When an Errors & Omissions claim occurs, the file, for the most part, will heavily determine the direction the claim goes. The key for agents is to proactively take the initiative to implement various loss control measures that could impact the direction an E&O claim could go before it occurs.
In the vast majority of states, there is a duty for the client to read the policy and if they have any questions, they should contact the agency. A great initiative for an agent to implement is to include a cover letter when they send out the policy urging the insured to fully review the policy – including the declarations and endorsements – for accuracy and, to the extent the insured has any questions on policy contents, the policyholder should immediately contact the agency.
This letter should be general, such as:
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.
It is best to keep the cover letter general and not restate limits and coverages in it. The theory behind this is if you “recap” the limits and coverages in the cover letter, you are essentially telling your client he or she does not need to read the policy because you are telling them what’s in it.
If an agency personally delivers the policies, it is still suggested that a cover letter be included with the policies and brought to the attention of the party to whom you are delivering the policies.
The benefits to your agency are tremendous. It shows you want your customers to understand their coverage, and there may be situations where a customer asks for coverage modifications that result in a program that better suits their needs. It is obviously better to resolve these issues before a claim occurs.
There is no doubt that the direction of many E&O claims was significantly impacted by the cover letter sent by the agency.