“I told you I wanted the coverage”

When explaining the need for prompt and accurate documentation, it is important to understand the “why” behind the issue. For many folks, this is when they are able to truly “buy-in” and do what is needed.

A big reason behind the documentation “why” is that after an agency client suffers a loss only to find out that there was no coverage in place, it is truly amazing what type of response they will come out with. Here is a real-life E&O claim example:

The agency client called the agency to place a secondary home policy. Unfortunately, the client was not sure of the closing date and told the agency they would let them know. The agency account exec quoted the policy and sent it electronically to the client. Then unknown to the agency, the client purchased the home and claimed that they called the agency to place the policy. However, the agency had no record of such a phone call. When the closing took place, the client showed the quote to the bank and the bank allowed the mortgage to close without a true verification the coverage had been placed. A loss occurs and there is now a dispute as to whether coverage was technically in place. Since there was no way to verify whether a phone call had been made, this case was settled prior to trial.

What could the agency had done different?

Probably when the agency provided the quote, there should have been some stipulations noted on the quote on what would be required to bind coverage. Issues such as a signature on the application or a payment of some amount. Also, a statement such as “coverage is not bound until verified in writing by a licensed agency staff member”.

To me, this is clearly a case where the client forgot to call the agency to place the coverage. If the bank would have held fast and required a policy / binder / evidence of coverage, the client would have been forced to call the agency. But that did not happen. So, it sounds like the client took the position that when they (allegedly) called the agency, they told the account exec “I said I wanted the coverage”.

You never know what the agency client is going to state after they have suffered an uninsured loss but unfortunately, very rarely will they take the position that “yes, I screwed up, I forgot to call the agency to bind the coverage”. So, when interacting with your customers, it is probably best to assume that they are not going to take any responsibility for the error and then take some steps to protect the agency should a problem develop.



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The latest in Dog Bites statistics

As noted in the attached excellent article published by the Insurance Information Institute (www.iii.org), dog bites and other dog-related injuries accounted for more than one-third of all homeowners liability claim dollars paid out in 2016, costing in excess of $600 million.

The key issue from an E&O perspective involves the inconsistent manner in which insurance carriers are dealing with this issue. This speaks to the need to identify any “dog” exposure especially when writing new business and also the need to manage this issue when moving your homeowners clients (that own a dog) to a new carrier.

Continue Reading Dog Bites statistics

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Top 10 Causes of Liability Losses Include Bedbugs, Crashes and Defective Products

Many E&O carriers report that E&O frequency is in very good shape but continue to express concerns on the severity of the E&O claims being reported. Quite possibly, one of the reasons why E&O claims are rising in size is due to the increasing size of the underlying claims.

The following is from a claimsjournal.com article that appeared on March 31 and speaks to the top causes of liability claims and the increase in size of those claims.

“Not only are liability losses increasing but they are getting more expensive, particularly in relation to global product recalls, corporate liability, cyber and environmental incidents, according to a new report by Allianz Global Corporate & Specialty (AGCS). Global Claims Review: Liability in Focus identifies defective product or work, crash and human error incidents as the largest causes of liability loss for businesses, based on analysis of insurance claims.”

Continue Reading: Top 10 Causes of Liability Losses Include Bedbugs, Crashes and Defective Products


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A key issue when using a carrier proposal

Over the last couple of years, the agency’s use of carrier proposals is becoming much more common. This is especially true with small commercial accounts or accounts in the personal lines division. Using the carrier proposal actually has several advantages including:

-     A gain in efficiency. To retype the carrier proposal onto the agency letterhead takes time and effort. Every agency is looking for some gains in efficiency and this approach is a plus.

-     Accuracy is enhanced. If an agency were to retype the carrier proposal onto the agency letterhead, there is certainly a greater possibility that an error is made in the transfer of the information. 

-     Support from the carrier. If there was an error in the carrier proposal and the agency used that document, I would have to believe that the carrier would agree to providing the coverage created by the error.

-     Greater depth of information. There is a good chance that the carrier proposal has greater depth to the information provided which should enable the client to more clearly understand the proposal.

Unfortunately, there is also a disadvantage to using a carrier proposal. This disadvantage, however, is easily addressed.

Typically, the carrier proposals do not include any of the common disclaimer language. This disclaimer language can play a key role in the defense of the agency should a problem develop.

Thus, if the agency is sending the client / prospect the carrier proposal, it is highly suggested the agency include some of this disclaimer language in a document commonly referred to as a “wraparound” because it envelops the carrier’s materials with protections for the agency.  

What are some of the disclaimers that should be included?

-     “This is a convenient coverage summary, not a legal contract. The actual policies should be reviewed for specific terms, conditions, limitations, and exclusions that will govern in the event of loss.”

