that the coverage you requested is not the exact coverage the market quoted. There should be a thorough review of the proposal as it may contain some exclusionary / limiting type endorsements. If the reference to some of the endorsements does not really tell you what is actually being excluded (or covered), it would be best to secure specimen forms to review. Including these forms with the proposal is recommended.

The agency proposal. Since retail agents are technically not the agent of record (the wholesaler is), the retail agent does not have the authority to bind the risk. Thus, the retail agent is going to need some time to contact the wholesaler (who may need to contact the E&S carrier) to get the coverage bound. Many agents include on the proposal the date when a decision on the coverages needs to be made to allow the retail agent time to get the account bound before the effective date. It is important to note that in the E&S / residual market place, there is no backdating of coverage.

Binding the risk. As just noted, retail agents do not have the authority to bind the risk. They also do not have the authority to issue binders so if a binder is going to be needed, the wholesaler should be contacted to handle that.

The policy. The policy should be reviewed to verify that it matches the coverages that were agreed to. There is the possibility that a “new” endorsement could find its way onto the policy that could have a material effect on the coverage.

The E&S carrier. There are many E&S carriers that do a fantastic job. They may not be household names so due diligence should be exercised on these carriers (financial rating, length of time in business, etc.).

Bottom line, agents need to know the “rules” and do their homework when dealing with this segment of the marketplace. To ensure consistency in the handling of this type of business, the agency should establish and provide the staff with those written procedures.

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