-     “Higher liability limits may be available. Please let us know if you would like a quote for increased limits.”

-     If the carrier is non-admitted, that fact should be stated with the additional statement regarding the absence of guaranty fund protection.

-     Since it is common for agencies to include on the proposals other coverages for the client to consider, the “wraparound document” should include a statement of “other coverages to consider include but are not limited to the following”.

Proper use of the carrier proposal can lead to some positive gains and with the inclusion of a “wraparound” document, it can also aid in the defense of the agency in an E&O matter.

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Can a “bad” audit score actually be a good thing? Can a “good” audit score be a bad thing?

Two very interesting questions.

Without a doubt, Internal auditing within an agency is one of the best initiatives an agency can have in the establishment of a healthy E&O culture. Auditing serves a very vital role to evaluate to what degree the agency staff are performing their responsibilities based on the expectations of the agency. Typically, the issues that are key to minimizing the potential for E&O claims are reviewed. Issues such as the performance of an exposure analysis checklist (both for new and renewal business), confirmation of client buying decisions, certificates and policy checking. Missteps in these areas certainly heightens the E&O claims potential.   

There is a key element inherent in the auditing process. That element is HONESTY. It is vital that for audits to have the necessary value, the answers to the questions need to be accurate and honest.

So can a “bad” audit score actually be a good thing? It can be a very good thing. Obviously, a poor score is not desirable but it can have a benefit. The results of the audit need to be evaluated to determine the issue. Is it a situation where the employee did not understand the procedure and performed the responsibilities based on an incorrect understanding? This will provide the opportunity for training of the employee and a reinforcement of the expected procedures. Discussion on the audit score might reveal an imbalance in workloads which make it very difficult for the employee to meet the expectations. Also, the individual audit scores will identify areas that need a greater degree of attention and focus.

It might also identify an employee that is just not the right fit for the job that is expected of them.

Hopefully a “bad” audit score also translates into the fact that at least the audit was honestly handled.

Is a “good” audit score always a good thing? A “good” audit score is desirable provided it is achieved through hard work and adherence to the agency expectations. If the “good” score does not accurately demonstrate good results, the positive score could be very bad as it is deceiving what truly is happening on the floor. It could be misleading management on what the real issues are.

Bottom line – performing internal auditing requires the highest level of honesty and objectiveness. If this is a potential concern in your shop, consider “auditing the auditors”. Pull some files that were audited and re-audit the accounts to determine if the scores accurately convey reality.

Auditing is a great initiative provided it is handled with honesty and integrity.

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A key issue when moving coverage from a claims-made form to an occurrence form

As the following claim points out, there is a key issue that needs some attention when moving coverage from a claims-made form to an occurrence form.

On a Labor Day weekend a few years back, a woman was preparing for her annual BBQ Bash, and decided to add some whipped cream to her Jell-O shots. Being a foodie, she had her own whipped cream canister. She included all the ingredients and shook it up. When she squeezed the handle, the canister exploded, resulting in a long night in the emergency room and permanent disfigurement to her hand.

A suit was then filed against the manufacturer of the whipped cream canister. However, the claim was denied by the carrier and thus the manufacturer didn’t have any insurance for the lawsuit. They blamed the lack of cover on their new Broker and a lawsuit against the Broker was filed. The lawsuit alleged the Broker caused a coverage gap by recommending, during the proposal process, that the manufacturer switch from a claims-made GL policy to an occurrence-based GL policy.

Switching from a claims-made form to an occurrence form certainly occurs in our industry but that was not what caused the problem. The problem was the Broker did not fully explain to the manufacturer the need for an extended-reporting period (a/k/a “tail”) to the claims-made policy. As such, while the occurrence-based policy took effect covering incidents taking place during its policy period, there was no cover for claims/lawsuit against the manufacturer as a result of prior, unknown occurrences.

So, three months into the occurrence-based GL policy (March to March dates), the manufacturer received the lawsuit. Since the occurrence happened in September of the prior year, the occurrence-based carrier denied cover. The prior claims-based carrier also denied cover since the lawsuit was filed in June, after its policy expired. 

The Broker was found to be liable since there was nothing in writing evidencing the Broker ever advised the manufacturer to purchase an extended reporting period for the claims-made policy.

When transitioning from a claims-made policy to an occurrence-based policy, the client should be educated on the differences and the need for the client to purchase an extended reporting period. This will allow the client to report claims that arise from occurrences that do not fall within the policy period of the occurrence-based policy. There may be occurrences that have happened but that the client is unaware of, and where the injured party has not yet brought a law suit. Advising the client to buy a tail would have resolved the matter.     

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Does your staff know what your promotional material states?

While this may sound like common sense, it is amazing how often agency staff have no idea what the website and the promotional material say about the agency. At times, they also advise that they have seen it but seem to discount the messaging as “marketing fluff”.

When the agency’s marketing message is developed (or updated), some may believe the primary goal is to convey a message that your agency is the best and that you will do everything to ensure the client is properly protected. Statements such as “we will make sure that you are properly protected” or “we will assure you that there are no gaps in your coverage” are common. While these types of statements are common and have good intentions, they are potentially very dangerous. In reality, the agency cannot guarantee that the client will be properly protected since the agency can only suggest the coverage. It is up to the client whether they decide to purchase the coverage.

If a problem arises, the agency promotional material / website, etc. will be reviewed by the various attorneys to determine whether the agency has made any promises that they did not live up to. I was an Expert Witness in an E&O lawsuit where the agency included on their website a promise to annually update the property values to ensure that the values were accurate. When the risk (a manufacturer) suffered a fire loss, they were advised that they would be hit with an $800,000 co-insurance penalty because their values were significantly out of date. The unfulfilled promise of the website was not honored and resulted in a substantial judgment against the agency. In this matter, the producer was not even aware of the commitment he was supposed to honor.

Some lessons to be learned:

1) Don’t over-promise. This is a tough standard to honor. It might be better to “under-promise and over-deliver”.

2) When the marketing message is developed, ensure the staff is aware of how the agency is marketing themselves to the public. Procedures should be developed to ensure that the marketing message is fulfilled.

3)    The marketing message (website / promotional material) should be reviewed at least annually. If it is no longer accurate, change it.

Bottom line, your marketing message is more than just “marketing fluff”. It is the expectation that your customers are going to hold you to so make sure the staff that will be expected to fulfill that message know what the message is.

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Does your “new” client ever change their mind?

You got the order for the business, taking it away from one your competitors. You proceed to advise the applicable carriers that coverage is to be bound and binders are issued and delivered to the insured and the various mortgagees and loss payees. There is no doubt that you are feeling pretty good right now.

Three days later, an e-mail is received stating “after further thought, we have decided to stay with our current broker. They were able to match the premium”. Despite further attempts to secure the account, it is lost. The carriers are instructed that the coverage is not to be bound. Is that it? Is there anything further that needs to be done?

If a client decides they do not want the coverage after a binder has been issued, it is necessary that the binders be cancelled. To do this, the appropriate cancellation request/form should be sent to the applicable carriers, and notification of cancellation sent to other parties named on binder (mortgage and/or loss payee).

Without this type of notification, there is the potential that if a loss occurred, the insured or the mortgagee / loss payees could contend they thought that coverage was in place through your agency and through the carriers noted on the binder.


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Enhancing your E&O culture one person at a time

For many agencies, establishing or enhancing an E&O culture can be somewhat of a daunting task. Issues such as “where do I start” and “what should we do next” are common. Other issues such as “they know what their job is, why can’t they just do their job” might be part of the equation.

Hopefully every agency knows the importance of establishing or enhancing their E&O culture. In actuality, this is one of the most important initiatives an agency faces. I know of more than one agency that essentially went out of business because of a poor E&O culture. The agencies had multiple claims and were non-renewed more times that they care to remember. They either were then unable to get E&O or the price and conditions (such as the size of the deductible) were so prohibitive, they decided to close up shop.

To establish a strong E&O culture does not just happen. It takes a strong concerted effort with strong leadership. It also takes delivering the message to each and every person and then holding them accountable for their results. There is an expression I often use – “Agencies don’t make mistakes, people do”. Thus, it takes a strong staff with the necessary knowledge levels. However, this is only part of the formula. I have met many very solid agency staff that have the skill level but not the necessary E&O mindset. The mindset that will prompt them to do what is expected of them no matter what. For some reason, that is missing.

To get this message to each and every person, it may just take a sit down, one-on-one with each staff member to discuss with them their role and the importance of their performing based on expectations. If the agency does performance reviews, this might be a good time to have this discussion. All staff members, regardless of their role, need to understand how important they are in the establishment of a solid E&O culture. Every agency should have (and needs to have) staff members that “get it” and can be that “leader on the floor”. They are the staff that everyone clearly sees that they do the job and they do it the right way. Someone that is like “a field leader” to use a sports analogy. They should take a lead role in staff meetings when discussing the various E&O prevention topics.

There is another quote that I have used a few times in my day that “an agency’s E&O culture is only as strong as its weakest link”. The agency should periodically perform an assessment of their E&O culture and commitment and even consider a grade for each staff member. Those falling short should be identified and an action plan developed to address their areas of deficiency.

After all, a strong E&O culture starts “one person at a time”.

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